Foreign Direct Investment International Moot Competition
22 October to 24 October 2010
TELEVATIVE INC.
Claimant
v.
THE GOVERNMENT OF THE REPUBLIC OF
BERISTAN
Respondent
Memorandum for Respondent
Respectfully Submitted,
Team Mo
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES…………………………………………………………...iv
TABLE OF LEGAL SOURCES……………………………………………………….vi
STATEMENT OF FACTS............................................................................................... 1
SUMMARY OF ARGUMENT………………………………………………………….2
ARGUMENT…………………………………………………………………………......3
PART ONE: JURISDICTION………………………………………………………….3
I. THE TRIBUNAL LACKS JURISDICTION OVER THIS DISPUTE…………….3
A. Claimants Arguments Are Barred as Contractual Claims ………………..4
1. Beristan Was Not a Signatory to the Sat-Connect Agreement, and
Therefore Cannot be Held Accountable for a Breach of That
Agreement………………………………………………………………...4
2. One of Televative’s Core Contract Claims Should not be Elevated
to International Law Because it Lacks Direct Ties to the
Investment………………………………………………………………..6
3. Beristan’s Invocation of the Essential Security Clause Forecloses
Televative from Bringing Any Claim Under the BIT, Even One
Arising from Under an Umbrella Clause………………………………7
B. Even if Claimant’s Contractual Claims Fall Under the BIT, They Are
Neither Tenable nor Persuasive………………………………………………....8
1. Respondent Attempted to Purchase shares from Claimant…...........8
2. The Burden of Proof is on Claimant, and Claimant has Provided no
Evidence of Breach……………………………………………………....9
3. No Authority Prohibits Respondent from Relying on Self-Help to
Cure a Contractual Breach ……………………………………………..9
C. Beritech’s Actions Cannot be Attributed to Beristan……………………..10
1. Beristan is not Responsible for the Conduct of Beritech Under the
BIT……………………………………………………………………….10
2. Beristan is not Responsible for the Conduct of Beritech Under
Customary International Law…………………………………………11
a. Beritech is not an Organ of the Republic of Beristan
ii
b. Beritech Does not Exercise Elements of Government Authority
c. Beritech is not Directed Or Controlled by Beristan
D. This Tribunal Should Invoke Lis Pendens to Either Deny Jurisdiction or
Stay Proceedings, Pending a Domestic Determination…………………….....15
1. Identity of Parties………………………………………………….....16
2. Identity of Causes of Action ………………………………………...16
3. Identity of Remedies ………………………………………………...17
E. This Tribunal Should Estop Claimant ………………………………….....17
1. Beristan Reasonably Relied on Clause 17………………………......17
2. There was No Clear Indication that Clause 17 No Longer
Applied………………………………………………………………......19
3. As a Matter of Comity, this Tribunal Should Stay its Proceedings
Pending Resolution in the Beristan Tribunal………………………....19
F. The ICSID Tribunal May Not Exercise Jurisdiction Because Claimant
Failed to Exhaust Local Remedies ……………………………………………20
1. Claimant was Procedurally Required to Exhaust Local
Remedies………………………………………………………………...20
2. Claimant was Substantively Required to Exhaust Local
Remedies………………………………………………………………...21
G. Claimant Failed to Wait the Prescribed Period Under the BIT, Which is
Grounds to Deny Jurisdiction to this Tribunal ………………………………23
1. Claimant’s Failure to Observe the Relevant Waiting Period is
Grounds to Deny this Tribunal Jurisdiction………………………….23
PART TWO: MERITS OF THE CLAIM
I. RESPONDENT PROPERLY INVOKED ARTICLE 9.2 OF THE BIT TO
PROTECT ITS ESSENTIAL SECURITY ………………………………………….25
A. Claimant Breached Article 4.1 of the JVA by Disclosing Confidential
Information …………………………………………………………………….26
B. Article 9.1 of the BIT is Self-Judging, and this Tribunal Should Not……27
Evaluate Substantive Decision to Invoke it
iii
C. Because There was No Breach of the BIT, the Question of Whether There
has been a Violation of the Customary International Law for Necessity Need
Not be Reached……………………………………………………………30
D. Even if Article 9.1 of the BIT is Non-Self-Judging, if the Tribunal Applies
the Customary International Law Standard of Necessity to Determine
Whether Respondent was Justified in Invoking Article 9.1, it Should Find
that Respondent was Justified in so Doing ….………………………………..31
1. There is Grave and Imminent Peril.………………………………..33
2. There is no Damage to the Interest of Another State..…………….33
3. Respondent’s Action was the Only Way to Protect the State’s
Interest.………………………………………………………………….34
II. RESPONDENT UPEHLD ITS DUTY TO PROVIDE FAIR AND EQUITABLE
TREATMENT.…………………………………………………………………………35
III. RESPONDENT PROVIDED CLAIMANT WITH FULL PROTECTION AND
SECURITY ……………………………………………………………………………..38
IV. BERISTAN DID NOT ILLEGALLY EXPROPRAITE TELEVATIVE’S
INVESTMENT………………………………………………………………………….39
A. Beristan did not Expropriate Claimant’s Investment Because the
Deprivation of Claimant’s Investment was not Irreversible…………………39
B. The Compensation Furnished to Claimant was Sufficient ……………….40
CONCLUSION................................................................................................................40
RELIEF REQUESTED.………………………………………………………………..40
iv
LIST OF AUTHORITIES
1. Amco Asia Corporation and others v. Republic of Indonesia (ICSID Case No.
ARB/81/1), Award of 20 November 1984, 1 ICSID Rep. 413 (1993)
2. Azurix Corp v Argentina, Award, ICSID Case No ARB/01/12; IIC 24 (2006)
3. Biwater Gauff (Tanzania) Ltd v Tanzania, Award and Separate Opinion, ICSID Case
No ARB/05/22; IIC 330 (2008)
4. Burlington Resources Inc v Ecuador, Decision on Jurisdiction, ICSID Case No
ARB/08/5; IIC 436 (2010)
5. Case Concerning the Application of the Convention on the Prevention and
Punnishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and
Montenegro), Judgment of 26 Feb. 2007.
6. Compañiá de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic,
ICSID Case No. ARB/97/3 (2002)
7. CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES BETWEEN STATES AND
NATIONALS OF OTHER STATES (ICSID Convention 1965)
8. Desert Line Projects LLC v. Yemen, ICSID Case No. ARB/05/17 (Oman/Yemen BIT)
9. Duke Energy International Peru Investments No 1, Ltd v Peru, Award and Partial
Dissenting Opinions; ICSID Case No ARB/03/28; IIC 334 (2008)
10. El Paso Energy International Co v Argentina, Decision on Jurisdiction, ICSID Case
No ARB/03/15; IIC 83 (2006)
11. Elettronica Sicula SpA (ELSI), United States v Italy, Judgment, Merits, ICJ GL No
76, 28 ILM 1109, 20th July 1989
12. Enron Corporation and Ponderosa Assets LP v Argentina, Decision on Jurisdiction
(Ancillary Claim), ICSID Case No ARB/01/3, IIC 93 (2004)
13. Eureko B.V. v. Poland, Partial Award, 19 August 2005, 12 ICSID Reports 335
14. Feldman Karpa v Mexico, Award and separate opinion, ICSID Case No
ARB(AF)/99/1; IIC 157 (2002); (2003) 18 ICSID Rev—FILJ 488; (2003) 42 ILM
625
15. Generation Ukraine, Inc v Ukraine, Award, ICSID Case No ARB/00/9; IIC 116
(2003)
v
16. Glamis Gold Ltd v United States, Award, Ad hoc—UNCITRAL Arbitration Rules;
IIC 380 (2009)
17. Impregilo SpA v Pakistan, Decision on Jurisdiction, ICSID Case No ARB/03/3; IIC
133 (2005)
18. International Law Commission, Articles on Responsibility of States for
Internationally Wrongful Acts, Yearbook of the International Law Commission,
2001, vol. II (Part Two) (2001)
19. International Thunderbird Gaming Corporation v Mexico, Award, Ad hoc—
UNCITRAL Arbitration Rules, IIC 136 (2006)
20. LFH Neer and Pauline Neer (USA) v. United Mexican States (1926), 4 RIAA 60
21. Loewen Group Inc and Loewen v United States, Award, ICSID Case No
ARB(AF)/98/3, IIC 254 (2003)
22. Merrill & Ring Forestry LP v Canada, Award, Ad hoc—UNCITRAL Arbitration
Rules; IIC 427 (2010)
23. Noble Ventures Inc v Romania, Award, ICSID Case No ARB/01/11; IIC 179 (2005)
24. Occidental Exploration and Production Co v Ecuador, Judgment, (2005) EWHC 774
(Comm); IIC 279 (2005)
25. PSEG Global Inc and Konya Ilgin Elektrik Üretim ve Ticaret Ltd Širketi v Turkey,
Award and Annex, ICSID Case No ARB/02/5; IIC 198 (2007)
26. Saipem SpA v Bangladesh, Decision on jurisdiction and recommendation on
provisional measures, ICSID Case No ARB/05/07; IIC 280 (2007)
27. Sempra Energy International v Argentina, Decision on Argentina‘s Application for
Annulment of the Award, ICSID Case No ARB/02/16; IIC 438 (2010)
28. SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID
Case No. ARB/01/13 (Swiss Confederation/Pakistan BIT)
29. Siemens AG v Argentina, Decision on Jurisdiction, ICSID Case No ARB/02/8, IIC
226 (2004)
30. Waste Management Inc v Mexico, Award, ICSID Case No ARB(AF)/00/3; IIC 270
(2004)
vi
LIST OF SOURCES
1. TAIDA BEGIC, APPLICABLE LAW IN INTERNATIONAL INVESTMENT DISPUTES (Eleven
International Publishing 2005)
2. IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW (6th ed. 2003)
3. William Burke-White, The Argentine Financial Crisis: State Liability under BITs and
the Legitimacy of the ICSID System, 3 Asian Journal of WTO & International Health
Law and Policy 1999 (2008).
