memorial for respondent - fdimoot.org · espinosa - wipo trademark rights ... philippines, icsid...

SIXTH ANNUAL TEAM KRYLOV FOREIGN DIRECT INVESTMENT MOOT COMPETITION, 2013

German Institute of Arbitration

Under the UNCITRAL Arbitration Rules Administered by the DIS

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BETWEEN: Contifica Asset Management Republic of Ruritania CLAIMANT/INVESTOR RESPONDENT/PARTY

MEMORIAL FOR RESPONDENT

Team Krylov, Memorial for Respondent

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TABLE OF CONTENTS LIST OF AUTHORITIES .......................................................................................................... IV

LIST OF LEGAL SOURCES .................................................................................................... VI

LIST OF ABBREVIATIONS ...................................................................................................... X

STATEMENT OF FACTS ........................................................................................................... 1

SUMMARY OF ARGUMENTS .................................................................................................. 4

I. JURISDICTION & ADMISSIBILITY ................................................................................... 5

1. CLAIMANT IS NOT A BONA FIDE INVESTOR UNDER THE BIT. .................................................. 5

A. Characterising Claimant as an Investor under BIT Article 1.1 violates the object and

purpose of the BIT. ......................................................................................................... 6

B. The timing of the transfer of FBI to Claimant is best explained as a transfer in

anticipation of a claim. ................................................................................................... 6

2. THIS TRIBUNAL LACKS JURISDICTION OVER THE ALLEGED BREACH OF THE SPA. ................. 9

3. IN ANY CASE, THE PRESENT CLAIM IS INADMISSIBLE BECAUSE IT IS A CONTRACT CLAIM

GOVERNED BY THE SPA. ...................................................................................................... 11

II. MERITS .................................................................................................................................. 13

1. CLAIMANT’S INVESTMENT HAS NOT BEEN EXPROPRIATED. ................................................. 13

A. Claimant has not been substantially deprived of FBI because Claimant continues to

own and operate FBI. ................................................................................................... 13

B. Claimant has not been substantially deprived of its trademarks. .............................. 15

C. The MAB Act and Labeling Ordinance were a valid exercises of Ruritania’s police

powers. ......................................................................................................................... 15

2. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FET TO CLAIMANT. ................. 18

A. Ruritania did not breach the FET standard as provided for under customary

international law. ......................................................................................................... 18

B. Ruritania did not breach the FET standard as provided for under the BIT even if

interpreted as an autonomous standard. ...................................................................... 19

3. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FPS TO CLAIMANT. ................. 23


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4. THE MAB ACT AND LABELING ORDINANCE ARE NOT ARBITRARY OR DISCRIMINATORY; NOR

HAS RURITANIA PROVIDED CLAIMANT LESS FAVOURABLE TREATMENT ON THE BASIS OF

NATIONALITY. ...................................................................................................................... 24

A. The MAB Act and Labeling Ordinance are not arbitrary because they are rationally

connected to Ruritania’s objective to protect public health. ........................................ 24

B. The MAB Act and Labeling Ordinance are not discriminatory because they apply

equally to companies causing similar risks to the public. ............................................ 26

C. Ruritania is owed deference in the determination of domestic health policy. ........... 29

D. The MAB Act and Labeling Ordinance respected Ruritania’s obligation to accord

national treatment as they apply equally to both Ruritania’s nationals and foreign

investors in like situations. ........................................................................................... 30

E. The MAB Act and Labeling Ordinance cannot be considered a breach of BIT

Article 3 because they had to be taken for reasons of public security and order. ...... 30

III. DAMAGES ........................................................................................................................... 35

1. THIS TRIBUNAL LACKS JURISDICTION TO AWARD COMPENSATION FOR LOSS OF SALES TO

CLAIMANT’S BUSINESSES OUTSIDE RURITANIA BECAUSE THEY DO NOT FORM PART OF

CLAIMANT’S INVESTMENT. .................................................................................................. 35

2. THIS TRIBUNAL CANNOT AWARD “MORAL DAMAGES” TO CLAIMANT BECAUSE CLAIMANT

FAILED TO ESTABLISH THAT IT HAS SUFFERED GRAVE DAMAGES CAUSED BY RURITANIA’S

ACTIONS. .............................................................................................................................. 36

REQUEST FOR RELIEF .......................................................................................................... 38


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LIST OF AUTHORITIES

ARTICLES AND BOOKS

Alvarez-Jimenez

Alvarez-Jimenez, A., “The Interpretation of Necessity Clauses in Bilateral Investment Treaties After the Recent ICSID Annulment Decisions”, Sauvant, K. (ed), Yearbook on International Investment Law & Policy 2010-2011, Oxford University Press, 2011.

Burke-White and Van Staden

Burke-White, W. and Van Staden, A., “Investment Protection in Extraordinary Times: the Interpretation and Application of Non-Precluded Measures Provisions in Bilateral Investment Treaties”, Virginia Journal of International Law, Vol. 48, 2007, page 307.

Carreau and Juillard

Carreau, D. and Juillard, P., Droit international économique, Dalloz, 2005.

Christie Christie, G.C., “What Constitutes A Taking of Property Under International Law?” British Yearbook of International Law, Vol. 38, 1962.

Crawford Crawford, J., “Treaty and Contract in Investment Arbitration”, Arbitration International, Vol. 24, Issue 3, 2008.

de Gramont de Gramont, A., “After the Water War: the Battle for Jurisdiction in Aguas Del Tunari, S.A. v. Republic of Bolivia”, Transnational Dispute Management, Vol. 3, No. 5, 2006.

Dolzer and Schreuer

Dolzer, R. and Schreuer, C., Principles of International Law, Second Edition, Oxford University Press, 2012.

Dumberry Dumberry, P. “Compensation for Moral Damages in Investor-State Arbitration Dispute”, Journal of International Arbitration, Vol. 27, No. 3, 2010.

Foster Foster, C., “Adjudication, Arbitration and the Turn to Public Law ‘Standards of Review’: Putting the Precautionary Principle in the Crucible”, Journal of International Dispute Settlement, Vol. 3, No. 3, 2012.

Herz Herz, J., “Expropriation of Foreign Property,” American Journal of International Law, Vol. 52, No. 2, 1941, page 243.

Newcombe Newcombe, A., “The Boundaries of Regulatory Expropriation in International Law,” ICSID Review, Vol. 20, No. 1, 2005.

Newcombe and Paradell

Newcombe, A. and Paradell, L., Law and Practice of Investment Treaties: Standards of Treatment, Kluwer Law International, 2009.

Schill Schill, S., “Umbrella Clauses as Public Law Concepts in Comparative Perspective”, International Investment Law and comparative public law, Oxford University Press, 2010.


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Schreuer - ETC Schreuer, C., “The Concept of Expropriation under the ETC and other Investment Protection Treaties” Transnational Dispute Management, Vol. 2, No. 5, 2005.

Schreuer - The ICSID Convention

Schreuer, C., The ICSID Convention: A Commentary, Cambridge University Press, 2001.

Schreuer – BIT Route

Schreuer, C., “Travelling the BIT Route of Waiting Periods, Umbrella Clauses and Forks in the Road”, Journal of World Investment & Trade, Vol.5, 2004, page 231.

UNCTAD - FET

UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment, 2012.

Wilkinson and Room

Wilkinson, C. and Room, R., “Warnings on Alcohol Containers and Advertisements: International Experience and Evidence on Effects,” Drug and Alcohol Review, Vol. 28, No. 4, 2009.

MISCELLANEOUS

Espinosa - WIPO Trademark Rights

Octavio Espinosa, Trademark Rights; Overview of Provisions in the Paris Convention and the TRIPS Agreement, WIPO, Geneva March 15 2012.

Hutterian Brethren

Alberta v. Hutterian Brethren of Wilson Colony, 2009 SCC 37, Supreme Court of Canada Judgements.

ILC Articles International Law Commission’s Draft Articles on Responsibility of the State for Internationally Wrongful Acts, 2001.

OECD Draft Convention

OECD Draft Convention on the Protection of Foreign Property, 7 ILM 118, 1968.

WHO WHO, WHA 61.4 Resoltuion : http://www.who.int/substance_abuse/activities/globalstrategy/en/index.html

WHO - Alcohol World Health Organization, Global Strategy to Reduce Harmful Use of Alcohol, page 14-15.


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LIST OF LEGAL SOURCES

ARBITRAL DECISIONS

ADF ADF Group Inc. v. United States of America, ICSID Case No. ARB (AF)/00/1, Award, 9 January 2003.

AES AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010.

Azurix Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Award, 14 July 2006.

Benvenuti & Bonfant

S.A.R.L. Benvenuti & Bonfant v. People's Republic of the Congo, ICSID Case No. ARB/77/2, Award, 8 August 1980.

BG BG Group Plc. v. The Republic of Argentina, UNCITRAL, Award, 24 December 2007.

Biwater Gauff Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008.

Cargill Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB (AF)/05/2, Award, 18 September 2009.

Cementownia Cementownia "Nowa Huta" S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009.

Chemtura Chemtura Corporation v. Government of Canada, UNCITRAL, Award, 2 August 2010.

CMS CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005.

CMS Annulment

CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc Committee on the application for annulment, 25 September 2007.

Continental Causality

Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 September 2008.

Dessert Line Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008.

Duke Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008.

EC-Asbestos EC-Asbestos (Canada v. European Communities), WTO Apellate Body, Report, 12 March 2001.

El Paso El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011.


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ELSI Elettronica Sicula S.p.A (ELSI) (United States of America v. Italy), ICJ, Award, 20 July 1989.

