peter explosive claimant · i team jessup international chamber of commerce peter explosive...

i

TEAM JESSUP

INTERNATIONAL CHAMBER OF COMMERCE

PETER EXPLOSIVE

Claimant

v.

THE REPUBLIC OF OCEANIA

Respondent

MEMORIAL FOR RESPONDENT

Case No. 28000/AC

TABLE OF CONTENTS

TABLE OF CONTENTS ..........................................................................................................I

INDEX OF ABBREVIATIONS ............................................................................................III

INDEX OF AUTHORITIES .................................................................................................. V

INDEX OF ARBITRAL AWARDS.................................................................................... VII

INDEX OF CASES.................................................................................................................. X

INDEX OF LEGAL SOURCES............................................................................................ XI

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

SUMMARY OF ARGUMENT ............................................................................................... 3

ARGUMENT ON JURISDICTION ....................................................................................... 4

I. PARTIES DID NOT CONSENT TO ARBITRATION AS CLAIMANT ATTEMPTED

TO ACCEPT RESPONDENT’S OFFER TO ARBITRATE ON DIFFERENT TERMS 4

A. THIS TRIBUNAL LACKS JURISDICTION RATIONE PERSONAE............................................... 4

a. Claimant does not hold the nationality of Euroasia under its laws........................... 5

b. Claimant’s nationality of Euroasia is ineffective and thus does not bound this

Tribunal ............................................................................................................................... 5

B. RESPONDENT DID NOT OFFER TO ARBITRATE DISPUTE ARISING OUT OF ILLEGAL

INVESTMENTS........................................................................................................................... 7

a. Claimant was required to make an investment in accordance with the law.............. 7

b. Claimant's investment breached the 'clean hands' standard ..................................... 8

C. CLAIMANT DID NOT FULFILL CONDITIONS REQUIRED BY RESPONDENT’S OFFER TO

ARBITRATE ............................................................................................................................... 9

a. Respondent conditioned its consent on the investor’s satisfaction of consultation

and litigation requirements................................................................................................ 10

i. Consent may be conditioned on the fulfillment of pre-arbitral steps .................. 10

ii. Conditional consent stems from the language of Euroasia BIT .......................... 11

iii. Claimant’s actions cannot affect consent expressed by states ............................ 12

b. Claimant failed to fulfill preconditions necessary for this Tribunal’s jurisdiction . 13

c. In any case, claimant cannot be relieved from pre-arbitral requirements ................. 14

II. DEFECTS IN CONSENT CANNOT BE CURED BY AN MFN CLAUSE ................ 16

A. AN MFN CLAUSE CANNOT BE APPLIED TO CURE THE LACK OF CONSENT TO ARBITRATE

16

a. The MFN clause in Art. 3(1) Euroasia BIT does not cover Drafting Parties’

intention to arbitration....................................................................................................... 16

b. No purpose-oriented interpretation of Euroasia BIT can create this tribunal’s

jurisdiction ......................................................................................................................... 18

B. ALTERNATIVELY, THE SPECIFIC MFN CLAUSE FROM ART. 3(1) EUROASIA BIT CANNOT

EXTEND TO JURISDICTIONAL AGREEMENTS ............................................................................ 18

SUMMARY............................................................................................................................. 20

ii

ARGUMENT ON MERITS .................................................................................................. 21

III. RESPONDENT IS NOT IN BREACH OF ART. 4.1 EUROASIA BIT ..................... 21

A. EXECUTIVE ORDER FALLS UNDER THE SCOPE OF ART. 10 EUROASIA BIT.................... 21

B. ALTERNATIVELY, CLAIMANT’S INVESTMENT WAS NOT EXPROPRIATED INDIRECTLY ... 22

IV. CLAIMANT CONTRIBUTED TO DAMAGE SUFFERED....................................... 23

A. CLAIMANT CONTRIBUTED TO DAMAGE SUFFERED UNDER ARTICLE 39 ILC ARTICLES ON

RESPONSIBILITY OF STATES ................................................................................................... 23

a. Claimant contributed to damage by willful acts ...................................................... 23

b. Claimant contributed to damage by negligent business conduct ............................ 25

B. CLAIMANT IS NOT ENTITLED TO ANY COMPENSATION FOR HIS INVESTMENT ................ 26

SUMMARY............................................................................................................................. 27

PRAYER FOR RELIEF ........................................................................................................ 28

iii

INDEX OF ABBREVIATIONS

ARA

Answer to Request for Arbitration

Art.