4. CHRISTOPHER DUGAN, NOAH D. RUBINS, DON WALLACE & BORZU SABAHI,
INVESTOR-STATE ARBITRATION (Oxford University Press 2008)
5. Robin F. Hansen, Parallel Proceedings in Investor-State Treaty Arbitration:
Responses for Treaty Drafters, Arbitrators and Parties, 73 THE MODERN LAW
REVIEW 528 (2010)
6. Kaj Hober, State Responsibility and Attribution, in P. MUCHLINKSI ET AL., EDS., THE
OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW 550 (2008)
7. Filip de Ly & Audley Sheppard, ILA Final Report on Lis Pendens and Arbitration, 1
ARBITRATION INTERNATIONAL 3 (2009)
8. MONIQUE SASSON, SUBSTANTIVE LAW IN INVESTMENT TREATY ARBITRATION: THE
UNSETTLED RELATIONSHIP BETWEEN INTERNATIONAL LAW AND MUNICIPAL LAW
(Wolters Kluwer 2010)
9. Christoph Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses
and Forks in the Road, 5 JOURNAL OF WORLD INVESTMENT & TRADE (2004)
10. The Protection of National Security in IIAs by UNCTAD. UNCTAD Series on
International Investment Policies for Development in Transnational Dispute
Management (TDM). Vol. 7, Issue 1, ISSN 1875-4120
11. Treaty between the United States of America and the Argentine Republic Concerning
the Reciprocal Encouragement and Protection of Investment S Treaty Doc No 103-2
(1993) (Date signed: 14th November 1991)
12. Treaty between the United States of America and the Argentine Republic Concerning
the Reciprocal Encouragement and Protection of Investment S Treaty Doc No 103-2
(1993) (Date signed: 14th November 1991)
13. Model Treaty Between the United States and [Country] Concerning the
Encouragement and Reciprocal Protection of Investment, November 2004
1
STATEMENT OF FACTS
1. On 18 October 2007, Televative, Inc. (Claimant), a privately held Opulentian
company, entered into a joint-venture agreement (―JVA‖) with Beritech S.A., a company
owned by Beristan (Respondent), to establish the joint-venture company, Sat-Connect
S.A. Sat-Connect was established for the purpose of developing and deploying a satellite
network for the Euphonian continent, which includes both Opulentia and Beritech.
2. The JVA defined a material breach to include unauthorized disclosure of any matter
related to the agreement not otherwise authorized by law or already properly within the
public domain. Clause 8 of the JVA entitled Beritech to purchase all of Televative‘s
interest in the Sat-Connect project in the event that the latter committed a material
breach.
3. On 12 August 2009, The Beristan Times, an independent publication, quoted a highlyplaced
Beristan official warning that the Sat-Connect project had been compromised due
to leaks by Televative personnel. Rumors in military circles also indicated that
Televative personnel had compromised the Sate-Connect project‘s confidentiality.1
4. On 21 August 2009, the Sat-Connect board of directors convened so that its chair
could discuss the 12 August article in The Beristan Times. The board met again on 27
August, and while all of Sat-Connect‘s board members were made aware of the meeting
in advance,2
several of Televative representatives, cognizant that the board would likely
discuss Clause 8 of the JVA, decided to avoid the meeting in order to deprive its
participants of reaching a quorum of six.3
Nevertheless, one of Televative‘s board
members, Alice Sharpeton, did attend the meeting, enabling the board to proceed. It first
approved the buyout under Clause 8, and then voted to suspend Televative‘s shares in the
1 Clarification 231
2 Clarification 208
3 Clarification 208
2
Sat-Connect joint venture.4
The following day Beritech served notice on Televative,
requiring it to hand over possession of the Sat-Connect facilities and remove its personnel
within 14 days.
5. Fourteen days later, on 11 September 2009, civil engineer staff from Beristan‘s Civil
Works Force escorted Televative personnel from the Sat-Connect premises. None of
Televative‘s personnel at any point feared for their safety or well-being.5
6. On 19 October 2009, Beritech filed a request for arbitration against Televative under
Clause 17 of the JVA, which requires that any dispute arising out of or relating to the
agreement be resolved exclusively through arbitration in accordance with the laws of
Beristan. Ignoring this request as well as the terms of the JVA, Televative requested
ICSID arbitration on 28 October 2009.
SUMMARY OF ARGUMENT
JURISDICTION: This Tribunal lacks jurisdiction over the present dispute. First,
Claimant‘s arguments are barred as contractual claims under the Umbrella Clause
because Beristan was not a signatory to the Sat-Connect agreement, and therefore cannot
be held accountable for a breach of that agreement; one of Televative‘s core contract
claims should not be elevated to international law because it lacks direct ties to the
investment; and Beristan‘s invocation of the essential security clause forecloses
Televative from bringing any claim under the BIT, even one arising under an umbrella
clause. Second, even if Claimant‘s contractual claims fall under the BIT, they are neither
tenable nor persuasive because Respondent did, in fact, attempt to purchase shares from
Claimant; the burden of proof is on Claimant to show that no breach occurred, and yet
Claimant has presented no such evidence; and no authority prohibits Respondent from
relying on self-help to cure a contractual breach. Third, Beritech‘s actions cannot be
attributed to Beristan under the BIT nor under customary international law because
because Beritech is not an organ of the State; Beritech is not empowered by the law of
4 Clarification 138
5 Clarification 248
3
Beristan to exercise elements of governmental authority; and Beritech was not acting on
the instructions of or under the direction or control of the State. Fourth, the Tribunal
should invoke lis pendens because identity of parties, identity of causes of action, and
indentity of remedies is present between the present case and the case before the Beristan
Tribunal. Fifth, the Tribunal should estop Claimant from bringing its claims, because
Beristan reasonably relied on Clause 17 of the JVA; there was no clear indication that
Clause 17 no longer applied; and as a matter of comity, this Tribunal should stay its
proceedings pending resolution in the Beristan Tribunal. Sixth, Claimant failed to
exhaust local remedies prior to bringing these claims both procedurally and substantively.
Finally, Claimant failed to wait the required amount of time prior to bringing its claims
under the BIT.
MERITS OF THE CLAIM: This Tribunal should find for Respondent on the merits of
the dispute. First, Claimant breached Article 4.1 of the JVA by disclosing confidential
information, or by acting in such a way that caused Respondent to believe that its
essential security was threatened. Second, because Respondent believed its essential
security to be at risk, Respondent was justified in invoking Article 9.1 of the BIT. This
Article is self-judging and both elements of a good faith test are met. Third, because there
was no breach of the BIT, the Tribunal need not reach the question of whether the breach
was excused by the customary international law doctrine of necessity. Finally, even if the
Tribunal were to rule that the clause is non-self-judging, Respondent was justified in its
actions under the customary international law doctrine of necessity because there grave
and imminent danger to national security; no harm was done to the interest of another
state; and this was the only way to protect the interest in danger.
ARGUMENT
PART ONE: JURISDICTION
I. THE TRIBUNAL LACKS JURISDICTION OVER THIS DISPUTE
7. The Tribunal lacks jurisdiction over the dispute because (A) Claimant‘s arguments are
barred as contractual claims under the Umbrella Clause, (B) even if Claimant‘s
contractual claims fall under the BIT, they are neither tenable nor persuasive, and (C)
4
because Beritech‘s actions cannot be attributed to Beristan. The Tribunal should (D)
invoke lis pendens or (E) estop Claimant from bringing its claims, because Claimant (F)
failed to exhaust local remedies prior to bringing these claims and (G) failed to wait the
required amount of time prior to bringing its claims under the BIT.
(A) Claimants Arguments are Barred As Contractual Claims
8. Article 10 cannot elevate Televative‘s contract claims to treaty claims because (1)
Beristan was not a signatory to the Sat-Connect agreement, and therefore cannot be held
accountable for a breach of that agreement, (2) one of Televative‘s core contract claims
should not be elevated to international law because it lacks direct ties to the investment,
and (3) Beristan‘s invocation of the essential security clause forecloses Televative from
bringing any claim under the BIT, even one arising under an umbrella clause.
1. Beristan Was Not a Signatory to the Sat-Connect Agreement, and
Therefore Cannot be Held Accountable for a Breach of That Agreement
9. Beristan‘s absence from the Sat-Connect agreement precludes an assignment of
liability for the alleged breach by Beritech. This reasoning was relied upon in Impreglio
v. Pakistan and can serve as persuasive authority because its facts are similar to those in
the present dispute. The dispute in Impreglio arose out of a joint-venture arrangement
between Impreglio, an Italian investor, and the Pakistani Water and Power Development
Authority (WAPDA). Impreglio argued that the actions of WAPDA were attributable to
Pakistan, and therefore that Pakistan violated the BIT by breaching the joint-venture
agreement.6
While the tribunal agreed with Impreglio that WAPDA‘s actions were, in
fact, attributable to Pakistan,7
it disagreed that a finding of attribution necessarily resulted
in liability. Instead, the tribunal held that, because Pakistan was not party to the original
contract between Impreglio and WAPDA, it could not be found liable for any breach.8
6 Id. at ¶ 190
7 Id. at ¶ 209
8 Id. at ¶ 210
5
10. Similarly, in the present case, Beristan was not party to the joint-venture agreement
between Televative and Beritech, and should therefore not be held accountable for any
breach found on Beritech‘s part— even should this Tribunal find Beritech‘s conduct to be
attributable to Beristan. While Televative submits that Beristan‘s status as guarantor to
Beritech necessarily results in it being party to the joint-venture agreement, this position
conflates a financial guarantee with status as a signatory. Further, it fails to acknowledge
the conditional nature of the guarantee on Beritech‘s default;9
an unsatisfied condition
precedent which, having not been met, renders Beristan no more liable than had it not
provided a fiduciary guarantee in the first place. The analogous facts and sound
reasoning of Impreglio provide this Tribunal useful guidance in assessing the viability of
Televative‘s umbrella clause claim.
11. Televative contends that jurisprudence contrary to Impreglio exists, thereby depriving
it of its persuasive authority. While it is true that tribunals have diverged on whether a
State can be held liable for a contract to which it is not party, contrary jurisprudence
tends to place considerable weight on the strength of attribution between a contracting
party and its state.10
In one such decision, Noble Ventures v. Romania, the tribunal faced
a set of facts meaningfully different than those here. There, the agency responsible for
expropriation had been empowered to exercise governmental authority such that the
tribunal found it to represent the state ―in all of [its] actions and omissions.‖11
In
contrast, the relationship between Beritech and Beristan is tenuous at best, and even
should some degree of attribution be found it does not rise to such a level that Beritech
could be described to represent Beristan in all of its actions, whether authorized or not.