Enron Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007.

Enron Annulment

Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the Argentine Republic, 30 July 2010.

Feldman Marvin Roy Feldman v. Mexico, ICSID Case No. ARB(AF)/99/(1), Award, 16 December 2002.

Frontier Petroleum

Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Award, 12 November 2010.

Glamis Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award, 8 June 2009.

Impregilio Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Jurisdiction, 22 April 2005.

Lauder Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award, 3 September 2001.

Lemire Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010.

LG&E LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006.

Lusitania Opinion in the Lusitania Case, United States-Germany Mixed Claims Comission, 1923, VII U.N.R.I.A.A.32.

Neer L. F. H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, Mexico-USA General Claims Commission,15 October 1926.

Noble Ventures

Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005.

Parkering Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007.

Pope & Talbot Pope & Talbot Inc. v. Canada, UNCITRAL, Interim Award, 26 June 2000.

Salini Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 31 July 2001.

Saluka Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006.

SD Myers S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial award, 13 November 2000.


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Sempra Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, 29 June 2010.

Sempra Annulment

Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award, 29 June 2010.

SGS v. Pakistan

SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003.

SGS v. Philippines

SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004.

Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/08, Award, 17 January 2007.

Société Général v. Dominican Republic

Société Générale in respect of DR Energy Holdings Limited and Empresa Distribuidora de Electricidad del Este, S. A. v. The Dominican Republic, UNCITRAL, LCIA Case No. UN 7927, 19 September 2008.

Suez Suez, Sociedad General de Aguas de Barcelona SA, and Vivendi Universal SA v. Argentina and AWG Group Ltd v Argentina, ICSID Case No ARB/03/17, Decision on Liability, 30 July 2010.

Tecmed Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003.

Thunderbird International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL, Arbitral Award, 26 January 2006.

Too Emanuel Too v. Greater Modesto Insurance Associates, 23 Iran-United States CTR, Award, 29 December 1989.

Total Total S.A. v. The Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010.

Toto Costruzioni

Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, 11 September 2009.

Vivendi I Annulment

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002.


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TREATIES AND CONVENTIONS

Canada Model FIPA

Canada Model FIPA, 2004.

German Model Treaty

German Model Treaty, 2005.

ICESCR International Covenant on Economic, Social and Cultural Rights, 1976.

Spain-Mexico BIT

Treaty for the Mutual Protection and Promotion of Investments between the Kingdom of Spain and the United Mexican State, 2006.

US Model BIT US Model BIT, 2004.


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LIST OF ABBREVIATIONS

¶ Paragraph

BIT Treaty of Mutual Promotion and Protection of Foreign Investment between The Republic of Ruritania and The State of Cronos, 15 March 1997

Claimant’s subsidiaries Claimant’s agricultural and bottling subsidiaries

Cronos State of Cronos CS Contifica Spirits S.P.A. FBI Freecity Breweries Inc. FET Fair and equitable treatment FPS Full protection and security Fund State Property Fund of Ruritania HRI Human Health Research Institute ICC International Chamber of Commerce ICSID International Center for Settlement of Investment Disputes IP Intellectual property

Labeling Ordinance

Ordinance adopted on 30 June 2011 by the Ministry of Health and Social Security which requires any product containing Reyhan concentrate to be labeled with an explicit warning

MAB Act Regulation of Sale and Marketing of Alcoholic Beverages Act, 20 November 2010

MDB Methyldioxidebenzovat MHSSR Ministry of Health and Social Security of Ruritania OECD Organisation for Economic Co-operation and Development PO No Procedural Order number Ruritania Republic of Ruritania (Respondent) SoC Statement of Claim

SPA Share Purchase Agreement between the State Property Fund of Ruritania and Contifica Spirits SPA

UNCITRAL United Nations Commission on International Trade Law UNCITRAL-DIS UNCITRAL Arbitration Rules Administered by the DIS

US United States USD United States Dollar WIPO World Intellectual Property Organization


1

STATEMENT OF FACTS

1. On 30 September 2012, Contifica Asset Management (“Claimant”) brought a claim

instituting arbitration proceedings against Republic of Ruritania (“Ruritania”) based on

regulatory changes adopted by Ruritania. On 15 December 2012, Ruritania issued a

Statement of Defense, contesting the jurisdiction of the Tribunal and admissibility of the

claims submitted by Claimant and recommending the Tribunal dismiss the claims as

meritless.

2. Respondent is Ruritania. Claimant, Contifica Asset Management, is a company

incorporated under the laws of the State of Cronos (“Cronos”). Ruritania and Cronos are

parties to the Treaty of Mutual Promotion and Protection of Foreign Investment, dated 15

March 1997 (“BIT”).

3. Ruritania owned and operated Freecity Breweries Inc. (“FBI”) from 1928 until 2008. FBI

produces a number of different brands of beer. One of the brands, Freebrew, has a distinct

flavouring that comes from the ingredient Reyhan. Until 2008 FBI was owned by the

State Property Fund (“Fund”), a separate legal entity with its own legal personality.

4. In 2008, due to the financial crisis, Ruritania had a budget deficit. As a result, the

government decided to privatize a number of state assets. The Fund decided to sell FBI to

a private investor through an international tender. On 30 June 2008, FBI was purchased

by Contifica Spirits (“CS”) for USD 300,000,000.

5. In the Share Purchase Agreement (“SPA”), the Fund warranted that to its knowledge, the

brewery’s products did not pose any risks to consumers other than those ordinary for

similar alcoholic beverages. The SPA’s forum selection clause states that all disputes

arising out of the SPA should be submitted to the International Chamber of Commerce

(“ICC”).

6. In January 2010, the New Way Party secured a majority in the Ruritanian Parliament.

The New Way Party was elected on a widely publicized manifesto taking a hard stance

towards the marketing and sale of alcohol.


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7. On 17 March 2010, FBI’s shares and intellectual property (“IP”) were transferred from

CS to Claimant. The transfer was completed for a token amount of 10,000 Ruritanian

pounds (less than USD 5,000).

8. The purpose of this transfer is discussed in a memorandum disclosed by Claimant,1 dated

1 March 2010. In the memorandum, Contifica Group considered “various means of

achieving further protection of …[its investments] in Ruritania.” As CS is incorporated in

Posteriana, a State that does not have an investment treaty with Ruritania, the Group

considered the legal environment and speed of restructuring in choosing a jurisdiction

with greater protection.

9. On 20 November 2010, the Ruritanian Parliament enacted the Regulation of Sale and

Marketing of Alcoholic Beverages Act (“MAB Act”). The New Way Party was elected

with a mandate to enact alcohol regulation legislation. The regulation is intended to

protect the population’s health by addressing the problems of alcohol addiction and

exposure of youth to alcohol. It also includes a prohibition on the advertising and sale of

alcohol at sporting events to prevent association between alcohol, a healthy lifestyle and

athletic excellence.

10. On 15 June 2011, the Ministry of Health and Social Security (“MHSSR”) received a

report from the Human Health Research Institute (“HRI”) stating that consumers of

Freebrew were exposed to higher risk of cardiac complications due to the effects of

Methyldioxidebenzovat (“MDB”). MDB is the active chemical ingredient in Reyhan

concentrate. The research was based on a longitudinal study. In accordance with the

proper procedure to adopt an Ordinance, the MHSSR considered the evidence available,

the degree of potential risk involved and alternative measures.

11. On 30 June 2011, the MHSSR adopted the Labeling Ordinance. The label warns

consumers that “according to the result of scientific research,” products containing

Reyhan concentrate “may lead to higher risk of cardiac complications.”

1 Exhibit RX 1, Statement of Defence.


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12. In early December, the Prosecutor’s Office, acting on “information” that the executives

had bribed the Fund of Ruritania, began an investigation into Messrs. Goodfellow and

Straw, executives of FBI and Contifica Group. On 23 December 2011, Messrs.

Goodfellow and Straw were detained at the Freecity International Airport as they

attempted to leave the country. They were held until 3 January 2012. On 20 June 2012,

Ruritania decided to close the investigation.

13. Since the adoption of the MAB Act and the Labeling Ordinance for the public benefit,

Claimant has brought a claim for compensation under the BIT.


4

SUMMARY OF ARGUMENTS

14. This Tribunal lacks jurisdiction because Claimant is not a bona fide Investor and

the Fund is a separate legal entity. This Tribunal lacks jurisdiction ratione personae

under the BIT. Claimant’s acquisition of FBI is an abuse of process because it is “treaty

shopping”. This Tribunal lacks jurisdiction over SPA claims because they relate to a

dispute between Claimant and the Fund, not a party to the BIT. The claim for breach of

the SPA warranty is inadmissible because the SPA’s forum selection clause directs such

contractual disputes to ICC arbitration.

15. Ruritania has not breached its obligations under the BIT by implementing the MAB

Act and Labeling Ordinance. Claimant has not been substantially deprived of its

Investment. In any case, the MAB Act and Labeling Ordinance were valid exercises of

Ruritania’s police powers. Ruritania has not breached its obligation to provide fair and

equitable treatment (“FET”). Ruritania has a right to regulate to protect the health of its

nationals. Claimant’s expectations were not legitimate considering the election of the

New Way Party. Ruritania has not breached its obligation to provide full protection and

security (“FPS”); it neither physically interfered with Claimant’s rights, nor denied access

to legal protection. Further, Ruritania did not arbitrarily impair Claimant’s Investment

because there is a rational connection between Ruritania’s objectives and the regulatory

measures adopted. Ruritania did not discriminate against Claimant because distinctions

between Investors were rationally connected to the purpose of the regulation. These

measures were taken for reasons of public security and order.