Article

BIT/BITs

Bilateral Investment Treaty(ies)

Drafting/ Treaty Parties

Oceania and Euroasia

Eastasia BIT Agreement between the Republic of Oceania

and the Republic of Eastasia for the Promotion

and Reciprocal Protection of Investments,

January 1, 1995

e. g.

exempli gratia (for example)

Euroasia BIT Agreement between the Republic of Oceania

and the Republic of Euroasia for the Promotion

and Reciprocal Protection of Investments,

January 1, 1992

Executive Order, EO Executive Order of 1 May 2014 on Blocking

Property of Persons Contributing to the

Situation in the Republic of Eastasia

ICC

International Chamber of Commerce

ICC Rules Rules of Arbitration of the International

Chamber of Commerce

ICSID

i.a.

International Centre for Settlement of

Investment Disputes

inter alia

i.e.

id est (that is)

MFN Clause

Most Favored-Nation Clause

para., paras.

paragraph, paragraphs

Parties

Claimant and Respondent

iv

PO 2

PO 3

p./pp.

RA

Rocket Bombs

Procedural Order 2

Procedural Order 3

page(s)

Request for Arbitration

Rocket Bombs Ltd

Supra

Uncontested facts

Above

Set of uncontested facts established by this

Tribunal in Procedural Order 1

UNCITRAL United Nation Commission on International

Trade Law

U.N.T.S.

United Nations Treaty Series

VCLT

Vienna Convention on the Law of Treaties

Vol.

Volume

v.

Versus

v

INDEX OF AUTHORITIES

ABBREVATION FULL CITATION REFERENCE

I. Brownlie Ian Brownlie, “Principles of Public

International Law”, Oxford University

Press, 2003

Para. 30

W. Burke-White and A.

Staden

William W. Burke-White and Andreas

von Staden, “Investment Protection in

Extraordinary Times: The

Interpretation and Application of Non-

Precluded Measures Provisions in

Bilateral Investment Treaties”, 2008

Paras. 121, 122

Crawford/ Lee/

Lauterpacht

James Crawford, Karen Lee, Elihu

Lauterpacht, ICSID Reports, Vol. 9,

Cambridge University Press 2006

Para. 142

Dolzer/ Scheuer Rudolf Dolzer and Christoph

Schreuer, “Principles of International

Investment Law”, Oxford University

Press, 2008

Para. 126

Z. Douglas Zachary Douglas, “The International

Law of Investment Claims”,

Cambridge University Press, 2009

Paras. 20, 66

K. Hailbronner Kay Hailbronner, “Nationality in

Public International Law and

European Law” in Rainer Bauböck,

Eva Ersboll, Kees Groenendijk and

Haral Waldrauch (eds.), “Acquisition

and Loss of Nationality: Policies and

Trends in 15 European Countries”,

Amsterdam University Press, 2005

Para. 32

C. Miles Cameron A. Miles, “Corruption,

Jurisdiction and Admissibility in

International Investment Claims”,

Journal of International Oxford

University Press reference: IC-JA 076

(2012) Dispute Settlement, 3:2, 329–

36,2012

Paras. 39, 44

R. Moloo 2 Rahim Moloo, “A Comment on the

Clean Hands Doctrine in International

Law”, 2010, available at:

http://papers.ssrn.com/sol3/papers.cfm

?abstract_id=2358229

Para. 38

Jennings/ Watts Robert Jennings and Arthur Watts,

“Oppenheim's International Law:

Volume 1 Peace”, Oxford Public

International Law, 2008

Paras. 30, 31

J. Paulsson Jan Paulsson, “Jurisdiction and

Admissibility in Global Reflections on

International Law, Commerce and

Dispute Resolution”, ICC Publishing,

2005

Para. 64

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2358229

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2358229

vi

PCIJ, Acquisition of Polish

Nationality

Publication of the Permanent Court of

International Justice, “Acquisition of

Polish Nationality”, Advisory

Opinion, ser. B, No. 7, 1923

Para. 80

C. Schreuer Christoph Schreuer, Consent to

Arbitration, UNCTAD Course On

Dispute Settlement, International

Centre for The Settlement of

Investment Disputes

Para. 52

Sir Sinclair Sir Ian McTaggart Sinclair, The

Vienna Convention on the Law of

Treaties , Melland Schill monographs

in international law Remains,

Historical and Literary, Connected

with the Palatin The Melland Schill

lectures , Publisher Manchester

University Press, 1984

Para. 101

Sornajah Muthucumaraswamy Sornajah, “The

International Law on Foreign

Investment”, Third Edition,

Cambridge University Press, 2010

Para. 96

Thulasidhass P.R Thulasidhass, “Most-Favoured-

Nation Treatment in International

Investment Law: Ascertaining the

Limits through Interpretative

Principles”, Jawaharlal Nehru

University - Centre for International

Legal Studies (CILS), Amsterdam

Law Forum, Volume 7(1): 3-24, 2015

Para. 96

vii

INDEX OF ARBITRAL AWARDS


Ambiente v. Argentina Ambiente Ufficio S.P.A. and Others

(case formerly known as Giordano

Alpi and Others ) v. The Argentine

Republic, ICSID Case no. arb/08/9,

Decision on Jurisdiction and

Admissibility (February 8, 2013)

Para. 81

Austrian Airlines v.

Slovakia

Austrian Airlines v. The Slovak

Republic, Final Award, UNCITRAL

Case (October, 9, 2009)

Para. 107

Dissent in Abaclat Abaclat and others (Case formerly

known as Giovanna A. Beccara and

Others) v. The Argentine Republic,

ICSID Case No. ARB/07/5,

Dissenting Opinion, Georges Abi-

Saab (August 4, 2011)

Paras. 64, 66

Berschader v. Russia Vladimir Berschader and Morse

Berschader v. The Russian Federation,

The Arbitration Institute of The

Stockholm Chamber of Commerce,

Case No. 080/2004, Award (April 21,

2006)

Para. 94

Burlington v. Ecuador Burlington Resources Inc. v. Republic

Of Ecuador Respondent, ICSID Case

No. Arb08/5, Decision on Jurisdiction

(June, 2 2010)

Paras. 52, 65, 74

Cayuga v. United States Cayuga Indians (Great Britain) v.

United States, Reports of International

Arbitral Awards, 22 January 1926

VOLUME VI pp. 173-190

Para. 59

Daimler v. Argentina Daimler Financial Services AG v. The

Argentine Republic ICSID Case No.

ARB/05/1, AWARD (August 22,

2012)

Paras. 52, 58, 65, 67,

102, 107, 108

Delagoa Bay Railway Delagoa Bay Railway case (Great

Britain/USA/Portugal), 29 March

1900

Para. 134

Fraport v. Philippines Fraport AG Frankfurt Airport Services

Worldwide v. The Republic of the

Philippines, ICSID Case No.

ARB/03/25, Award (August 16, 2007)

Para. 44

Generation Ukraine v.

Ukraine

Generation Ukraine, Inc. V. Ukraine,

Award, ICSID Case No. Arb/00/9

Para. 59

Hamester v. Ghana Gustav F W Hamester GmbH & Co

KG v. The Republic of Ghana, ICSID

Case No. ARB/07/24, Award (June

18, 2010)

Para. 40

viii

ICS v. Argentina ICS Inspection and Control Services

Limited (United Kingdom) v. The

Argentine Republic, Award On

Jurisdiction, PCA Case No. 2010-9

(February 10, 2012)

Para. 20, 52, 58, 79, 84,

94, 107

Impregilo v. Argentina Impregilo S.p.A. v. The Argentine

Republic, ICSID Case No.

ARB/07/17, Award (June 21, 2011)

Para. 52

Inceysa v. El Salvador Inceysa Vallisoletana S.L. v. Republic

of El Salvador, ICSID Case No.