12. Noble Ventures is also apt because its tribunal accepted that traditionally contract
claims fall within the domestic jurisdiction of the Contracting State, and that an umbrella
clause creates a legal exception to a valid principle of international law. Therefore, as
9 Clarification 152
10 Kaj Hober, STATE RESPONSIBILITY AND ATTRIBUTION, at 578-579.
11 Noble Ventures v. Romania, at ¶ 80 (emphasis added).
6
decided by the ELSI case,12
the tribunal concluded that such a clause has to be interpreted
strictly or at least restrictively.13
2. One of Televative’s Core Contract Claims Should not be Elevated to
International Law Because it Lacks Direct Ties to the Investment
13. One of Televative‘s core contract claims should not be advanced to international law
because it lacks direct ties to the investment. This reasoning is expanded upon in El Paso
International Company v. Argentina, whose tribunal narrowly interpreted the umbrella
clause in Article II(2)(c) of the Argentina-United States BIT, which reads: ―[e]ach Party
shall observe any obligation it may have entered into with regard to investments.‖14
Criticizing the decision of SGS v. Philippines, the El Paso tribunal argued that elevating
all contractual claims to the international level will deprive the entire BIT of its
significance. In such a situation, the violation of any legal obligation of a State (and not
only the violation of a contractual obligation with respect to investment) would become a
violation of the Treaty irrespective of its source and gravity. If the violation of any
contractual obligation ipso facto becomes a violation of the Treaty, then substantive
protections like ―Fair and Equitable Treatment‖ and ―Full Protection and Security‖ would
lose their meaning and value.15
14. The El Paso tribunal went on to distinguish between the role of the State as a
sovereign and the State as a merchant. Relying on the decision of Vivendi II,16
it held
that only where contract claims arise out of an investment agreement stricto sensu where
the State is acting as a sovereign, should international recourse be available.17
All other
contracts signed with the State or one of its entities will be deprived of this special
protection. In this the tribunal draws support from Article 24(1)(a) of the 2004 US Model
12 Elettronica Secula Spa-ELSI-United States v. Italy (1989) ICJ 15, at 42.
13 Noble Ventures, at ¶ 53.
14 Article II(2)(c) of the Argentina-United States BIT
15 El Paso v. Argentina, at ¶¶ 75-76
16 Vivendi Universal v. Argentine Republic, Decision on Annulment of 3 July 2002, ILM,
Vol. 41, 2002, at 1135, ¶ 96, quoted in El Paso, supra n. 10 at ¶ 79
17 El Paso, at ¶ 79
7
BIT, which restricts the scope of what kinds of contract claims can be asserted against a
Contracting State to a substantive protection, an investment authorization or an
investment agreement.18
The tribunal held that allowing even the most minor contractual
claims to become treaty claims has its own dangers, and that the investors are not likely
to show any restraint in bringing before the ICSID even the most trivial disputes, after
being allowed such a remedy. In other words, the tribunal argued, the national and
international legal order would completely break down.
15. When applying the El Paso tribunal‘s reasoning in the present dispute, the viability of
Televative‘s claim—that it was guaranteed due process before the buy-out—becomes
suspect. As is noted below, there is neither a contractual nor a domestically-based legal
guarantee that Beritech had to complete some kind of judicial or arbitral proceeding
before initiating the buy-out. While Televative may argue that its claim is nevertheless
related to the investment in a general sense, this abstraction is insufficient to meet the
standard championed by the El Paso tribunal, whose analysis was based on the text of its
BIT and the accompanying investment agreement—both of which, in the present case, do
not support Televative‘s claim.
3. Beristan’s Invocation of the Essential Security Clause Forecloses
Televative from Bringing Any Claim Under the BIT, Even One Arising from
Under an Umbrella Clause
16. Third, Beristan‘s invocation of the essential security clause in Article 9 of the
Opulentia-Beristan BIT forecloses any claim arising under it, even one introduced under
the umbrella clause. The text of Article 9 is clear, stating that ―nothing in [the BIT] shall
be construed … to preclude a Party from applying measures that it considers necessary
for the fulfillment of its obligations,‖19
with no mention of an exception to the rule. The
persuasiveness of this position, of course, rests on whether this Tribunal considers proper
Beristan‘s invocation of Article 9, an issue addressed in more detail later this memorial.
18 Article 24(1)(a), 2004 US Model BIT
19 Article 9, BIT (emphasis added)
8
(B) Even if Claimant’s Contractual Claims Fall Under the BIT, They Are Neither
Tenable nor Persuasive
17. Televative‘s contract claims, should they be found to fall within the aegis of the BIT,
are neither tenable nor persuasive. As is demonstrated below, there are three specific
claims advanced by Televative, each with its own factual and legal deficiencies: (1)
Respondent did, in fact, attempt to purchase shares from Claimant, (2) the burden of
proof is on Claimant to show that no breach occurred, and yet Claimant has presented no
such evidence, and (3) no authority prohibits Respondent from relying on self-help to
cure a contractual breach.
18. Before assessing the contract claims in question, however, the applicable law must
first be established. Unlike the sources of law which should guide this Tribunal in
evaluating the substantive protections afforded by other Articles of the BIT, an umbrella
clause is evaluated based on the law selected in the contract in question—in this case, the
law of Beristan. 20
Further, while the record provides little insight into the specific
provisions of the relevant laws and regulations, it does indicate that the UNIDROIT
principles of contract law are incorporated within Beristan law.21
These principles,
addressed in detail below, provide the tribunal a crucial standard on which it may
conclude that Beristan complied with its own law.
1. Respondent Attempted to Purchase shares from Claimant
19. Claimant argues that Beritech failed to comply with Clause 8 of the Sat-Connect
agreement by not purchasing from Televative its shares, valued as its paid-in investment
at the time. The record, however, suggests otherwise, stating that the funds were made
―available‖ to Televative, who turned them down.22
And though it is somewhat
20 Taida Begie, Applicable Law in International Investment Disputes (2005); see also
Monique Sasson, Substantive Law in Investment Treaty Arbitration: The Unsettled
Relationship Between International and Municipal Law (2010), at 154, 164.
21 Clarification 136
22 Record ¶13, p. 18.
9
ambiguous as to whether their availability was contingent on Televative‘s response to the
domestic arbitration proceedings, the context of the passage indicates that Televative
turned down readily available funds:
20. Beritech has paid US$47 million into an escrow account, which has been
made available for Televative and is being held pending the decision in this
arbitration. Televative has refused to accept this payment and has refused to
respond to Beritech‘s arbitration request.23
21. Since Televative refused $47 million in available funds, the record supports
Beristan‘s position that it satisfied the requirements of Clause 8. Given the lack of
convincing evidence to the contrary, and that Televative carries the burden of proof in
asserting this claim, this Tribunal should find in favor of Beristan.
2. The Burden of Proof is on Claimant, and Claimant has Provided no
Evidence of Breach
22. Claimant submits that Beritech materially breached the Sat-Connect agreement
because it improperly bought out Televative‘s interest in the project. At its core,
Televative‘s argument is a factual one: that it did not unlawfully disclose information on
Sat-Connect to a third party. But Televative‘s narrow focus on the facts betrays an
ignorance of which party has the burden of proof—the party making the claim.. This is
problematic for Televative, as the record lacks a single objective iota of evidence that
supports Televative‘s claim that it did not unlawfully disclose information on SatConnect.
Ironically, this lack of evidence is demonstrative of the relative value of the
domestic arbitration proceedings, whose tribunal is likely empowered by domestic law
with more authority to require discovery and crucial evidentiary documents than this one.
Yet Televative inexplicably continues to shun and ignore the domestic proceedings.
3. No Authority Prohibits Respondent from Relying on Self-Help to Cure a
Contractual Breach
23 Record, ¶13, p. 18.
10
23. Claimant argues that the UNIDROIT principles, which are incorporated into
Beristan‘s legal system, disallow Beritech‘s actions because Beritech did not first initiate
a legal proceeding to rule on the merits of the buy-out. This claim, however, mistakes
silence for consent. The UNIDROIT principles do not in any way expressly or implicitly
forbid reliance on self-help as a basis to cure a fundamental breach. Televative argues to
the contrary because the principles do identify possible use of self-help in certain, limited
situations, not including ones in which an aggrieved party takes steps to purchase
property as made possible by a legally-binding contract. This point, however, appears to
assume that the UNIDROIT commentary is capable of envisaging every possible
contractual dispute and, even more, speaking to whether self-help is permitted, a task
well beyond the mandate of the UNIDROIT committee.As Televative lacks a meritorious
basis on which to assert a violation of the umbrella clause, its claim that Beristan
breached Article 10 of the Opulentia-Beristan BIT should be dismissed.
(C) Beritech’s Actions Cannot be Attributed to Beristan
24. The Tribunal lacks jurisdiction to hear this dispute because Article 25 of the ICSID
Convention expressly limits jurisdiction to legal disputes ―between a Contracting State . .
. and a national of another Contracting State.‖24
Claimant‘s plea for relief arises out of a
contractual dispute with Beritech, a private company, and not out of an international
dispute with the Republic of Beristan. Beristan is not responsible for the conduct of
Beritech and the Tribunal therefore lacks jurisdiction over this dispute.
1. Beristan is Not Responsible for the Conduct of Beritech Under the BIT
25. Beristan is not internationally responsible for alleged misconduct of Beritech because
Beritech‘s actions are not attributable to Beristan under international law.25
The BeristanOpulentia
Bilateral Investment Treaty does not contain any provision on State attribution
24
ICSID Convention, art. 25(1).
25
See ILC Articles, art. 2 (―There is an internationally wrongful act of a State when
conduct consisting of an action or omission: (a) is attributable to the State under
international law; and (b) constitutes a breach of an international obligation of the State.‖)
11
that would displace customary international rules on attribution.26
Therefore, the
customary international law on attribution is the only means by which Claimant can
assert that Beristan is responsible for the actions of Beritech.
2. Beristan is not Responsible for the Conduct of Beritech Under Customary
International Law
26. The leading reflection on the law of attribution in customary international law is the
International Law Commission‘s Draft Articles on Responsibility of States for
Internationally Wrongful Acts (hereinafter ―ILC Articles‖).27
27. The provisions of the ILC Articles that set out the guidelines for attribution are
animated by the principle that state responsibility is limited to ―conduct which engages
the State as an organization.‖28
The ILC Articles expressly avoid attributing to the State
the conduct of ―all human beings, corporations, or collectivities linked to the State by
nationality.‖29
Because Beritech is a private company, Claimant may not seek redress
against Beristan by virtue of Beritech‘s nationality.