16. Ruritania does not owe damages to Claimant’s subsidiaries, nor to Claimant for the

breach of FPS. Ruritania does not owe damages to Claimant’s subsidiaries because they

are not an Investment under the BIT. This Tribunal must deny Claimant’s request for

“moral damages” because the arrest and detention of Messrs. Goodfellow and Straw were

not exceptional circumstances and did not cause damage to Claimant.


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I. JURISDICTION & ADMISSIBILITY

17. Respondent will demonstrate that this Tribunal lacks jurisdiction ratione personae under

BIT Article 8 because (1) Claimant is not a bona fide Investor under the BIT; and (2) this

Tribunal lacks jurisdiction over the alleged breach of the SPA because Ruritania is not a

party to the SPA. (3) In any case, the present claim is inadmissible because it is a contract

claim governed by the SPA.

1. CLAIMANT IS NOT A BONA FIDE INVESTOR UNDER THE BIT.

18. The bona fide nature of an Investment is at the heart of a good faith interpretation of the

BIT. Adherence to the principle of good faith requires that strict interpretation of an

applicable provision not be used to undermine and manipulate the commitments2 entered

into by Ruritania.

19. The BIT Preamble emphasizes a balance of interests. Ruritania has committed to

protecting and encouraging Investments and Investors under the BIT, and has consented

to arbitration for alleged BIT violations.

20. An Investment made in breach of the principle of good faith is directly relevant to

Ruritania’s consent to arbitrate and the jurisdiction of this Tribunal. Consent to

arbitration cannot extend to disputes concerning Investments that are not bona fide.

21. The transfer of an Investment, effected for the purpose of bringing a claim under the BIT,

is a manipulation of international law. This Tribunal lacks jurisdiction ratione personae

because BIT Article 8 states that disputes concerning Investments between an Investor

and a Contracting State shall be submitted to international arbitration. This abuse of

process precludes an entity from claiming protection as an Investor under the BIT.

22. Claimant is not a bona fide Investor under the BIT because (A) characterising Claimant

as an Investor under BIT Article 1.3 violates the object and purpose of the BIT; and (B)

2 Mobil, ¶169.


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the transfer of FBI to Claimant was done in anticipation of the need to bring a claim and

is an abuse of process.

A. Characterising Claimant as an Investor under BIT Article 1.1 violates the object and purpose of the BIT.

23. An abuse of process precludes a claim to coverage under the BIT because an entity

cannot be characterised as an Investor where their characterisation would frustrate the

object and purpose of the BIT.

24. The definition of Investor under BIT Article 1.3(b) and the BIT Preamble are coextensive.

A purposive interpretation is required by VCLT Article 31.1. Interpreting BIT Article

1.3(b) independently would undermine the basis of the relationship between the Investor

and the Contracting State. This is expressed in the BIT Preamble, which states that the

BIT was concluded out of the Contracting States’ desire “to intensify economic co-

operation…with a view to stimulate private enterprise.”

25. Where ownership of an Investment is transferred for the purpose of bringing a

foreseeable claim, the transfer is an abuse of process and the claimant’s characterisation

as an Investor under BIT Article 1.3(b) runs counter to the BIT’s object and purpose.

26. Claimant purchased FBI in the face of a foreseeable claim. The circumstance of

Claimant’s transfer is an abuse of process and precludes Claimant from coverage as an

Investor under the BIT.

B. The timing of the transfer of FBI to Claimant is best explained as a transfer in anticipation of a claim.

27. The effect of the transfer’s timing is an abuse of process. When the transfer of FBI was

made, Claimant’s claim was within the reasonable contemplation of CS. An abuse of

process exists where this Tribunal can impute from the facts that the transfer was made

for the purpose of bringing a claim.

28. Parties may not do indirectly what they cannot do directly. A dispute which could not be

brought against Ruritania because CS lacked protection under an investment treaty


7

cannot be perfected via assignment to Claimant in order to attain jurisdiction before

UNCITRAL-DIS.

29. In Mihaly, Mihaly (Canada) lacked jurisdiction under ICSID for a dispute regarding its

investment in Sri Lanka. In attempting to secure ICSID jurisdiction over the dispute,

Mihaly (Canada) assigned the investment to Mihaly (USA). Declining jurisdiction, the

Tribunal explained that “… no one could transfer a better title than what he really has.”3

“To allow such an assignment to operate in favour of Mihaly (Canada) would defeat … the sanctity of the privity of international agreements not intended to create rights and obligations for non-Parties. Accordingly, a … claim which was not … capable of being invoked before ICSID could not have been admissible or able to be entertained under the guise of its assignment to the US Claimant.”4

30. To determine whether the purpose of Claimant’s transfer was to perfect a jurisdictional

deficiency –therefore constituting an abuse of process– the appropriate standard is:

“[w]hether it was sufficiently foreseeable [at the time of transfer] that [Claimant] might

want to assert any claims under the BIT based on events that were already in progress,

and, based on such foresight, undertook a corporate reorganization to be able to do so.”5

31. The Tribunal in Cementownia found that even a legitimate transfer in advance of the

cancellation of two electrical concession contracts with Turkey, would not have permitted

a bona fide claim under the BIT. The Tribunal held that a falsified transfer in anticipation

of active government measures that culminated in the concessions’ termination (and

breach of the BIT) could not be used to “fabricate international jurisdiction where none

should exist.”6

32. In interpreting the definition of Investor, this Tribunal must take a reasonable approach

between two extremes: not so broad that the BIT would be exploited, and not so narrowly

that bona fide Investors would not benefit from the BIT’s protection. Ruritania

acknowledges Investors may strategically seek BIT protection. However, doing so

3 Mihaly, ¶24. 4 Mihaly, ¶24. 5 de Gramont, page 28. 6 Cementownia, ¶117.


8

contrary to the BIT’s object and purpose is an abuse of process and undermines the goal

of a beneficial relationship between Investors and Contracting States. Ruritania’s BIT is

not a BIT with the entire world.7 This Tribunal must protect the principle of good faith

central to the BIT.

33. The events that Claimant alleges affected their Investment were foreseeable. The New

Way Party’s election campaign platform –to take a hard stance against the marketing and

sale of alcohol in order to reduce consumption– was widely publicized.8 Polls indicated

that the New Way Party was very likely to claim victory and win a majority in the

Ruritanian Parliament.9 At the moment of electoral victory, having promised to introduce

legislation to the effect of the MAB Act, it was foreseeable that the government would

act on their electoral commitments.

34. CS transferred FBI less than two months after the New Way Party’s victory. The timing

of the transfer after two years of ownership without issue indicates that the transfer was

effected in anticipation of bringing a claim. The 1 March 2010 memo sent to Mr.

Goodfellow, the Chief Executive Officer of FBI,10expressing a need for further protection

for Contifica Group, evidences this.

35. The right to make a claim under the BIT is not bona fide because CS did not have the

right to transfer the option to make a claim. The transfer of FBI to Claimant triggered the

option to exercise rights under the BIT that it did not already have in relation to the

government’s foreseeable course of action.

36. Requiring that the facts leading to a dispute crystallise before the transfer occurs in order

to establish an abuse of process ignores the process by which governments make

decisions and the context in which investments are made. It cannot be held that the

7 de Gramont, page 26. 8 SoD, ¶6; PO No 2, ¶9. 9 PO No 3, ¶19. 10 PO No 2, ¶21.


9

Contracting States, in acceding to the BIT, accepted that a protected Investor could

recover under the BIT for disputes that arose outside of the BIT’s jurisdiction.11

37. This Tribunal must impute that the transfer was effected in anticipation of the ability to

bring a foreseeable claim, and therefore inclusion of Claimant under the BIT definition of

Investor would expand the scope of the definition in a manner inconsistent with the

object and purpose of the BIT.

2. THIS TRIBUNAL LACKS JURISDICTION OVER THE ALLEGED BREACH OF THE SPA.

38. Based on BIT Article 8, this Tribunal has jurisdiction over “disputes concerning

Investments between a Contracting State and an Investor.” In this BIT, Ruritania and

Cronos are the Contracting States.

39. This Tribunal lacks jurisdiction ratione personae over Claimant’s claim because the

alleged breach of the SPA is a dispute between Claimant and the Fund.

40. The SPA is a contractual agreement entered into by the Fund, a separate legal entity for

which Ruritania is not responsible. Claimant’s dispute regarding the alleged breach of the

SPA is not with Ruritania but with the Fund, which is not a Contracting State to the BIT.

41. The dispute based on the alleged breach of the SPA is a separate dispute over a

contractual breach. When addressing a contractual breach, a tribunal must evaluate it

within the framework of that contract to respect the contracting parties’ intentions.

42. In accordance with SPA Article 14.1, the “agreement shall be governed by the laws of the

Republic of Ruritania.” The BIT Umbrella Clause cannot be interpreted to transform or

modify the original contract.12 The BIT Umbrella Clause does not change the law

applicable to a breach of the SPA, nor change the parties bound by the SPA.

43. Under Ruritanian law –the law governing the SPA– the Fund is a separate legal entity for

which Ruritania bears no liability. The Fund’s acts and omissions are not attributable to

Ruritania.

11 Société Générale v Dominican Republic, ¶111. 12 CMS Annulment, ¶95.


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44. Claimant is attempting to graft contractual obligations on to Ruritania by applying the

ILC Articles. This reasoning is flawed because ILC Articles establish the responsibilities

of states for internationally wrongful acts. The scope of these rules is not meant to extend

to the attribution of mere contractual breaches governed by municipal law. Even by

applying the ILC Articles Ruritania would still not be responsible for the Fund’s actions,

as no conditions set in ILC Articles 3 through 8, the attribution section, are met.