ARB/03/26, Award (August 2, 2006)

Para. 44

Kilic v. Turkmenistan KiliçĬnşaat Ĭthalat Ĭhracat Sanayi Ve

Ticaret Anonim Şirketi v.

Turkmenistan, ICSID Case No.

ARB/10/1, Decision on Article VII.2

of the Turkey-Turkmenistan Bilateral

Investment Treaty (May 7, 2012)

Paras. 20, 52, 58

LG&E v Argentina LG&E Energy Corp., LG&E Capital

Corp., and LG&E International, Inc

.v. Argentine Republic, Decision on

Liability, Oct. 3 2006, ICSID Case

No. ARB/02/1

Para. 126

Mitchell v. Congo Mr. Patrick Mitchell v. Democratic

Republic of the Congo, ICSID Case

No. ARB/99/7, Award (February 9,

2004)

Para. 44

MTD v. Chile MTD Equity Sdn. Bhd. and MTD

Chile S.A. v. Republic of Chile,

ICSID Case No. ARB/01/7, Award

(May 25, 2004)

Para. 147

Murphy v. Ecuador Murphy Exploration and Production

Company International v. Republic Of

Ecuador, ICSID Case No. Arb/08/4,

Award On Jurisdiction, (December

15, 2010)

Paras. 52, 58, 65, 81, 84

Occidental Petroleum Occidental Petroleum Corporation and

Occidental Exploration and

Production Company v. The Republic

of Ecuador, ICSID Case No.

ARB/06/11, Award (October 5, 2012)

Para. 147

Philip Morris v. Uruguay Philip Morris Brands Sàrl, Philip

Morris Products S.A. and Abal

Hermanos S.A. v. Oriental Republic

Of Uruguay, ICSID Case No.

Arb/10/7, Decision On Jurisdiction

(July 2, 2013)

Paras. 58, 81, 83.

Phoenix Action, Ltd. v.

Czech Republic

Phoenix Action, Ltd. v. The Czech

Republic, ICSID Case No. ARB/06/5,

Award (April 15, 2009)

Para. 39

Plama v. Bulgaria Plama Consortium Limited v.

Republic of Bulgaria, ICSID Case No.

ARB/03/24, Decision on Jurisdiction

(February 8, 2005)

Para. 94

ix

Renta 4 v. Russia Renta 4 S.V.S.A., et al v. The Russian

Federation, Arbitration Institute of the

Stockholm Chamber of Commerce,

Arbitration V (02412007), Award on

Preliminary Objections (March 20,

2009)

Paras. 94, 95

Salini v. Morocco Salini Costruttori S.p.A v. Kingdom

of Morocco, ICSID Case No.


(July 23, 2001)

Para. 106

Siag v. Egypt Waguih Elie George Siag and

Clorinda Vecchi v. The Arab Republic

of Egypt, ICSID Case No.


and Partial Dissenting Opinion of

Professor Francisco Orrego Vicuña

(April 11, 2007)

Para. 32

Société Générale v. Dominican Republic

Societe Generale (In respect ofDR

Energy Holdings Limited and

Empresa Distribuidora de Electricidad

del Este, S. A.) v. The Dominican

Republic, UNCITRAL LCIA Case

No. UN 7927, Award onPreliminary

Objections to Jurisdiction (September

19, 2008)

Para. 96

Soufraki v. The United

Arab Emirates

Hussein Nuaman Soufraki v. The

United Arab Emirates, ICSID Case

No. ARB/02/7, Award, 7 July 2004

Paras. 25, 30

Tecmed v. Mexico Técnicas Medioambientales Tecmed,

S.A. v. The United Mexican, ICSID

Case No. ARB (AF)/00/2 Award,

(May 29, 2003)

Para. 96

Telenor v. Hungary Telenor Mobile Communications A.S.

v. The Republic of Hungary, ICSID

Case No. ARB/04/15, Award

(September 13, 2006)

Para. 102

Wintershall v. Argentina Wintershall Aktiengesellschaft v.

Argentine Republic, ICSID Case No.

ARB/04/14, Award (December 8,

2008 )

Paras. 20, 52, 58, 63,

64, 65, 82, 106

World Duty Free v. Kenya World Duty Free Company v

Republic of Kenya, ICSID Case No.