28. Attribution is established if: (a) Beritech is an organ of the State, (b) Beritech is
empowered by the law of Beristan to exercise elements of governmental authority, or (c)
26
See ILC Articles, art. 55 (These articles do not apply where and to the extent that the
conditions for the existence of an internationally wrongful act or the content or
implementation of the international responsibility of a State are governed by special rules
of international law.‖); see also Sasson at 3 (―ILC Articles 4 and 5 on State
Responsibility have a ‗residual character‘. Under ILC Article 55, Articles 4 and 5 are
applied only in the absence of a lex specialis.‖).
27
See Kaj Hober, State Responsibility and Attribution, in P. Muchlinksi et al., eds., THE
OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW 550 (2008) (―It is generally
accepted that the rules on state responsibility form part of customary international law.
The law of state responsibility is, to a large part, reflected in the work of the International
Law Commission (ILC) of the United Nations. . . . Commentators seem to agree that this
is currently the most authoritative document on the law of state responsibility.‖).
28
ILC Articles, ch. II ¶ 2.
29
Ibid.
12
Beritech was acting on the instructions of or under the direction or control of the State.30
The facts of this case support none of the three foregoing bases of attribution.
a. Beritech is not an Organ of the Republic of Beristan
29. Beritech is not an organ of the Republic of Beristan and its actions are therefore not
attributable to Beristan. Article 4 of the ILC Articles provides that:
(1) The conduct of any State organ shall be considered an act of that State under
international law, whether the organ exercises legislative, executive, judicial or
any other functions, whatever position it holds in the organization of the State,
and whatever its character as an organ of the central Government or of a territorial
unit of the State.
(2) An organ includes any person or entity which has that status in accordance
with the internal law of the State.31
30. Under Beristan law, Beritech is a private company and is not an organ of the State
based on Beristan law.32
Article 4(2) emphasizes the primacy of municipal law in
determining whether or not an entity is an organ of the State.33
Beritech is a private
telecommunications provider and under Beristan law is not an organ of the State.
31. Even if the Tribunal should overlook the clear language of Article 4(2) of the ILC
Articles and look beyond Beristan municipal law in determining whether or not Beritech
is an organ of the State, Claimants are unable to make the exceptional findings necessary
to demonstrate that Beritech is an organ of the State. In the Genocide case, the ICJ held
that if an entity is not a de jure organ of the State, a finding that an entity is a de facto
30
See generally ILC Articles, arts. 4, 5, and 8.
31
ILC Articles, art. 4
32
See Record at 16 (―the Government of Beristan established a state-owned company,
Beritech S.A., in March 2007.‖); see also Clarification 161 (―Beritech is a
telecommunications services provider in Beristan.‖).
33
See Eureko v. Poland, Dissenting Opinion of Prof. Jerzy Rajski, ¶ 8 (―It is beyond any
doubt that the State Treasury as an autonomous juridical person being a subject of civil–
and commercial law relationships is not an organ of the State — even in the widest
possible meaning of the word. It also follows from the very nature of this specific
juridical person created by law that it cannot be authorized to exercise any public or
regulatory functions.‖).
13
organ ―requires proof of a particularly great degree of State control over them, a
relationship which the Court‘s Judgment quoted above expressly described as complete
dependence.‖34
32. The Record in this case does not offer any evidence to suggest that Beristan exercised
control over Beritech that amounted to a relationship in which Beritech was completely
dependent on Beristan. Because Claimants are unable to make such a showing, and
because Beritech is not a State organ under municipal law, the Tribunal should find that
Beritech is not a State organ for the purposes of attribution.
b. Beritech Does Not Exercise Elements of Government Authority
33. The conduct of Beritech is not attributable to Beristan because nothing in the record
suggests that Beritech is empowered to, and in fact does, exercise elements of
governmental authority. Article 5 of the ILC Articles provides:
34. 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 circumstances.35
35. Article 5 clearly states the attribution can only be found under the article if it is
―empowered by the law of that State to exercise elements of governmental authority.‖
The Commentary to Article 5 explicitly declares that ―[t]he formulation of article 5
clearly limits it to entities which are empowered by internal law to exercise elements of
governmental authority.‖36
34 Case Concerning the Application of the Convention on the Prevention and Punishment
of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment
of 26 Feb. 2007, 140.
35 ILC Articles, art. 5.
36 Ibid. art. 5 ¶ 7.
14
36. Not only does the Record lack any evidence of domestic legislation that empowers
Beritech to act in a governmental capacity, but Beritech‘s activities are strictly
commercial. Beristan is a telecommunications service provider37
and as a partner in the
Sat-Connect project is in the business of providing ―connectivity and communications for
users . . . anywhere within the vast expanses of Euphonia.‖38
It is true that the Beristan
military will be a subscriber to the service, but the activity is primarily commercial in
nature and will serve both civilian and military purposes within and beyond the borders
of Beristan.
37. The absence of domestic legislation empowering Beritech to exercise elements of
governmental authority, coupled with the fact that Beritech‘s activities are commercial in
nature compel the conclusion that its actions are not attributable to Beristan under Article
5 of the ILC Articles.
c. Beritech is not Directed or Controlled by Beristan
38. There is no evidence in the Record to suggest that the actions of Beritech are
attributable to Beristan by virtue of Beristan directing of controlling Beritech. Article 8
provides:
The conduct of a person or group of persons shall be considered an act of a State
under international law if the person or group of persons is in fact acting on the
instructions of, or under the direction or control of, that State in carrying out the
conduct.39
39. The Commentary to Article 5 clearly states that:
[t]he fact that the State initially established a corporate entity, whether by a
special law or otherwise, is not a sufficient basis for the attribution to the State of
the subsequent conduct of that entity.40
40. In SEDCO, Inc. v. National Iranian Oil Company, the Iran-U.S. Claims Tribunal did
not attribute the seizure of property by a State-owned oil company to the State because
37 Clarification 161.
38 Record 16.
39 ILC Articles, art. 5.
40 Ibid. ¶ 6.
15
there was ―no proof that the State used its ownership interest as a vehicle for directing the
company to seize the property.‖41
41. As in SEDCO, there is no evidence in the Record to suggest that Beristan used its
ownership interest to direct Beritech in its activities. In the absence of such evidence, the
Tribunal should not find that the conduct of Beritech is attributable to Beristan under
Article 8 of the ILC Articles on State Responsibility.
42. Beritech is a private company that has a distinct legal personality from the Republic
of Beristan. Claimant has attempted to gain access to ICSID arbitration by reformulating
its contractual dispute with Beritech as an international dispute with Beristan. In order to
do so, Claimant must establish that the conduct of Beritech is attributable to Beristan
under customary international law. The Record is devoid of facts that could support such
a conclusion. Therefore, because Article 25 of the ICSID Convention limits jurisdiction
to disputes between States and nationals of another contracting State, the Tribunal should
not assert its jurisdiction over this dispute.
(D) This Tribunal Should Invoke Lis Pendens to Either Deny Jurisdiction or Stay
Proceedings, Pending a Domestic Determination
43. This Tribunal should determine that the parallel proceedings share (1) identities of
parties, (2) identity of causes of action, and (3) identity of relief. Tribunals have used the
―triple identity test‖42 in assessing whether parallel proceedings overlap in a manner that
may be wasteful of resources, susceptible to contradictory or duplicative awards, or
otherwise infringing on the legal rights of the parties.43 Tribunals take a flexible
approach and often will also consider whether parties or causes of action are substantially
similar such that lis pendens should apply. Here, the triple identity test is satisfied.
41 Ibid.
42 F. de Ly and A. Sheppard, ILA Final Report on Lis Pendens and Arbitration (2009); 1
Arbitration International 3, 32 (para 5.8) (ILA Final Report on Lis Pendens).
43
See Hansen, Robin F., PARALLEL PROCEEDINGS IN INVESTOR-STATE TREATY
ARBITRATION: RESPONSES FOR TREATY-DRAFTERS, ARBITRATORS AND PARTIES, The
Modern Law Review, Volume 73, July 2010, at 528-29.
16
1. Identity of Parties
44. Lis pendens requires that both domestic and international arbitration involve identical
parties or ―those of the same constructive identity.‖44 If the Tribunal determines that
Beritech‘s actions are attributable to Beristan, thereby making the government either
indirectly, or directly culpable, then the parties in both proceedings would satisfy this
prong.
45. In response, Claimant may argue that though actions are partially attributable to
Beristan, Beritech acted as a separate legal entity when becoming Claimant in domestic
proceedings, and is not even a party in this action. However, Tribunals have taken a less
formalistic approach to this, and have allowed
2. Identity of Causes of Action
46. Lis pendens likewise requires identical or substantially similar causes of action. 45 At
present both proceedings are adjudicating the rights of the same parties in terms of
economic interests arising from a JVA.
47. The JVA should be construed to encompass BIT-related claims because it covers
―any dispute arising out of or relating to‖ the Agreement. Such expansive language can
include all disputes touching on the contract, including claims under contract, tort,
statute, or treaty.46 In SGS v. Pakistan, the Tribunal evaluated similar language in a
contract but decided to split the claims, in essence deferring to domestic proceedings any
claims from contract that did not rise to treaty breaches. Of course, there was no
umbrella clause in that BIT.
48. The instant case is also distinguishable from SGS v. Pakistan, because there it was
clear that domestic courts could not enforce a BIT-related award because the BIT was not
ratified and the Supreme Court itself issued a statement to that effect, but here the BIT
44 Ibid. at 532
45 Supra at 1
46 SGS v. Pakistan, at ¶66 (footnotes omitted)
17
has been ratified by Beristan47 and the laws of Beristan incorporate a ―Takings Clause‖
which allow for remedies associated with a successful expropriation claim.48 These key
differences allow the domestic Tribunal to properly address both contract and treaty
claims arising from the dispute. Accordingly, the Tribunal should give deference to the
clearly stated intent of the contracting parties. To do otherwise would render moot all
contract dispute resolution clauses and give investors a backdoor by which to expand
protections beyond those explicitly contracted for.