45. Claimant’s contention that the Fund’s structure and function is effectively controlled by

Ruritania is unfounded. Even if the Fund’s Director-General and Board are appointed by

the State, the Fund is a separate legal entity with its own legal personality. No directives

were given to the Fund requiring the conclusion of the SPA. Therefore, the conclusion of

the SPA cannot be considered an exercise of governmental authority.

46. Since obligations under the SPA were entered into by the Fund, they are not Ruritania’s

obligations. As the dispute is not between Ruritania, the Contracting State, and Claimant,

the Investor, conditions of BIT Article 8 are not met and the Tribunal lacks jurisdiction.

47. In any case, BIT Article 6.2 does not grant this Tribunal jurisdiction over mere

contractual breaches. It is a well-established principle of international law that a violation

of a contract does not automatically amount to a breach of international law and a

treaty. 13 As protection under the BIT Umbrella Clause cannot be granted to all

commercial actions undertaken by a State, it must be limited to breaches of obligations

by the State as a sovereign.14 In the present case, it is evident that there was no

contractual breach caused by an exercise of sovereign power.15 Claimant is asking this

Tribunal to adopt an interpretation that would compromise international dispute

settlement. Such an interpretation would lead to a high number of commercial claims

under international arbitration and would make all the other BIT substantive protection

useless.16

13 Vivendi I Annulment, ¶95. 14 Salini, ¶155. 15 El Paso, ¶ 79, 81-82. 16 SGS v. Pakistan, ¶172; Schreuer – BIT Route, page 255.


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3. IN ANY CASE, THE PRESENT CLAIM IS INADMISSIBLE BECAUSE IT IS A CONTRACT CLAIM GOVERNED BY THE SPA.

48. Even if this Tribunal finds that it has jurisdiction over the alleged breach of the SPA, the

claim must be deemed inadmissible as the appropriate forum for the dispute is the ICC.

The SPA includes an exclusive forum selection clause at Article 14.2, which refers all

disputes arising from the contract to the ICC. This clause was freely negotiated, applies

specifically to this dispute and must be respected.

49. As consistently determined by tribunals, precedence should be given to a contractual

forum selection clause over an investment treaty umbrella clause as the former applies

more specifically to the contractual dispute.17 Therefore, even if this Tribunal had

jurisdiction over the contractual breach, precedence would have to be accorded to the

ICC and the claim would have to be deemed inadmissible.

50. The Tribunal’s decision in SGS v. Philippines is particularly relevant on this matter as it

specifically addresses the effect of an umbrella clause on contracts with forum selection

clauses. As stated by the Tribunal majority, made up of arbitrators Dr. El-Kosheri and

Professor Crawford:

“It is not to be presumed that such a general provision [the Umbrella Clause] has the effect of overriding specific provisions of particular contracts, freely negotiated between the parties.”18

51. This conforms with Schreuer’s interpretation of dispute settlement clauses:

“[a] document containing a dispute settlement clause which is more specific in relation to the parties and to the dispute should be given precedence over a document of more general application.”19

52. The same reasoning must be followed in the present case as the general provision in BIT

Article 6.2 cannot be seen to override the forum chosen in SPA Article 14.2. The latter

must be given precedence as it refers specifically to a breach of the SPA. A contrary

17 SGS v. Philippines, ¶141. 18 SGS v. Philippines, ¶141. 19 Schreuer – The ICSID Convention, page 362.


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interpretation would go against the purpose of an investment protection agreement. The

BIT is intended to support and supplement, and not to override the SPA.20

53. Further, Claimant must respect the reciprocity of contractual obligations. Claimant cannot

seek to enforce the warranty provided in the SPA while simultaneously circumventing the

forum selection clause of the same agreement. Umbrella clauses, while reinforcing the

sanctity of contracts, do not alter the legal nature of the relationship nor the governing

law.21

54. Reviewing the application of the umbrella clause, the CMS Annulment ad hoc Committee,

comprising Judge Guillaume, Judge Elaraby and Professor Crawford, held that:

‘The effect of the umbrella clause is not to transform the obligation which is relied on into something else; the content of the obligation is unaffected, as is its proper law’.22

55. Crawford elaborates on this finding in an article:

“(…) claims are still contractual and they are still governed by their own applicable law. The distinction between treaty and contract is maintained. The purpose of the umbrella clause is to allow enforcement without internalization and without transforming the character and content of the underlying obligation.”23

56. This interpretation is consistent with the ordinary meaning of BIT Article 6.2. Claimant is

invoking the contract to its advantage without respecting its own obligation under SPA

Article 14.2. The alleged breach of SPA is a contractual claim and must respect the

contract’s applicable law and forum selection clause, including the reciprocal nature of

obligations inherent to any contractual claim. Claimant cannot be allowed to circumvent

the SPA’s forum selection clause by claiming the alleged breach of the SPA’s warranty

under the BIT. This contradiction renders the claim inadmissible.

20 SGS v. Philippines, ¶141. 21 SGS v. Philippines, ¶126; Toto Construzioni, ¶202; Schill, page 320. 22 CMS Annulment, ¶95. 23 Crawford, page 370.


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II. MERITS

57. In this section, Respondent will demonstrate that (1) Claimant’s Investment has not been

expropriated; (2) Ruritania did not breach its obligation to provide FET to Claimant; (3)

Ruritania did not breach its obligation to provide FPS to Claimant; and (4) Ruritania has

not impaired, by arbitrary or discriminatory measures, Claimant’s rights, or provided less

favourable treatment on the basis of nationality under BIT Article 3.2.

1. CLAIMANT’S INVESTMENT HAS NOT BEEN EXPROPRIATED.

58. Claimant has not met its burden of establishing Ruritania’s actions have substantially

deprived Claimant of its Investment in FBI because (A) Claimant continues to own FBI

and to produce beer; and (B) Claimant’s has not been substantially deprived of its

trademarks.

59. In any event, (C) the MAB Act and Labeling Ordinance were valid exercises of

Ruritania’s police powers.

A. Claimant has not been substantially deprived of FBI because Claimant continues to own and operate FBI.

60. No expropriation has occurred. Claimant alleges that the MAB Act and the Labeling

Ordinance amount to an indirect expropriation of FBI and its trademark rights. However,

Claimant’s evidence does not establish that it has been substantially deprived.

61. The standard Claimant must satisfy to establish indirect expropriation, a “taking”, is

“substantial deprivation.”24 In finding that Canada had not expropriated the claimant’s

investment, the Tribunal in Pope and Talbot stated that interference must be “sufficiently

restrictive” to rise to the level of expropriation.25 The investment must “cease to exist.”26

Further, these measures must be permanent or irreversible.27

24 Pope and Talbot, ¶102. 25 Pope and Talbot, ¶102. 26 Glamis, ¶357. 27 Biwater Gauff, ¶463.


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62. Claimant has not satisfied this standard. First, Claimant retains title to and control of FBI.

Second, Claimant retains market access. Third, FBI’s financial losses alone are not

sufficient to constitute an expropriation.

63. First, Claimant retains title to FBI and continues to manage its day-to-day operations. A

claim of expropriation should not be found where regulatory action has not deprived

Claimant of control of the Investment, interfered directly in Claimant’s internal

operations or displaced Claimant as the controlling shareholder.28

64. Claimant’s business activities are not being supervised by Ruritania, nor is Claimant

prohibited from producing and selling its products since the implementation of the MAB

Act. Likewise, the Labeling Ordinance – adopted after scientific research demonstrated

the adverse health effects of MDB – merely allows consumers to make informed choices.

65. Second, Claimant continues to have capacity to produce beer and there is still a market

for beer in Ruritania. While the MAB Act places reasonable limits on the marketing and

sale of alcohol, consumption of alcohol is not prohibited. There is still a market for

alcohol as it can be served at catering establishments between 9:00am and 9:00pm.

Alcohol may be marketed in print and radio, so long as it is not advertised as compatible

with a healthy way of life.

66. Third, FBI’s financial losses alone are not sufficient to constitute an expropriation. The

Tribunal in CMS rejected a claim of expropriation where the claimant maintained

ownership and control of an investment though the investment’s value was severely

diminished.29

67. In this case, Claimant retains title, control, and the ability to produce beer. Claimant has

not established that Ruritania has effectively “taken” FBI.

28 Feldman, ¶152. 29 CMS, ¶263.


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B. Claimant has not been substantially deprived of its trademarks

68. Claimant has not been substantially deprived of its trademark rights because it has not

been substantially deprived of the right to exclude others from using its trademarks.

69. For a trademark to be expropriated, the owner must be substantially deprived of the right

to exclude others from using its mark in relation to the registered goods or services.30

Trademark protection provides a right to exclusivity. Essentially, ownership of a

trademark provides recourse against those who infringe the holder’s rights.31

70. In this case, Claimant has registered trademarks relating to beer brands and bottles. Thus,

Claimant has the right to exclude others from using its marks in relation to beer products.

Claimant’s trademarks remain registered and Claimant has not been deprived of this right.

While the MAB Act prescribes requirements for the labels and bottle sizes, it does not

prohibit FBI from enforcing its right to prevent others from using its marks.

71. Further, even if use is a trademark right, Claimant has not been deprived of this right

because trademark use has not been prohibited per se. Under the MAB Act, Claimant

may still use its marks to advertise beer in a number or forums. It is only restricted from

using its trademarks on beer packaging and in a way that suggests alcohol is compatible

with a healthy way of living.

C. The MAB Act and Labeling Ordinance were a valid exercises of Ruritania’s police powers.

72. Ruritania’s implementation of the MAB Act, and the Labeling Ordinance were valid

exercises of Ruritania’s police powers.

73. States do not commit expropriation and are not liable to pay compensation when they

adopt regulations that are within their police powers.32 Christie opines,

“…the operation of a State’s tax laws, changes in the value of a State’s currency, actions in the interest of public health and morality, will all serve to

30 Espinosa – WIPO Trademark Rights. 31 Espinosa – WIPO Trademark Rights. 32 Saluka.


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justify actions which because of their severity would not otherwise be justifiable.”33

Thus, bona fide regulatory action undertaken for a recognised purpose, in a good

faith and in a non-discriminatory fashion is a valid exercise of police powers.34

74. The right to regulate specifically pertains to claims of expropriation of foreign property.

Herz writes,

“…interference with foreign property in the exercise of police power is not considered expropriation. The state is deemed to be free to take all necessary steps in this respect without incurring any of the obligations which generally accompany ordinary expropriation.”35

If the State’s reasons bear “some plausible relationship to the action taken”, then

there is no need to analyse the government’s motives further.36

i. Ruritania’s implementation of the MAB Act was a valid exercise of police powers.

75. The MAB Act was a valid exercise of Ruritania’s police powers because it was

undertaken for a recognised purpose, was non-discriminatory, and was enacted in good

faith.

76. The MAB Act was implemented in November 2010 to combat alcoholism and youth

exposure to alcohol. It limits the ways in which alcohol may be advertised, where and

when alcohol may be consumed, and alcohol bottling sizes.

77. In enacting the MAB Act, Ruritania acted to combat alcoholism and the risks posed by

exposure of youth to alcohol.37 According to Professor Newcombe, measures undertaken

for the protection of health are a legitimate objective within a state’s police powers.38

78. Ruritania was not only entitled but also obligated to undertake measures to protect the

health of its nationals. As a party to the International Covenant on Economic, Social and

33 Christie, page 331-332. 34 Too, ¶387; Saluka, ¶262. 35 Herz, ¶251. 36 Christie, page 338. 37 SoD, ¶14. 38 Newcombe, page 21.


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Cultural Rights, Ruritania recognises “the right of everyone to the enjoyment of the

highest attainable standard of physical and mental health.”39 The MAB Act is a step taken

to “achieve the full realisation of this right.”40

79. The World Health Organization has also recognised the adverse health effects of alcohol

and adopted a Global Strategy to reduce the harmful use of alcohol.41 Thus, Ruritania is

not an outlier in attempting to curb alcohol-related problems.

80. The MAB Act is not discriminatory as it has general application. The limitations apply to

all producers of alcohol, whether foreign or national, and include all types of beverages

that exceed 0.6 percent of alcohol by volume. Claimant’s Investment has not been

targeted.

81. Finally, these measures were undertaken in good faith to reduce and prevent alcoholism.

Ruritania has not received any financial benefit through this regulation. Rather, by

limiting the hours, location, and bottling sizes for consumption of alcohol, Ruritania can

achieve its goal of limiting youth exposure to alcohol and reduce the chance of alcohol

dependency. At the same time, alcohol consumption has not been criminalized.

ii. Ruritania’s implementation of the Labeling Ordinance was a valid exercise of police powers.

82. The Labeling Ordinance was a valid exercise of Ruritania’s police powers because it was

undertaken for a valid purpose, was non-discriminatory, and was enacted in good faith.

83. Ruritania implemented the Labeling Ordinance in the interest of public health. A

longitudinal study conducted by the HRI concluded that daily dosages of MDB could

cause cardiac complications.42 Cardiac complications are a serious concern and, to the

extent that they result from consumption of MDB, are preventable. Ruritania was entitled

to require products containing MDB to indicate as such.

39 ICESCR, Article 12.1. 40 ICESCR, Article 12.2. 41 WHO, WHA 61.4 Resolution. 42 SoC, ¶14.


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84. Like the MAB Act, this measure is applied generally and is not discriminatory. The label

is a requirement for all products containing Reyhan, including those of nationals. The

label is careful in stating that cardiac complications may result from consumption of

Reyhan. Again, Ruritania does not benefit from the Labeling Ordinance and there is no

evidence to suggest that it was implemented in bad faith.

85. Requiring Ruritania, or a state in similar circumstances, to pay compensation for

regulations undertaken for a recognised objective would reduce States’ sovereignty and

discourage actions to protect nationals.

2. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FET TO CLAIMANT.

86. BIT Article 2.1(b) obliges a Contracting State to accord FET to Investments by Investors

of the other Contracting State. (A) Ruritania has accorded FET pursuant to the minimum

standard of treatment under customary international law. In any event if the standard is

interpreted to be broader than customary international law (B) Ruritania has met the

standard of FET provided under the BIT.

A. Ruritania did not breach the FET standard as provided for under customary international law.

87. BIT Article 2.1(b) holds that: “Each Contracting State shall in its territory (…) (b) in

every case accord Investments by Investors of the other Contracting (…) fair and

equitable treatment (…) under this Treaty.”

88. BIT’s FET standard has its historical origins in the OECD Draft Convention on the

Protection of Foreign Property of 1967. The notes and comments to the Draft reveals that

the FET standard was understood as referring to the minimum standard of treatment

under customary international law.43

89. This interpretation was later confirmed in 1984 when the OECD Committee on

International Investment and Multinational Enterprises reported that all the Member

43 7 ILM 118, 120 (1968) as cited in Dolzer & Schreuer, page 135.


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countries that commented on this point agreed that FET introduced a substantive legal

standard referring to general principles of international law even if not explicitly stated.44

90. The Neer standard has been considered by many tribunals to establish the ‘international

minimum standard of treatment.’45 Historically, and in the present case, the appropriate

starting point when defining the content of BIT Article 2.1(b) is the Neer case.46

91. Neer establishes that a breach of the minimum standard treatment:

“should amount to an outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognise its insufficiency.”47

92. Many arbitral tribunals have recognised that the content of the minimum standard of

treatment under international law may have evolved since the Neer case.48 Importantly,

the burden rests on Claimant to prove that, at the time the BIT was concluded, the

minimum standard of treatment defined in Neer had evolved.49 It is evident that the

minimum standard of treatment, even if seen as an evolving concept, would not exclude

rational, reasonable regulatory changes, undertaken in good faith, to protect public health.

Ruritania’s legislative and regulatory measures would not breach either the customary

international law threshold set by Neer, or the evolving concept of the standard, which

remains a high threshold.50

B. Ruritania did not breach the FET standard as provided for under the BIT even if interpreted as an autonomous standard.

93. In any event, should this Tribunal interpret the BIT’s FET obligation as autonomous,

Ruritania has met the standard of FET provided under the BIT for two reasons: (i)

Claimant’s expectations were not legitimate at the time of investment; and (ii) Ruritania’s

actions were within its right to regulate to protect the health of its citizens.

44 OECD, 1984, p. 12 ¶36 as cited in Dolzer & Schreuer, page 135. 45 El Paso Award, ¶336; Glamis, ¶598. 46 Siemens, ¶291; Dolzer and Schreuer, page 139. 47 Neer, ¶556. 48 Thunderbird, ¶194; Glamis, ¶598, 616; Cargill, ¶284; ADF, ¶179. 49 Glamis, ¶601; Siemens, ¶293, 295. 50 Thunderbird, ¶194.


20

i. Claimant’s expectations were not legitimate at the time of investment.

94. Where the FET standard is considered to protect an investor’s expectations with regard to

its investment in the host state, this Tribunal must consider whether Claimant’s

expectations at the time of investment were legitimate.51 ‘Legitimate expectations’ must

be evaluated objectively: an Investor’s expectations are legitimate where they are

reasonably based on specific representations52 made at the time of investment. FET does

not cover the subjective expectations an Investor may have had.

95. Claimant’s failure to conduct due diligence, and its subsequent ignorance of the

investment climate cannot provide a reasonable basis for a legitimate expectation that no

changes effecting their Investment would be implemented. At the time Claimant acquired

FBI, the New Way Party had just been elected as the majority government of Ruritania.

The New Way Party was elected with a mandate to take a hard stance toward the sale and

marketing of alcoholic beverages.

96. It is well established that foreign investors have an obligation to conduct due diligence at

the time of investment.53 Any diligent investor in the alcohol industry, conducting due

diligence before the acquisition of FBI, would have been aware that regulatory changes

were imminent. Further, Ruritania made no representation to the effect that there would

be no change in the regulation. In fact, the opposite is true. It was widely publicized

before Claimant’s investment that such changes would be made. Respondent cannot be

held liable, under the FET, for Claimant’s unreasonable assessment of risk at the time it

made its Investment. Consequently, this Tribunal cannot find that Claimant’s

expectations –that there would be no regulatory changes– were legitimate.

97. Claimant’s allegation that FET encompasses a stable legal framework does not prohibit

Ruritania from making legitimate legislative or regulatory changes. FET cannot elevate

the requirement for legal stability to mean that the host state’s laws are frozen at the time

of investment.

51 Tecmed, ¶154; Duke, ¶340; LG&E, ¶130. 52 Suez, ¶209; Parkering, ¶331. 53 UNCTAD – FET, page 70.


21

98. An investor cannot “reasonably expect the circumstances prevailing at the time the

investment is made [will] remain totally unchanged.”54 Such an interpretation would

prevent the host state from introducing any regulatory changes for legitimate purposes.