3. Identity of Remedies
49. In both proceedings, Claimant would allege material breach of the contract, thereby
praying for relief amounting to its capital investment, intellectual property rights, and
damages including potential future profits.49 Whether Respondent or Beritech, the prayer
of relief will involve a declaratory judgment and monetary damages. Accordingly there
is identity of remedies.
50. Because there exists identity of parties, causes of action, and identities, parallel
proceedings would be duplicative and this tribunal should therefore exercise its discretion
and deny jurisdiction.
E. THIS TRIBUNAL SHOULD ESTOP CLAIMANT
51. Claimant should be estopped from pursuing ICSID arbitration because Clause 17‘s
reference to settle the dispute only by Beristan arbitration should prevent Claimant from
seeking redress elsewhere. , and because the elements of estoppel are satisfied: (1)
Beristan reasonably relied on Clause 17, (2) there was no clear indication that Clause 17
no longer applied, and (1) as a matter of comity, this Tribunal should stay its proceedings
pending resolution in the Beristan Tribunal.
1. Beristan Reasonably Relied on Clause 17
47 Clarification 144
48 Clarification 120
49 Clarification 197 (discussing Claimant‘s request for relief under ICSID arbitration)
18
52. The principle of estoppel protects parties when the other party takes action that is
inconsistent with its previous position and this previous position was relied upon. The
doctrine of estoppel is well established in national court systems and has been applied in
a variety of circumstances in international arbitration.50
Here, Beristan relied on
Claimant‘s position that any disputes would be brought to Beristan arbitration as stated
by Clause 17. Once a dispute did arise, Beristan deposited money in an escrow account
and instead of adhering to Clause 17, Claimant sought relief before an ICSID tribunal.
Allowing the claims to be estopped would prevent injustice because Claimant is
circumventing its obligation in Clause 17 to resolve the dispute through Beristan
arbitration.
53. Beristan reasonably relied on Clause 17. As the Tribunal in Duke v Peru emphasized,
estoppel need not involve any wrongful behavior but can be sufficiently met by conduct
that induces reliance as to the State‘s position.51
As the Tribunal held, the ―decisive
element for estoppel is the reasonable appearance‖ of an organ that is competent to make
certain representations.52
In Duke, the Tribunal held that one could reasonably have had
confidence in an organ‘s statements which lacked the competence to make them.53
Here,
however, Televative had the competence to sign a contract. Thus, when Televative signed
Clause 17 it gave the reasonable appearance that it would comply with it and forego
seeking resolution of the dispute through ICSID because the clause stated that redress
would only be sought in Beristan arbitral tribunals. It was reasonable for Beristan to
assume that a clause that says a dispute shall only be covered by Beristan law is in fact
only covered by Beristan law. Hence, the JVA induced reliance so that Beristan
reasonably expected that the dispute would be covered exclusively by Beristan law since
50 See, e.g. Language v Argentina (applied estoppel doctrine when Argentina did not
abide by its own legislation); Revere Cooper v OPIC (actions taken contrary to
assurances given in good faith allow the application of the estoppel doctrine)
51 Duke Energy International Peru Investments No 1, Ltd v Peru, Award and Partial
Dissenting Opinions: ICSID Case No ARB/03/28; IIC 334 (2008) (§245-7)
52 Id. at §247
53 Id.
19
Clause 17 explicitly stated such.
2. There was no Clear Indication that Clause 17 no Longer Applied
54. Claimant is estopped because there was a clear indication that the BIT provision did
not apply any longer. When a party represents that obligations are no longer treated as
extant, the doctrine of estoppel applies.54
In Desert Line v Yemen the Tribunal held that
the doctrine of estoppel served as a shield because there had been a clear and
unmistakable representation that obligations were no longer treated as extant.55
Similarly,
there was a clear and unmistakable representation in Clause 17 that there was no intent to
seek ICSID jurisdiction. Thus, the doctrine of estoppel should apply.
3. As a matter of comity, this Tribunal should stay its proceedings pending
resolution in the Beristan Tribunal
55. Further, when there is a conflict between two tribunals both having jurisdiction one of
them should refer to the other as a matter of comity. In SPP v Egypt the tribunal said that
in instances in which jurisdiction can be had by two unrelated and independent tribunals
the tribeunal should decide as a matter of comity to stay the exercise of its jurisdiction
and wait for the decision by the other tribunal. This is exactly what the tribunal in SPP v
Egypt proceeded to do. Similarly, since proceedings have been initiated in Beristan
arbitral tribunals, the ICSID tribunal should as a matter of comity also allow the Beristan
proceeding to go forward and not apply notions of estoppel.
56. Beristan meets the main elements to bring an estoppel claim. First, Claimant
unequivocally represented to Beristan that it was willing to submit any disputes to
Beristan arbitration by agreeing to Clause 17 of the JVA. Second, the common
assumption of the contractual provision was that it would be. Third, Beristan did in fact
rely on the clause because it immediately initiated proceedings before the Beristan
tribunal once the dispute arose.
54 Desert Line Projects LLC v Yemen, Award, ICSID Case No ARB05/17; IIC 319
(2008) (§224)
55 Id. at §224
20
F. The ICSID Tribunal May Not Exercise Jurisdiction Because Claimant Failed to
Exhaust Local Remedies
1. Claimant was Procedurally Required to Exhaust Local Remedies
57. The ICSID Tribunal does not have jurisdiction because Claimant should have sought
local remedies before resorting to an ICSID Tribunal. It is a longstanding custom of
international law that local remedies must be exhausted before redress is sought in an
international forum.
58. The ―unless otherwise stated‖ clause in Article 26 of the ICSID Convention was
purposefully inserted to give states the option to require prior exhaustion of local
remedies.56
Art. 11.1 of the Beristan-Opulentia BIT sets out three options that investors
may pursue: a) ―the Contracting Party‘s Court‖, b) ―an ad hoc Arbitration Tribunal, in
accordance with the Arbitration Rules of the UN Commission on International Trade
Law‖, or c) ―the International Centre for the Settlement of Investment Disputes, for the
application of the arbitration procedures provided by the Washington Convention of 18th
March 1965 on the Settlement of Investment Disputes between States and Nationals of
other States‖. The words of Clause 17 of the JVA state that ―the dispute shall then be
resolved only by arbitration‖ effectively constitute a choice for b) and not c) of Art. 11.1
of the BIT. The fact that Clause 17 states that the agreement should be governed only by
Beristan rules and provisions means that it should not be governed by ICSID rules and
provisions and therefore that the investor chose against 11.1 c). In effect, ICSID should
not have jurisdiction.
59. The existence of the word ―only‖ excludes the ICSID Tribunal from also having
jurisdiction because it signifies that the investor has chosen option b) and not option c).
Thus, Clause 17 of the JVA permits Claimant to seek remedies under UNCITRAL ad hoc
arbitration or Beristan courts and constitutes a contractual choice by the investor to
exclude ICSID jurisdiction. Thus, Clause 17 effectively means that Article 11.1 c) of the
BIT cannot apply and constitutes an election by the investor to seek remedies under
56 See Executive Report of the ILC
21
UNCITRAL law rather than in front of ICSID.
60. Such an interpretation of the BIT and JV Clause is sensible from a policy standpoint
in its encouragement of local tribunals. First, local tribunals will be more familiar with
Beristian laws. Second, it will avoid giving foreign investors an advantage over local
investors who are unable to use ICSID as a remedy. Third, the faith in domestic tribunals
through international approval will give them more clout.
2. Claimant was Substantively Required to Exhaust Local Remedies
61. Even if the local remedies requirement does not apply procedurally, Claimant still
had a substantive requirement to exhaust local remedies. Claimant could not have
suffered a recognizable injury without having at least made an attempt to seek redress in
front of Beristan arbitral tribunals. The facts do not indicate that Beristan lacked such a
procedure and there is no reason to believe that Claimant could not recover from an
administrative agency for the losses that occurred when the Beristan‘s Civil Works Force
stepped in.
62. In Loewen v. USA the tribunal held that Claimant had a substantive requirement to
exhaust remedies which were effective, adequate and reasonably available to the
complainant in the circumstances in which it was situated.57
As the tribunal held, ―the
complainant is bound to exhaust any remedy which is adequate and effective...so long as
the remedy is not ‗obviously futile‘‖.58
There is no evidence to support the fact that
Beristan‘s courts or agencies were inadequate or not reasonably available and Claimant
should have at least made the effort to take advantage of the possibility of obtaining
remedies through Beristan courts or agencies.
63. This approach of requiring a substantive exhaustion of local remedies has been
applied by other tribunals in a variety of contexts.59
In the NAFTA context it was applied
57 Loewen v. USA (AF), Award, 26 June 2003, para. 168
58 Loewen para. 164
59 See, e.g., Waste Management v. Mexico II (AF), Award, 30 April 2004, paras. 97, 116
22
in Feldman v. Mexico where the tribunal concluded that administrative remedies should
have been pursued by the claimant.60
The tribunal found that the investors had failed to
make use of available local remedies and should have at least sought an administrative
ruling. Although the tribunal eventually held that expropriation had not occurred, it still
indicated that the investors‘ substantive failure to exhaust local remedies deprived the
tribunal of jurisdiction. As the tribunal held, ―the Claimant would have been wise to seek
an administrative ruling...and court review‖ and that ―regardless of the result of the ruling
process the Claimant would have been better off.‖61
Thus, the tribunal indicated its
approval of a substantive exhaustion of a local remedies requirement. Similarly,
Televative should have also sought some administrative ruling of the alleged
unlawfulness of Beristan‘s actions.
64. This approach of requiring substantive exhaustion has been applied for expropriation
claims in front of ICSID tribunals. In Generation Ukraine v Ukraine the tribunal held that
the claimant should have at least attempted to pursue some form of local remedies before
complaining of indirect expropriation in front of an ICSID Tribunal. The Tribunal said
that claimant should have attempted to bring a claim before domestic courts and that ―a
reasonable—not necessarily exhaustive—effort by the investor to obtain correction‖
should have been undertaken.62
The tribunal thought it was impossible to determine
whether expropriation had actually occurred without the claimant seeking redress in a
local administrative court. Likewise, Televative should have at least attempted to pursue
compensation for its damages and given Beristan the chance to recompense Claimant for
any of its losses. If Beristan had a procedure by which any harm caused by the buyout
was compensated for, it would have been unnecessary to seek redress in an ICSID
Tribunal. After all, the idea behind local exhaustion is to provide the local national legal
system an opportunity to produce a legally acceptable result before the allegedly injured
party seeks recourse for breach of international law. Here, Beristan was never granted an
opportunity to remedy a situation in which it had to act upon an executive order.