As Crawford has explained, “In the absence of [an] express stabilization [clause],

investors take the risk that the obligations of the host state under its own law may

change."55

99. Further, it is well established that a mere breach of a contractual obligation, as alleged by

Claimant, is insufficient to constitute a breach of FET.56

100. Ruritania enacted regulatory changes for a legitimate purpose: the protection of its

citizen’s health. Claimant cannot legitimately expect that Ruritania would not enact

reasonable measures in such circumstances, specifically, when the intention to implement

such measures was publicly available in advance of Claimant’s Investment.

ii. This Tribunal must take Ruritania’s right to regulate into consideration when addressing Claimant’s legitimate expectations.

101. FET cannot be applied in a way that would preclude Ruritania from regulating in the

public interest.57 This standard cannot be interpreted as giving this Tribunal an open

mandate to review Ruritania’s exercise of its right to regulate.58As Ruritania is best suited

to enact regulations aimed at protecting the public’s health, this Tribunal must accord

deference to its legislative choices. This Tribunal need only to establish if Ruritania’s

legislation was enacted in a fair and equitable matter.

102. In the present case, regulatory changes had been launched out of legitimate regulatory

concerns due to the HRI’s finding. These changes were made in respect of Ruritania’s

responsibilities as a Sovereign and its international commitments to protect its nationals.

FET cannot be interpreted as prohibiting a State from making such changes.

54 Saluka, ¶305. 55 Crawford, page 370. 56 Impregilo, ¶268; Duke, ¶345; Dolzer and Schreuer, page 154: “ Most tribunals (…) have found that a simple breach of contract by a state would not trigger a violation of the FET standard.” 57 Saluka, ¶305-310; Total, ¶164; Parkering, ¶329-334; Lemire, ¶284-5; El Paso, ¶350-52, 355; Carreau and Juillard, page 1265. 58 SD Myers, ¶261, 263.


22

103. The term “equitable” employed in the FET standard suggests that there must be a

balancing test between the Investor’s legitimate expectations and the State’s right to

regulate to protect its nationals.59 Therefore, when assessing a breach of FET, the

Tribunal must take into consideration the interests of both parties.60

104. Such a balancing test respects the purpose and objectives of the BIT, which is to “create

favourable conditions for Investment” but also to encourage “the prosperity of both

nations and the welfare of their nationals”. As demonstrated by the BIT Preamble, only

considering the Investor’s legitimate expectations without respecting the State’s right to

regulate domestic matters would fail to consider the bargain entered into between the two

parties at the time of investment.61

105. The factors that should be considered when assessing a FET claim have been summarized

in the Lemire case. According to the Tribunal:

“The protection of the legitimate expectations must be balanced with the need to maintain a reasonable degree of regulatory flexibility on the part of the host state in order to respond to changing circumstances in the public interest.62”

106. Ruritania respected Claimant’s legitimate expectations while exercising their right to

regulate to protect their nationals. Claimant was not entitled to expect that there would be

no regulatory changes as no representation was made to that effect. Further, the conduct

of proper due diligence would have made it clear at the time of investment that regulatory

changes would be made. This Tribunal must therefore conclude that Ruritania did not

breach Claimants legitimate expectations and accorded it FET.

59 UNCTAD – FET, page 7. 60 Saluka, ¶306; Total, ¶123, 309. 61 Saluka, ¶300. 62 Lemire, ¶284-285.


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3. RURITANIA DID NOT BREACH ITS OBLIGATION TO PROVIDE FPS TO CLAIMANT.

107. Under BIT Article 2.1(b), each Contracting State shall accord Investments by Investors of

the other Contracting State FPS. Contrary to Claimant’s allegation,63 the introduction of

the MAB Act and Labeling Ordinance does not breach this standard.

108. FPS cannot be breached by a state’s exercise of its right to regulate in the public interest.

Even if some tribunals have interpreted the standard as guaranteeing legal security, it

remains a standard of due diligence64 applying only to exceptional circumstances. This

standard cannot be interpreted as prohibiting Ruritania from implementing legitimate

regulatory changes. The mere fact that Claimant was affected by these changes does not

establish a breach of FPS.65

109. In AES, the Tribunal found that the FPS standard:

“(…) certainly does not protect against a state’s right to legislate or regulate in a manner which may negatively affect a claimant’s investment, provided that the state acts reasonably in the circumstances and with a view to achieving objectively rational public policy goals.”66

110. In effect, Claimant is asking this Tribunal to adopt an interpretation that would transform

FPS into a stabilization clause. The general terms used by BIT Article 2.1(b) cannot be

interpreted as having such an effect.67

111. The disputed regulations were reasonable in light of the balanced approach of the

measure. They were implemented in order to protect Ruritania’s nationals from an

imminent long-term risk and the restrictions imposed by the measures does not prohibit

Claimant from selling its product. Ruritania has accorded FPS under BIT Article 2.1(b).

63 SoC, ¶27. 64 Noble Ventures, ¶164. 65 Frontier, ¶261. 66 AES, ¶13.3.2. 67 AES, ¶13.3.5.


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4. THE MAB ACT AND LABELING ORDINANCE ARE NOT ARBITRARY OR DISCRIMINATORY; NOR HAS RURITANIA PROVIDED CLAIMANT LESS FAVOURABLE TREATMENT ON THE BASIS OF NATIONALITY.

112. To establish a breach of BIT Article 3, Claimant must either demonstrate that its

Investment has been impaired by an arbitrary or discriminatory measure or that it has

been accorded treatment less favourable than nationals of Ruritania or a third State.

Claimant does not demonstrate any of these requirements.

113. First, (A) The MAB Act and Labeling Ordinance are not arbitrary because they are

rationally connected to Ruritania’s objective to protect public health. Second, (B) the

MAB Act and Labeling Ordinance are not discriminatory because they apply equally to

companies causing similar risks to the public. (C) Ruritania is owed deference in the

determination of domestic health policy.

114. Further, (D) the MAB Act and Labeling Ordinance respected Ruritania’s obligation to

accord national treatment as they apply equally to both Ruritania’s nationals and foreign

Investors in like situations.

115. In any case, (E) the MAB Act and Labeling Ordinance cannot be considered a breach of

BIT Article 3 because they had to be taken for reasons of public security and order.

A. The MAB Act and Labeling Ordinance are not arbitrary because they are rationally connected to Ruritania’s objective to protect public health.

116. The MAB Act and Labeling Ordinance are not arbitrary because they are connected to

the objective of protecting health. The term “arbitrary” in BIT Article 3.1(c) is undefined.

The Azurix68 Tribunal found that a measure is ‘arbitrary’ where it depends on “individual

discretion; (…) founded on prejudice or preference rather than on reason or fact.”69 This

definition accorded with the standard of arbitrariness espoused in ELSI:

68 Azurix, ¶392. 69 Lauder, ¶221 (citing Black’s Law Dictionary 100 (7th ed. 1999)).


25

“not so much something opposed to a rule of law, as something opposed to the rule of law … It is a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”70

117. In ELSI, a mayor exceeded the parameters of his discretion by exercising his requisition

power illegally. The US argued that an arbitrary measure included an unreasonable or

unfair exercise of government authority. The ICJ explicitly disagreed, finding that such

illegal action was not arbitrary. Tribunals have consistently followed the standard laid

down in ELSI.71

118. The resulting threshold for a finding of ‘arbitrariness’ is high. Tribunals have ruled that

governmental measures that are not “shocking” or “surprising” in their initiation,72 or that

lack “some important measure of impropriety [be] manifest,”73 will not be sufficient to

make a finding of arbitrariness.

119. To breach the standard of arbitrariness, a measure must lack any rational connection to

the objective.74 In applying the standard, this Tribunal must only determine whether it is

reasonable for Ruritania to draw the connection it did, between the legitimate objective

identified and the measure taken to achieve it.

120. In the present case, the MAB Act and the Labeling Ordinance are rationally connected to

the objective of preserving the health and welfare of the public.

121. The MAB Act’s measures are not arbitrary because they are rationally connected to the

objective of reducing consumption of alcohol to curb alcoholism and youth exposure to

alcohol. These measures are not a prohibition on alcohol consumption; rather, they

include: plain packaging, limits on where and when alcohol may be served and limits on

how alcohol may be advertised. The significant decline in alcohol sales following

adoption of the MAB Act reinforces the rational connection between the measures taken

and the objective of preventing alcoholism.

70 ELSI, ¶128. 71 Enron; Noble Ventures. 72 Noble Ventures, ¶176- 177. 73 Enron – Award, ¶281.


26

122. Moreover, these measures align with internationally accepted strategies to combat

alcohol related health risks. For example, the MAB Act accords with the policy

framework and recommendations of the World Health Organization’s Global Strategy to

Reduce the Harmful Use of Alcohol. 75 Specifically the framework includes

recommendations for regulations and restrictions on the sale and marketing of alcohol.

123. The Labeling Ordinance is not arbitrary because it is rationally connected to the objective

of preserving the health of Ruritanians. Cardiac complications are a serious concern and

can be prevented by creating consumer awareness of the risks posed by MDB.

124. Accordingly, it does not surprise a sense of judicial propriety that Ruritania would seek to

create consumer awareness. In particular, the adoption of the Labeling Ordinance by the

MHSSR occurred in the course of the Minister’s statutory obligation to protect the health

of the public. In doing so the parties agree that due process was followed including

consideration of the available evidence, the degree of potential risk and alternative

measures.76

125. Similarly, the Tribunal in Genin recognised the State’s discretion in meeting its statutory

obligations. The Tribunal concluded that the Estonian Central Bank’s revocation of the

claimant’s license was not arbitrary and discriminatory because the Bank acted pursuant

to its mandate.