60 Feldman v. Mexico, at §75
61 Feldman v. Mexico, at §134
62 Generation Ukraine v. Ukraine §20.30
23
G. Claimant Failed to Wait the Prescribed Period Under the BIT, Which is
Grounds to Deny Jurisdiction to this Tribunal
65. Despite Respondent‘s good faith effort to settle amicably under the JV, Claimant
prematurely initiated ICSID arbitration, in contravention of BIT Article 11(1).
66. Article 11(1) of the Opulentia-Beristan BIT permits arbitration only ―if the dispute
cannot be settled amicably within six months of the date of a written application.‖
67. On September 11, Beritech filed written request to settle amicably or alternatively to
initiate domestic arbitration pursuant to the JVA. Just one day later, on September 12,
Claimant filed similar notice under the Opulentia-Beristan BIT.
68. Claimant then made no effort to communicate with Respondent for over one month,
prompting Respondent to invoke arbitration proceedings on October 19, a full thirty eight
days after its initial request for amicable settlement.
69. Claimant erroneously asserts that Respondent‘s efforts were somehow evidence that
amicable settlement would be futile and therefore Claimant was correct in prematurely
requesting ICSID arbitration. But Claimant is essentially arguing that amicable
settlement provisions carry no force in the minds of this Tribunal.
70. Claimant fails because (1) Amicable waiting periods are jurisdictional in the absence
of clear showing of futility, and (2) Claimant flouted its obligation under the JVA.
1. Claimant’s Failure to Observe the Relevant Waiting Period is Grounds to
Deny this Tribunal Jurisdiction
71. Claimant‘s failure to observe the amicable settlement period should bar jurisdiction in
24
the absence of a clear showing of futility.63
Claimant advances no material evidence that
negotiations would have been futile, and this Tribunal should therefore deny itself
jurisdiction on the basis of that failing.
72. The Enron & Ponderosa Tribunal viewed the pertinent six-month negotiation period
as ―very much a jurisdictional one,‖ going on to say that ―a failure to comply with that
requirement would result in a determination of lack of jurisdiction.‖64
In fact, it is the
view of at least one prominent Swedish scholar that Tribunals ruling along the lines of
Ethyl only do so when presented with a clear showing that settlement would have been
futile.65
73. Rather than negotiate in good faith, Claimant summarily submitted its own notice for
settlement proceedings under the BIT,66
and flatly denied any wrongdoing. Many
Tribunals have held that some evidence of communication and lack of reciprocity is
evidence of futility,67
but here there is no such evidence and futility should not be
assumed.
74. By initiating ICSID arbitration, Claimant flouted its obligations under the JV Clause
17, which mandates that a party ―irrevocably submit‖ to the jurisdiction ―of the arbitral
tribunal constituted for any such dispute‖ and that any dispute shall then be resolved only
by arbitration‖ under the rules and provisions of the Arbitration Act of Beristan. Said
tribunal was constituted in Beristan, and as a matter of the application of good faith in
international law, Claimant should not be permitted to bypass what was agreed upon
under the JVA. To decide otherwise would render moot any such dispute resolution
clause, and would routinely create a means by which investors could ―forum shop.‖
63 See Burlington v. Ecuador, at ¶314
64 Enron & Ponderosa, at ¶88
65 Schreuer, Traveling the BIT Route, at 238
66 Clarification 133
67 Azurik, at ¶55, Tradex, at ¶69
25
75. Moreover, Beritech acted in a manner befitting the situation, where waiting an
inordinate period of time would simply increase risk and uncertainty for both parties
without any discernable benefit. Parties routinely continue deliberations throughout the
arbitration process, and so there is no colorable claim that initiating arbitration closed the
door on alternative conciliation.
76. Claimant will argue that the requested removal of seconded personnel and the early
request for arbitration under the JV is evidence that negotiations were futile, but this
simply is not the case. Those actions were taken in light of Beritech‘s business interests
as well as Respondent‘s essential security interests.. A breach of confidentiality and the
ensuing risks to the civilians of Beristan and the potential users of Opulentia created
considerable need for a speedy determination on the dispute in question, and at no time
did Beritech or Beristan act in a manner inconsistent with a desire to settle amicably.
PART TWO: MERITS OF THE CLAIM
I. RESPONDENT PROPERLY INVOKED ARTICLE 9.2 OF THE BIT TO
PROTECT ITS ESSENTIAL SECURITY
77. The evidence presented and the language of the BIT and JVA show that Respondent
properly acted to safeguard its essential security interests, and that Claimant is attempting
to use international law and this Tribunal to rewrite its agreements and add protections
for which it did not negotiate.
78. Article 4.1 of the JVA provides:
All matters relating to this Agreement and the Sat-Connect project, including all
Confidential Information, shall be treated by each of the parties, including the JV
company Sat-Connect, as confidential. Each of the parties and Sat-Connect agree
that it will keep confidential, will not disclose, and will not allow to be disclosed
any said matters or Confidential Information, directly or indirectly, to any person
or entity not authorized under this Agreement, without the prior written approval
of the Sat-Connect board of directors except (i) where the information properly
comes into the public domain, (ii) as required by law, or (iii) as may be necessary
26
to enforce the terms hereof.
79. Article 9.2 of the BIT provides:
Nothing in this Treaty shall be construed to preclude a Party from applying
measures that it considers necessary for the fulfillment of its obligations with
respect to the maintenance or restoration of international peace or security, or for
the protection of its own essential security interests.
80. Claimant (1) breached Article 4.1 of the JVA by disclosing confidential information,
or by acting in such a way that caused Respondent to believe that its essential security
was threatened. (2) Because Respondent believed its essential security to be at risk,
Respondent was justified in invoking Article 9.2 of the BIT, which is self-judging. (3)
Because there was no breach of the BIT, the Tribunal need not reach the question of
whether the breach was excused by the customary international law doctrine of necessity.
However, (4) even if the Tribunal were to rule that the clause is non-self-judging,
Respondent was justified in its actions under the customary international law doctrine of
necessity.
A. Claimant Breached Article 4.1 of the JVA by Disclosing Confidential
Information
81. The Sat-Connect project was intended to develop a dual-use technology, meant to be
used by Beristan for both military and civilian purposes. Claimant was aware that the
Sat-Connect project would have a military use upon completion.68
82. On August 12, 2009, an article appeared in the Beristan Times alleging that
Claimant‘s employees had disclosed confidential information relating to the Sat-Connect
project to the Government of Opulentia.69
83. Just nine days later, on August 21, 2009, the chairman of the Sat-Connect Board of
Directors made a presentation about the allegations to the full Board of Directors.70
68 Record ¶6, Problem p. 17.
69 Record ¶8, p. 17.
70 Record ¶9, p. 17.
27
84. On August 27, 2009, having had almost a week to discuss and think over the
legitimacy of the allegations and the severity of the threat to essential security, the Board
of Directors voted to compel a buy-out of Claimant‘s share in the project. Notice was
properly served on Claimant to hand over the Sat-Connect site, facilities, and equipment
within 14 days and to remove all of its personnel from the project site.71
85. Because of the national security interest at stake, when Claimant did not comply with
the notice from Sat-Connect‘s Board of Directors, a branch of Respondent‘s military
entered and secured the premises of the Sat-Connect project, instructing and instructed
Claimant‘s personnel to leave.72 This action came 30 days after the leak became known,
giving ample time for Respondent and the Sat-Connect Board of Directors to evaluate the
risk to essential security posed by the leak.
86. Claimant stated that the risk of a disclosure like this one was foreseeable because
Opulentia laws require a license for companies to export certain technologies and
services to Respondent.73 However, there is no evidence that obtaining such a license
from the Government of Opulentia would require the disclosure of confidential
information, making a breach of the Joint Venture Agreement via disclosure of that
information unforeseeable and a breach of the Agreement.
B. Article 9.1 of the BIT is Self-Judging, and this Tribunal Should Not
Evaluate Substantive Decision to Invoke it
87. Even if there is not absolute certainty that confidential information was disclosed by
Claimant, the essential security clause of the BIT is self-judging.
88. An essential security clause is deemed to be self-judging if it contains the phrase
―measures that it considers necessary,‖ which renders the assessment of the risk to
71 Record ¶10, p. 17.
72 Record ¶11, pp. 17-18.
73 Clarification 145; Summary of the Claimant‘s Contentions, p.
28
essential security by the state to be determinative.74 In other words, the Respondent‘s
determination that there was a risk to essential security is not reviewable by this (or any)
tribunal.
89. Some scholars argue that a self-judging clause is still not absolutely self-judging, and
that the substantive decision by the state must still conform to the customary international
law standard of good faith. Even if this is true, Respondent satisfies the good faith
requirement.
90. A two-part standard for evaluating good faith has been proposed by many scholars for
tribunals to evaluate the propriety of invoking self-judging essential security clauses:
first, that the State acted in the spirit of honesty and fair dealing, and second, that the
state‘s basis for invoking essential security was rational.75 However, there is no binding
authority on how a tribunal should evaluate the presence or absence of good faith.
91. As to the first element of the test, the burden of proving bad faith is on the Claimant
in this case, and the record does not show any factual evidence to prove the contention
that Respondent did not act in the spirit of honesty and fair dealing.
92. As to the second element of the test, Respondent has relied on information from a
source in the Beristan government, thereby satisfying the more objective reasonability
standard.
74 OECD Codes of Liberalisation of Capital Movements and of Current Invisible
Operations, the National Treatment Instrument of the OECD Declaration on International
Investment and Multinational Enterprises, NAFTA Chapter XXI, The Energy Charter
Treaty Article 24, and the GATS Article XIVbis. Kristi Yannaca-Small, Essential
Security Interests Under International Investment Law, Chapter 1.5 in International
Investment Perspectives: Freedom of Investment in a Changing World. 2007. Pp. 95-96;
The Protection of National Security in IIAs by UNCTAD. UNCTAD Series on
International Investment Policies for Development in Transnational Dispute Management
(TDM). Vol. 7, Issue 1, ISSN 1875-4120. April 2010. P. 39.
75 UNCTAD 40, citing Burke-White and von Staden, 2007.
29
93. The OECD Guidance offers a set of guidelines for states to abide by in order to
maintain propriety and good faith as well. These guidelines include (a) making narrowlyfocused
and tailored protective measures, (b) making changes to the investment
environment only as a last resort, (c) maintaining accountability for the officials who
make investment policy decisions (through elections or oversight), (d) avoiding costly
arbitration when possible, (e) giving appropriate deference to state national security
needs, (f) responding proportionately to national security crises, (g) applying nondiscriminatory
investment policies, (h) codifying, publishing, and giving prior notice of
changes to investment environments, (i) consulting with investors prior to making
investment policy changes, and (j) ensuring that those with appropriate expertise make
high-level investment policy decisions.
94. Respondent has met each of these guidelines to the extent possible in this situation.76
It (a) targeted only the company accused of breach, rather than passing a law to affect all
companies involved in sensitive military projects, thereby keeping the protective
measures narrow and tailored; it (b) implemented the buy-out only after a month of
consultation by the JV‘s Board of Directors; (c)77;); it (d) attempted to avoid arbitration
by resolving the conflict through a buy-out, as set forth in the JVA; it (e) gave priority to
what Respondent believed was an essential security threat; it (f) responded
proportionately by removing those alleged to have breached confidentiality from the
vicinity in which they might have access to more confidential information; it (g) applied
the measure non-discriminatorily in that it targeted only those responsible for the leak, (h)
gave 14 days of notice to Claimant of the buy-out, as well as the chance to present its side
of the story at multiple Board of Directors meetings (at which four of the ten Directors
were appointed by Claimant), and it (i and j) allowed the Board of Directors to make its
expert decision about what would happen to the JV prior to taking Government action.
76 We do not, from the facts have any information on Respondent‘s election process or
form of government, and thus lack the information necessary to assess whether Guideline
C is met.
77 Supra n.9.
30
95. Therefore, because the essential security clause in the BIT is self-judging, this
tribunal should not review the substantive decision to invoke Article 9.1. Even if the
clause is not entirely self-judging, great weight should be given to Respondent‘s decision
because of the clause‘s relation to national security, because there is no factual evidence
to show that the decision was made in bad faith, and because there was a rational basis
for the decision.
C. Because There was No Breach of the BIT, the Question of Whether There
has been a Violation of the Customary International Law for Necessity Need
Not be Reached
96. The BIT Essential Security clause and the customary international law rules on
necessity represent two different standards meant to answer two different legal
questions.78
97. The BIT is first applied in order to ascertain whether there has been a breach of the
state‘s treaty obligations; in other words, the question is whether the state has correctly
invoked the essential security clause.79 If it is found that the state has properly invoked
the essential security clause, then the inquiry ends. If it is found that the state has not
properly invoked the essential security clause and has breached the BIT, then the
customary international law standard is applied in order to determine whether the state‘s
breach of its treaty obligations is excused by necessity; in other words, the question is
whether the state was justified in breaching its treaty obligations.
98. William Burke-White has been the strongest proponent of this analytical approach,80
which is applied by the Tribunals in the Continental case, in the CMS Annulment
78 See Sempra Annulment Decision at para. 131 (―The Tribunal should have undertaken
an examination of the requirements of the state of necessity as a ground for precluding
wrongfulness only if Article XI of the BIT was held not to apply, and a violation under
that BIT had been established.‖
79 Kurtz 40
80 "The Argentine Financial Crisis: State Liability Under BITs and the Legitimacy of the
ICSID System" (2008). Scholarship at Penn Law. Paper 202.
http://lsr.nellco.org/upenn_wps/202. This method of analysis
31
Award,81 and in the LG&E tribunal,82 and in the Case Concerning the GabcikovoNagymaros
Project.83
99. In the CMS Annulment Award, the Tribunal ruled that the original Tribunal had
mistakenly replaced the language of the BIT with the language of the ILC Articles,
thereby conflating the two standards when they actually should have evaluated the BIT
language separately from the CIL standard.84
100. Because, in the present case, the threshold question of whether there has been a
breach of the BIT via an improper invocation of Article 9.1 is answered in the negative,
the Tribunal should not reach the question of whether a breach is excused by necessity:
instead, there is simply no breach.
D. Even if Article 9.1 of the BIT is Non-Self-Judging, if the Tribunal Applies
the Customary International Law Standard of Necessity to Determine
Whether Respondent was Justified in Invoking Article 9.1, it Should Find
that Respondent was Justified in so Doing
101. Even if it is determined that Article 9.1 is non-self-judging, the Tribunal may also
choose to evaluate the substantive decision of Respondent by using customary
international law to provide a standard where the BIT is silent on what would constitute
essential security.85
81 ―Article XI [the essential security clause] is a threshold requirement: if it applies, the
substantive obligations under the Treaty do not apply. By contrast, Article 25 is an excuse
which is only relevant once it has been decided that there has otherwise been a breach of
those substantive obligations.‖ At para 129 (CMS Annulment Award.
82 (analyzing violation of the BIT first and separately from CIL, then turns to CIL to fill
in the legal standards where the BIT is silent).
83 (Hungary v. Slovenia), 1997 I.C.J. 7 (Sep. 25) (ICJ ruled that a necessity defense was
only applicable to the case at hand if it had already been established that a treaty violation
had occurred).
84 At ¶353(f).
85 This method of analysis has been used in the CMS, Sempra, and Enron tribunals, but
the latter two decisions have been annulled on grounds that the essential security analysis
was incorrect.
32
102. The Tribunal may merge customary international law and the BIT into a single
standard with the customary requirements for necessity acting as the content filler for the
BIT. This allows the BIT to govern when it is on point, but fills in the blanks with
customary international law when there is no explicit standard enunciated in the BIT.86
103. This method was employed by the tribunal in the CMS case, the Enron case, and the
Sempra case.87 Versions of this method are also employed by the tribunals in Case
Concerning Oil Platforms88 and United Postal Service of America, Inc. v. Canada.89
104. Because the BIT does not provide a definition of essential security or its legal
elements the Tribunal must utilize existing and widely accepted standards to define the
term.90
105. According to the ILC Draft Articles on State Responsibility, Article 25:
necessity may not be invoked by the State as a ground for precluding the
wrongfulness of an act not in conformity with an international obligation of the
state unless the act: (a) is the only way for the state to safeguard an essential
interest against a grave and imminent peril; (b) does not seriously impair an
essential interest of the State or States towards which the obligation exists, or of
the international community as a whole.
106. In other words, there are three main criteria that must be satisfied in order for a
tribunal to find that necessity was properly invoked, under the ILC.91
86 Kurtz 22.
87 However, since then, both the Enron case and the Sempra case have been annulled.
88 (Iran v. U.S.A.), 2003 I.C.J. No. 90 (Nov. 6) (ICJ ruled that a Treaty is lex specialis
exception to CIL and takes precedence over CIL on any point of conflict, but that CIL
essentially fills in the blanks and applies where the treaty is silent).
89 ICSID Arbitration, Award on the Merits (May 24, 2007) (Ruling that NAFTA Articles
that addressed monopolies and state enterprises displaced CIL on the topic, as codified in
ILC Articles 4 and 5, as an update to the existing CIL).
90 Sempra, at para 378
91 Although the ILC Articles are not binding authority, they are widely recognized as
representative of customary international law. See Sempra Annulment Decision at para
111.
33
1. There is Grave and Imminent Peril
107. There must be grave and imminent peril. In the Gabcikovo-Nagymaros case, the ICJ
acknowledged that an environmental concern can satisfy this element, showing that more
than mere political conflicts can lead to grave and imminent peril.92 This opened the
door for concerns beyond those of imminent military invasion to satisfy the grave and
imminent peril requirement.
108. A doctrine has begun to develop in recent years, which classifies particular
industries and interests that do not have direct impact on military or political security as
―strategic industries‖ that nonetheless have national security ramifications. These may
include ―oil, gas and other mining, information and communication technology, and other
infrastructure services.‖93
109. The Sat-Connect system is a strategic industry because it is analogous to an oil or
gas industry in that Respondent‘s military-industrial complex depends upon it in a similar
way. In the same way that a modern military cannot run without oil or gas to transport
troops, power tanks, airplanes, and other military vehicles, and power factories that
manufacture arms, the modern military cannot function without the ability to
communicate efficiently over large distances. Although Respondent‘s military has
functioned up to this point without the Sat-Connect technology, over the past two years it
has been making military plans on the assumption that such technology would be
available and functional in the near future. Without it, it is likely that many of their
current military plans and procedures would become dangerously obsolete, leaving the
military without appropriate guidance or means to execute the plans given to them.
2. There is no Damage to the Interest of Another State
110. There must be no damage to the interest of another state. There is no such damage
by Respondent‘s actions here, as the Government of Opulentia does not have (nor does
any other state) an interest in protecting private citizens who breach their contracts.
92 Yannaca-Small p. 101.
93 UNCTAD 11
34
3. Respondent’s Action was the Only Way to Protect the State’s Interest
111. The state‘s chosen course of action must be the only way to protect the interest in
danger.94 The LG&E tribunal ruled that the Government of Argentina properly acted
under the doctrine of necessity, because the essential security clause of the BIT at issue
refers to situations in which a State has no choice but to act. A State may have
several responses at its disposal to maintain public order or protect its essential
security interests.95
112. Under this reasoning, just because there may have been alternatives to the method in
which the state chose to act does not mean that the way in which it chose to respond to
the crisis was not valid. In the present case, this was the most narrow and proportional
response to the crisis: Respondent gave Claimant ample time to respond convincingly to
allegations of breach, and there was no way to ensure that no further breaches occurred
except to prevent those suspected of leaking information from accessing further
information about the system. Furthermore, Respondent‘s response was limited to SatConnect,
and did not affect any projects or industries beyond it.
113. Therefore, because Sat-Connect is a strategic industry, there is no damage to another
state, and there was no less drastic measure to be taken to deal with the crisis, Respondent
acted properly under the customary international law standard of necessity.
114. Furthermore, the term ―essential security‖ in the BIT should be construed in light of
the fact that both Respondent and Opulentia are parties to the WTO. In the GATS
Exceptions, ―essential security‖ is defined as including anything ―relating to the supply of
services as carried out directly or indirectly for the purpose of provisioning a military
94 In the Gabcikovo case, the ICJ ruled that although there was an essential security
interest at stake, the method adopted by the state for addressing the threat was not the
only option and the state could have ―resorted to other means in order to respond to the
dangers that it apprehended.‖
95 At ¶239.
35
establishment.‖96 The Sat-Connect system clearly falls within this definition, which both
parties have signed and agreed to be contained within the concept of essential security.