126. Measures limiting the marketing, sale and packaging of alcohol and adopting health

warning labels are rationally connected to the legitimate objectives of reducing

consumption of alcohol and warning people of health risks, and such rational connections

are reasonable.

B. The MAB Act and Labeling Ordinance are not discriminatory because they apply equally to companies causing similar risks to the public.

127. A finding of discrimination depends on whether an unjustifiable distinction has been

drawn between companies in similar situations. The Tribunal must first determine

75 WHO - Alcohol, page 14-15. 76 PO No 3, ¶10.


27

whether the comparator group, established for the purpose of determining differential

treatment of similarly situated companies, is rational. Second, a factual assessment must

determine whether Claimant has been subject to impairment relative to other companies

in its comparator group.

128. (i) Discriminatory treatment requires an absence of rational connection between the

distinction and the objective. In the present case, (ii) the distinctions establishing the

appropriate comparator groups by the MAB Act and Labeling Ordinance are rationally

connected to their objective, and do not discriminate against similarly situated companies.

i. Discriminatory treatment requires an absence of rational connection between the distinction and the objective.

129. Most domestic regulatory frameworks depend on drawing distinctions of some kind.

Discrimination therefore involves more than a simple distinction, but rather an

illegitimate distinction.

130. A discriminatory, illegitimate distinction in breach of BIT Article 3.1(c) is one that

unjustifiably or arbitrarily distinguishes between Investors in like situations or treats

unlike Investors the same.77 Central to the illegitimacy of a distinction is whether it was

taken arbitrarily. For this reason, there is often overlap between application of the

arbitrary standard, and a finding of discrimination.

131. While improper differentiation between different sectors of the economy may amount to

discrimination, the Enron Tribunal explained that where important differences between

sectors exist, and no “capricious, irrational or absurd differentiation in the treatment is

accorded to the claimant as compared to other entities or sectors”78 then no discrimination

is present. This standard was applied against similar facts in Sempra79, CMS80 and BG81 in

relation to the Argentinian government’s discrimination against gas distribution

77 Newcombe and Paradell, page 288. 78 Enron, ¶282. 79 Sempra, ¶319. 80 CMS, ¶293. 81 BG, ¶345-359.


28

companies, vis-à-vis other public utility companies such as water supply and electricity

companies.

132. For a distinction between investors to breach the prohibition against discriminatory

measures, it must lack almost rational justification for the differentiation. Here the

standard of discrimination aligns closely with that of arbitrary impairment. Ruritania need

only demonstrate that a distinction drawn between sectors of the economy is rational.

133. Whether the basis for discrimination is a rational line to draw in relation to the challenged

measure is based on the purpose of differentiation in relation to the objective sought.

ii. The challenged distinctions are rationally connected to their objective and do not discriminate against similarly situated investors.

134. The objective of the MAB Act is to encourage a reduction in the consumption of alcohol.

The Act makes a rational distinction in relation to this objective by drawing a line

between alcoholic beverage producers and every other Investor. In particular, the

restriction on 0.8 liter bottles as compared against 0.5 liter bottles is similarly a

distinction drawn on the basis of encouraging a reduction in the consumption of alcohol

at the individual level. As such, in respect of a determination of discrimination, the

differential treatment is rationally related to the objective, and the rational connection is

reasonable.

135. With regard to the Labeling Ordinance, Ruritania invites the Tribunal to follow the

reasoning adopted in EC-Asbestos.82 There the Appellate Body Panel interpreted the

standard of “likeness” under GATT Article III:4. The Panel found that although products

with quite different physical properties may be capable of performing similar or identical

end-uses, one basis of differentiating amongst like products would include the physical

properties of the product, and such physical properties may be relevant in determining

their “likeness”. As the Appellate Body noted in referring to the findings of the original

Panel, the “carcinogenicity, or toxicity, [of asbestos] constitutes, as we see it, a defining

aspect of the physical properties of chrysotile asbestos fibres.”83 The Appellate Body

82 EC-Asbestos. 83 EC-Asbestos, ¶114.


29

determined that such a highly significant physical difference had to be a consideration in

a determination of the "likeness" of a product under Article III:4 of the GATT 1994.

136. In evaluating the rational basis of distinction for the implementation of the Labeling

Ordinance between products in ‘like situations’, a similar set of considerations must

prevail. The objective of the present regulatory measure is to inform consumers of health

risks. The distinction must be drawn on this basis.

137. Differentiation on the basis of a physical property of the Investment, in this case the

presence of MDB that creates a health risk, is therefore a rational basis of differentiation

and does not rise to the level of illegitimate or arbitrary discrimination. Here, the

Labeling Ordinance applies equally to all products containing Reyhan.

C. Ruritania is owed deference in the determination of domestic health policy.

138. Even if this Tribunal applies a different standard of arbitrariness, deference must be give

to a State prerogative to act in the public interest. Ruritania followed due process of law

in adopting the regulatory measures. In such a context it is not the role of this Tribunal to,

in the words of the Tribunal in Chemtura, “second-guess the correctness of the science-

based decision-making of highly specialized national regulatory agencies.”84

139. Substantive evaluation by this Tribunal of the reasonableness of evidence upon which to

differentiate investors is inappropriate. The State’s objective in protecting human health

is fundamental, and measures to achieve this end are paramount.

140. Specifically, the deference afforded to decision makers in determining the requisite

public health measures must necessarily be influenced by the Ruritania’s right to

determine measures that have to be taken for public security. As such, deference must be

accorded to Ruritania in determining whether on the basis of their objectives and

available rationale, the differentiation is reasonable.

84 Chemtura, ¶134; see also SD Myers, ¶261.


30

141. Ruritania is acting on reliable scientific evidence. In accordance with the precautionary

principle, Ruritania must best protect the public benefit to the potential extent of the

health dangers suggested by the evidence.85

D. The MAB Act and Labeling Ordinance respected Ruritania’s obligation to accord national treatment as they apply equally to both Ruritania’s nationals and foreign investors in like situations.

142. Where different treatment is a result of factors other than nationality, Claimant cannot

claim a breach of national treatment. The MAB Act and the Labeling Ordinance do not

differentiate based on nationality. The MAB Act applies equally to all companies in the

alcohol industry. The Labeling Ordinance applies equally to all companies selling

products containing Reyhan.

143. The facts demonstrate that such differentiation was made on the rational and reasonable

grounds of protecting and increasing the awareness of citizens to the health risks of

Reyhan. Consequently, any resulting less favourable treatment, cannot be determined to

be on the basis of nationality.

E. The MAB Act and Labeling Ordinance cannot be considered a breach of BIT Article 3 because they had to be taken for reasons of public security and order.

144. BIT Article 3.2 precludes Ruritania’s liability for a breach of the prohibition against

arbitrary, discriminatory or less favourable treatment under BIT Article 3.1 where an

infringing measure “had to be taken for reasons of public security and order.” BIT Article

3.2’s preclusion of liability, interpreted in accordance with VCLT Article 31, is (i) an

autonomous standard, distinct from customary international law; and (ii) self-judging.

(iii) Public security includes measures necessary for the protection and promotion of

public health. (iv) Alternatively, Ruritania’s meets the standard of necessity under

customary international law.

85 Foster.


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i. BIT Article 3.2 is an autonomous standard, different from ‘necessity’ under Customary International Law.

145. BIT Article 3.2 precludes liability for a breach of Article 3.1. There are two reasons why

this provision is autonomous from the ‘necessity’ defence under customary international

law codified in ILC Article 25.

146. First, the use of the term “have to be taken” is unique to bilateral investment language,

with the exception of its use in the German Model Treaty (2005).86 The absence of the

word ‘necessary’ where such language has been used in similar exception clauses87 must

be given effect. The specific use of this language demonstrates a purposeful attempt to

distance the definition, and its interpretive scope, from the customary international law

defence of ‘necessity’.

147. Second, use of the international customary law defence of necessity as an interpretive

guide to define the substance of a non-preclusion provision is inappropriate.88 Necessity

under ILC Article 25 is concerned with exception of “the wrongfulness of an act not in

conformity with an international obligation.”89 This presupposes that a violation of the

State’s international obligations has already occurred. The provision of Article 3.2 within

the framework of the BIT means that where the provision is applicable no breach occurs

and the invocation of necessity for a wrongful act is not required. The Sempra Annulment

committee explained that ILC Article 25 could not be used as a guide to interpret the use

of the term “necessity” in US-Argentina BIT Article XI, because they operate on

different planes – primary and secondary – and therefore deal with quite different

situations.90 Article 25 cannot therefore define the conditions for operation of BIT Article

3.2.

86 German Model Treaty, Article 3. 87 Canada Model FIPA, Article 10; US Model BIT, Article 18. 88 Sempra Annulment, ¶200. 89 Sempra Annulment, ¶200. 90 CMS Annulment, ¶129; Continental Casualty, ¶166.


32

ii. BIT Article 3.2 is self-judging.

148. The specific formulation of BIT Article 3.2 diverges from similar non-precluded

measures clauses in an important way. The absence of ‘self-judging’ language, “it

considers necessary,” is not determinative of the provision’s operation because of the

unique inclusion of the terms “arbitrary or discriminatory” within the Article.