115. Thus, because Respondent acted properly under the essential security clause of the
BIT and under customary international law, Claimant is not entitled to any payment other
than that provided for under the buy-out clause of the JVA, which has already been
placed in escrow by Respondent.
II. . RESPONDENT UPEHLD ITS DUTY TO PROVIDE FAIR AND EQUITABLE
TREATMENT
116. Beristan treated Claimant appropriately under the fair and equitable treatment
standard. Article 2(2) of the of the Beristan-Opulentia BIT provides fair and equitable
treatment to investors by stating that ―[b]oth Contracting Parties shall at all times ensure
treatment in accordance with customary international law, including fair and equitable
treatment …‖97
117. Beritech‘s exercise of the buyout clause under the Joint Venture agreement in no
way reflects Beristan‘s treatment of Claimant. Furthermore, even if Beritech‘s actions
could be attributed to Beristan, these actions would still not amount to a violation of fair
and equitable treatment under customary international law.
118. The fair and equitable treatment standard under customary international law is
derived from minimum standards of treatment.98
This standard provides ‗minimal‘
protection to an investor. Tribunals articulate the threshold for violation of the standard as
conduct amounting to ―outrage, to bad faith, to willful neglect of duty, or to an
insufficiency of governmental action so far short of international standards that every
reasonable and impartial man would recognize its insufficiency.‖99
96 Article XIVbis(b)(i)
97 Beristan Opulentia BIT, Article 2(2)
98 Biwater Gauff v. Tanzania ¶592; Accord Dugan, Investor-State Arbitration, pg 494-
495
99 Neer, ¶4
36
119. Article 1105 of the North American Free Trade Agreement uses language that is
remarkably similar to the fair and equitable treatment clause in the Beristan-Opulentia
BIT. ―Each Party shall accord to investments of investors of another Party treatment in
accordance with international law, including fair and equitable treatment and full
protection and security.‖ However, the Beristan-Opulentia BIT adds the word
‗customary‘ in front of international law. The addition of the word ‗customary‘ indicates
that the standard should be limited to the minimum standard of treatment under
customary international law.
120. The Free Trade Commission interpreted Article 1105 of the North American Free
Trade Agreement in its Notes of Interpretation in 2001. This interpretation makes clear
that the standard of treatment under customary international law remains the minimum
standard of treatment of aliens.100
121. Furthermore, customary international law is defined by opinio juris and state
practice.101
Opinio juris is the belief of States that they are legally obligated to act in a
certain manner. When three significant economic powers (Canada, Mexico, and the
United States) agree that the standard comes from Neer v. Mexico, then it is not possible
that the standard is higher because these states have declared that they do not and have
not held themselves to a higher standard. Thus, opinio juris for any standard higher than
Neer is not met.
122. Here, Respondent‘s actions do not violate the Neer standard. Beristan sent the Civil
Works Force who asked the Claimant‘s seconded employees to leave Sat-Connect‘s
premises.102
The Civil Works Force undertook this action without violence and the
Claimant‘s employees did not have any concerns about their safety.103
Beristan undertook
these actions because of concerns for its national security. These actions are not
100 NAFTA Notes of Interpretation on Certain Chapter 11 Provisions, 2(1)
101 Statute of the International Court of Justice Article 38(1)
102 Clarification 248
103 Id.
37
outrageous, they were not undertaken in bad faith, they do not amount to a willful neglect
of duty, and they are definitely not so far short of international standards that every
reasonable and impartial man would recognize their insufficiency.
123. Additionally, S.D. Myers states that the fair and equitable treatment standard does
not generate an ―open-ended mandate to second-guess government decision-making.‖104
Claimant is requesting exactly that. It is attempting to use international law to rectify
poor choices it made in the Joint Venture agreement.
124. A State only breaches legitimate expectation where a State makes specific
representations that could be reasonably relied upon to an investor.105
Here, the state
made no such representations to Claimant.106
Therefore, Claimant has no valid reason for
an expectation on which it can rely.
125. Furthermore, legitimate expectation cannot rely solely on the subjective expectations
of the investor.107
Here, there is no evidence of anything that justifies the Televative‘s
claim that Beristan violated its legitimate expectations.
126. In the alternative, if legitimate expectation also includes reliance on the laws of the
state at the time of investment, then Respondent still has not breached legitimate
expectation. An investor may only rely on laws where the State enacts particular laws in
order to encourage investment.108
In LG & E v. Argentina, the tribunal held that
Argentina breached claimant‘s legitimate expectation because they enacted the Gas Law
and other regulations, and advertised these to attract foreign capital.109
Enactment for the
purpose of investment and advertising are what created the legitimate expectations. In
contrast, Televative is not relying on Beristan‘s general corporate laws, not any laws that
104 SD Myers, ¶261
105 Waste Management, ¶98
106 Clarification 253
107 EDF v. Romania, ¶219.
108 See LG&E v. Argentina, ¶175
109 Id.
38
were enacted for the sole purpose of attracting investment. Televative is trying to create
obligations for Beristan which did not previously exist.
III. RESPONDENT PROVIDED CLAIMANT WITH FULL PROTECTION AND
SECURITY
127. The full protection and security clause ensures that the State acts to prevent physical
harm and damage to the investor‘s investment by a third party or the State.110
Here, no
third party has attacked the investment. In fact, the investment has not suffered any
physical damage at all. It is completely intact and the Beristan arbitration placed
Claimant‘s share of the company in escrow.111
Beristan did send in the members of the
army; however, it sent in the Civil Works Force, the civil engineering section of the
Beristan army to ask Televative‘s personnel to leave. Beritech had already served notice
on Televative two weeks prior to that date, and Televative registered no complaint or
objection to that notice.112
128. Even if full protection and security extends beyond physical security and includes
legal security, Respondent still has not violated the standard. An autonomous standard of
full protection and security is not appropriate here because the BIT text includes an
explicit reference to customary international law.113
Beristan has not taken away
Televative‘s ability to use the court system, nor has it in anyway prevented the Televative
from fulfilling its obligation to arbitrate under the JVA. Televative chose to sign a Joint
Venture agreement which included an arbitration clause and now it does not wish to
uphold that agreement. Therefore, Televative‘s legal security has not been violated and
the Respondent‘s responsibility to provide full protection and security under customary
international law has been and continues to be fulfilled.
110 Saluka v. Czech Republic, at ¶¶483, 484; Eastern Sugar v. Czech Republic, at ¶203;
Biwater Gauff, ¶730
111 Clarification 138
112 Clarification 133 (says that the attempt at amicable settlement came on September 12)
113 Schreur, Journal of International Dispute Settlement, Full Protection and Security, at
17
39
IV. BERISTAN DID NOT ILLEGALLY EXPROPRAITE TELEVATIVE’S
INVESTMENT
131. Beristan did not expropriate Claimant‘s investment because the conduct of which
Claimant complains arises out of its contractual relationship with Beritech. Even if the
Tribunal finds that the conduct of Beritech is attributable to Beristan, the deprivation
complained of does not amount to an expropriation because the deprivation is not
irreversible. Even if the Tribunal finds that Beristan expropriated claimant‘s property, the
provision of $47 million is sufficient compensation, therefore precluding a finding of
illegal expropriation.
A. Beristan did not Expropriate Claimant’s Investment Because the
Deprivation of Claimant’s Investment was not Irreversible
132. Beristan did not expropriate Claimant‘s property because the deprivation of
Claimant‘s property is not irreversible. A present prevailing trend on the law of
expropriation is for tribunals to evaluate the duration114 and permanence115 of the alleged
deprivation. The ICSID tribunal in Saipem v. Bangladesh noted that in order to find that
an investment has been expropriated, the deprivation must be irreversible.
133. In Saipem, the tribunal found that claimant had been deprived of the benefit of an
ICC award because the Bangladeshi Supreme Court ruled that the award was a nullity.116
Unlike in Saipem, the rights of Televative with regard to its investment are still pending
adjudication. The Beristan tribunal has yet to rule as to whether or not Beritech properly
exercised its rights under the JVA.117 Therefore, the deprivation of Claimant‘s interest in
114
See Glamis Gold Limited v United States, Award, IIC 380 (2009), 14th May 2009,
despatched 8th June 2009, 356.
115
See Saipem SpA v Bangladesh, Award, ICSID Case No ARB/05/7, IIC 378 (2009),
20th June 2009, dispatched 30th June 2009, ICSID, at 127 (― . . . any interference with
the exercise of property (or ―expropriable‖ rights), however defined, can amount to an
expropriation, including indirect and de facto expropriation, provided that the deprivation
is irreversible.‖).
116 Ibid. 129.
117 Clarification 170.
40
the joint venture is not irreversible. Accordingly, the Tribunal should find that Claimant‘s
property has not been expropriated.
B. The Compensation Furnished to Claimant was Sufficient
134. Even if the Tribunal finds that Beristan is responsible for the expropriation of
Claimant‘s property, the compensation furnished to Claimant was adequate. The actions
of Beritech, the Beristan executive, and the CWF were justified by Beristan‘s essential
security interests. Professor Brownlie has suggested that an exception to the ―full
compensation‖ rule exists when a State acts:
under treaty provisions; as a legitimate exercise of police power, including
measures of defense against external threats . . . 118
135. Beristan actions were a legitimate exercise of police power and were properly
exercised under Article 9 of the Beristan-Opulentia BIT. Therefore, Beristan is excused
from furnishing Televative with full compensation.
CONCLUSION
136. Respondent, through its agents and organs, has acted properly under its international
agreements, and has acted to preserve its essential security by lawfully invoking the buyout
clause of its JVA in response to a breach of confidentiality by Claimant.
RELIEF REQUESTED
137. In light of the submission made above, Respondent respectfully asks this Tribunal to
find:
A. that this Tribunal does not have jurisdiction over this dispute; or alternatively
B. that if the Tribunal does have jurisdiction over the dispute, that Respondent
acted properly under Article 9.2 of the Beristan-Opulentia BIT;
118 IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW at 511-12 (6th
ed. 2003)
41
C. and that this arbitration should proceed to the Quantification of Damages
Phase.