149. By definition, arbitrary and discriminatory measures lack a rational connection between

the measure taken or the distinction drawn and the objective, respectively. Were this

Tribunal to determine that a measure lacks a rational connection to Ruritania’s objective

in breach of BIT Article 3.1, it would render it impossible to demonstrate that such a

measure had to be taken, pursuant to BIT Article 3.2. The principle of effet utile requires

that provisions be interpreted in a manner that does not deprive them of all force an effect.

The implicit logical impossibility of a Tribunal giving effect to the meaning of BIT

Article 3.2, upon a determination that a breach of BIT Article 3.1 has occurred,

emphasizes the fact that the only the Contracting State can define the scope of its

application.

iii. Public security includes measures necessary for the protection and promotion of public health.

150. Ruritania is obliged to act in good faith when invoking the self-judging BIT Article 3.2.91

That is, in assessing when a measure “has to be taken, for the purpose of public security

and order” this Tribunal must assess only whether Ruritania’s determination that a

measure had to be taken for public security, was done so in good faith.

151. At this stage, the burden of proof to demonstrate a breach of good faith in the invocation

of BIT Article 3.2 should lie with Claimant.92 The standard for proving a lack of

proportionality sufficient to demonstrate a breach of good faith should be high, and

require convincing evidence. 93 Such evidence has not been presented by Claimant.

91 LG&E, ¶214. 92 Alvarez-Jiminez, page 439. 93 Alvarez-Jiminez, page 439.


33

152. Essential security interest provisions, embodied in the BIT term “public security and

order”, are in principle broad in scope.94 As an autonomous standard, the meaning of the

provision derives from and must be interpreted in light of the Contracting States

understanding of the definition, found in domestic law. The protection of the public

health falls within the definition of “public security”.

153. Further, as Burke-White and Von Staden have argued, Tribunals are too far from the

circumstances surrounding the invocation of such non-precluded measures clauses to

fully assess the context of government policies. Deference to a government’s

determination of a necessary response is therefore appropriate.95

154. Several legitimate responses may be at the disposal of a state to maintain public security

and order.96 They do not have to be the ‘only means’ available. Such measures would be

justified and legitimate where they are addressing a public security issue and are

appropriate, reasonable and proportional.97

155. Both the MAB Act and Labeling Ordinance had to be taken to protect public health. Both

measures could have gone further, taking more restrictive measures, toward achieving

this legitimate governmental objective. Ruritania, however, adopted a balanced approach.

Settling for restriction on the sale and marketing of alcohol and warning labels instead of

outright bans on the presence of Reyhan demonstrates that Ruritania exercised

consideration in determining what measured had to be taken to sufficiently protect the

public’s health.

iv. Alternatively, Ruritania’s meets the standard of necessity under customary international law.

156. Should this tribunal determine that BIT Article 3.2 is equivalent to, or should be

interpreted in light of ILC Article 25, the MAB Act and Labelling Ordinance meet this

standard.

94 CMS, ¶359-365; Continental Casualty, ¶174. 95 Burke-White and Von Staden, page 369-370. 96 LG&E, ¶257. 97 Continental Casualty ¶219-227.


34

157. A literal interpretation of ILC Article 25 creates too narrow a standard. The standard of

necessity under ILC Article 25 demands that a ‘necessary’ measure be the “only means”

available to a state to achieve its legitimate objective. The existence of an alternative

measure, regardless of its viability or reasonableness, would exclude the operation of the

defence.98

158. The Enron Annulment committee’s criticized a literal interpretation of ILC Article 25.

The Committee considered that

“the relevant question for the Tribunal might be whether it was reasonably open to the State, in the circumstances as they pertained at the relevant time, to form the opinion that no relevant alternative was open.”99

159. Deferral to experts on whether there was an alternative means of achieving the State’s

objectives is to be expected. However, because there is often a range of opinions among

experts in a field, deference must be shown to States in determining whether there was an

alternative.

160. In the present case, the Ruritania was in the best position to determine that MAB Act and

Labeling Ordinance were the only measures that would fully realize the objective of

protecting public health. A least-restrictive-means interpretation of the necessity standard

would compromise the Ruritania’s legitimate objective.100 Deference to Ruritania’s

reliance on and weighing of expertise and evidence101 is appropriate.

98 CMS Award, ¶323. 99 Enron Annulment ¶372. 100 Hutterian Brethren, page 59-60. 101 PO No 3, ¶17.


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III. DAMAGES

161. In this section, Respondent will demonstrate that (1) this Tribunal lacks jurisdiction to

award compensation for loss of sales to Claimant’s agricultural and bottling subsidiaries

(“Claimant’s subsidiaries”) outside Ruritania because they do not form part of Claimant’s

Investment; and that (2) this Tribunal should dismiss Claimant’s request for “moral

damages” because Claimant did not suffer damages during the arrest and detention of

Messrs. Goodfellow and Straw.

1. THIS TRIBUNAL LACKS JURISDICTION TO AWARD COMPENSATION FOR LOSS OF SALES TO CLAIMANT’S BUSINESSES OUTSIDE RURITANIA BECAUSE THEY DO NOT FORM PART OF CLAIMANT’S INVESTMENT.

162. Under BIT Article 8, this Tribunal has jurisdiction over “[d]isputes concerning

Investments between a Contracting State and an Investor of the other Contracting State.”

This Tribunal lacks jurisdiction to award damages for the decrease in sales suffered by

Claimant’s subsidiaries because they are not an Investment under BIT Article 1.1.

163. Under VCLT Article 31, BIT Article 1.1 must be interpreted following an ordinary

meaning and in light of the BIT objectives as expressed in the BIT Preamble. The stated

objective of the BIT is “to create favourable conditions for Investments by Investors of

either Contracting State in the territory of the other Contracting State.”102 This objective

demonstrates that the BIT’s protections are limited to Investments made in the

Contracting State. BIT Article 1.1 cannot be interpreted as extending protection to all

subsidiaries of an Investor established in a non-contracting State.

164. Claimant is asking this Tribunal to award damages for losses suffered by companies

located outside of Ruritania. These companies are independent from FBI and are mere

suppliers of goods then exported to Ruritania. These companies cannot be considered an

Investment under the BIT because they are not directly or indirectly invested in Ruritania,

nor are they an indivisible part of FBI. Therefore, damages for the alleged decrease in

sales of these subsidiaries are not a dispute concerning Investments. This Tribunal lacks

jurisdiction under BIT Article 8 to order these damages. 102 BIT, Preamble.


36

2. THIS TRIBUNAL CANNOT AWARD “MORAL DAMAGES” TO CLAIMANT BECAUSE CLAIMANT FAILED TO ESTABLISH THAT IT HAS SUFFERED GRAVE DAMAGES CAUSED BY RURITANIA’S ACTIONS.

165. This Tribunal should dismiss the request for “moral damages” because the arrest and

detention of Messrs. Goodfellow and Straw did not cause a grave loss to Claimant.

166. Moral damages may only be awarded in “exceptional circumstances”.103 The Tribunal in

Desert Line - the first award of moral damages for breach of a BIT- found that the

exceptional circumstances in that case warranted an award for moral damages. In Desert

Line, the Yemeni government was involved in armed altercations with the investor,

during which they “opened fire with automatic weapons”.104

167. Desert Line must be distinguished from the present case because Yemen’s actions were

exceptionally grave. To the contrary, in the present case, Claimant has failed to

demonstrate that damage was caused, far from demonstrating exceptional circumstances

warranting moral damages.

168. The Tribunal in Lemire narrowed the test for moral damages105, concluding that such

reparation is appropriate only if the host state’s actions involve physical duress, caused

mental suffering or loss of reputation, and whose cause and effect are grave.106

169. The three criteria established in Lemire are not met. First, Messrs. Goodfellow and Straw

did not suffer physical harm. Second, the evidence does not satisfy that the arrest and

detention was the cause of the alleged loss of reputation or harm. Third, the actions of

Ruritania did not have a grave cause and effect.

170. Claimant has not established Ruritania’s actions caused a “grave” loss of reputation to

FBI. An award of moral damages requires Claimant to provide “concrete evidence” of a

direct causal relationship between Ruritania’s actions and damages incurred.107 Claimant

has not provided evidence of a loss of reputation. Further, any damage was caused by

103 Lusitania. 104 Desert Line, ¶20. 105 Dumberry. 106 Lemire, ¶333. 107 Benvenuti & Bonfant, ¶4.96.


37

Free TV, an independent media outlet, and not Ruritania. Claimant has failed to establish

a causal link between Ruritania’s actions and Claimant’s alleged damages.

171. Therefore, this Tribunal cannot award moral damages because Claimant failed to meet

the criteria established in Lemire.


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REQUEST FOR RELIEF

172. Respondent respectfully asks this Tribunal to find that:

1) it lacks jurisdiction over the present claim because of Claimant’s abuse of process;

2) it lacks jurisdiction over alleged breach of the SPA as it is a contractual dispute;

3) the alleged breach of the SPA is inadmissible as the appropriate forum to hear the

contractual dispute is the ICC.

4) Ruritania fulfilled all their obligations under the BIT, including BIT Articles 2.1(b),

2.1(c), 4.1 and 6.2.

5) the MAB act and Labeling Ordinance are proper exercises of Ruritania’s right to

regulate to protect the health of its nationals;

6) loss of sales suffered by Claimant’s subsidiaries are not recoverable items of damages

as they are not part of Claimant’s Investment in Ruritania; and

7) that request for “moral damages” must be dismissed.

Team Krylov On Behalf of Respondent,

Republic of Ruritania.

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