Arb/00/7, Award (October 4, 2006)

Para. 39

x

INDEX OF CASES


Anglo-Iranian Oil case Anglo-Iranian Oil co. case (United

Kingdom v. Iran), Preliminary

Objection Judgment, ICJ, Reports of

Judgments, Advisory Opinions and

Orders (July 22, 1952)

Para. 106

Armed Activities case Armed Activities on the Territory of

Congo (New Application 2002)

(Democratic Republic of the Congo v.

Rwanda), Jurisdiction of the Court

and Admissibility of the Application,

Judgment, 2006 ICJ Reports

(February 3, 2006)

Paras. 65, 101

Factory at Chorzów Factory at Chorzów case (Germany v.

Poland), Judgment, PCIJ, Series A,

No. 9 (1927)

Para. 142

Georgia v. Russia Application of the International

Convention on the Elimination of all

Forms of Racial Discrimination

(Georgia v. Russia), Preliminary

Objections, Judgment (April 1, 2011)

Para. 66

Lotus case Lotus case, PCIJ, Series A, No. 10

(1927)

Paras. 20, 95

Nottebohm case Nottebohm case (Liechtenstein v.

Guatemala), 2nd phase, 1955 ICJ

Reports 4, Judgment (April 6, 1955)

Para. 31

Phosphates in Morocco Phosphates in Morocco (Italy v.

France), 1953 ICJ Reports, Judgment

(1938)

Para. 53

xi

INDEX OF LEGAL SOURCES


Articles on Responsibility of

States

International Law Commission, Draft

Articles on Responsibility of States for

Internationally Wrongful Acts with

commentaries, in: Yearbook of the

International Law Commission, 2001,

vol. II, Part Two

Paras. 133, 154

Draft Articles on MFN

clauses

International Law Commission, Draft

Articles on most-favoured-nation

clauses with commentaries, in:

Yearbook of the International Law

Commission, 1978, vol. II, Part Two

Para. 106

United Nations Convention

against Corruption

United Nations Convention against

Corruption, New York, October 31,

2003, United Nations Treaty Series,

vol. 2349, p. 41; Doc. A/58/422

Paras. 38, 41

1

STATEMENT OF FACTS

Parties involved

1. Peter Explosive (“Claimant”) is a resident of Fairyland, who acquired shares in a

company located in Oceania - Rocket Bombs and who was subsequently involved in

affairs with corrupted Oceanian clerks.

2. Republic of Oceania (“Oceania”, “Respondent”) is a state against which CLAIMANT

brought his claims.

3. Other parties connected with the dispute are Republic of Euroasia (“Euroasia”) and

Republic of Eastasia (“Eastasia”). These states concluded BITs with Oceania. They

also disputed over Fairyland, a territory of Eastasia, annexed by Euroasia in March 2014

with the help of armed forces.

BIT agreements

4. On 1 January 1992 Euroasia and Oceania concluded the Agreement for the Promotion

and Reciprocal Protection of Investments (“Euroasia BIT”), which came into force on

23 October 1995. A similar agreement was concluded on 1 January 1992 between

Oceania and Eastasia (the Agreement for the Promotion and Reciprocal Protection of

Investments – “Eastasia BIT”) and came into force on 1 April 1993.

CLAIMANT’s actions

5. To begin production, Rocket Bombs had to adjust its produc tion line to the

requirements contained in the Environment Act 1996. For such a project significant

financial resources were necessary and CLAIMANT could not, in fact, have relied on any

public help.

6. Nonetheless in February 1998 CLAIMANT decided to acquire Rocket Bombs.

7. In July 1998, he had a private meeting with the President of the National Environment

Authority of Oceania.

8. In the very same month, the National Environment Authority issued an environmental

license approving the commencement of arms production by Rocket Bombs It did so

although Rocket Bombs’ production line did not comply with the requirements

contained in the Environment Act.

9. In the course of business, CLAIMANT developed profitable relations with the

Government of Euroasia. Euroasia has remained virtually the sole buyer of weapons

2

produced by CLAIMANT. This did not change even in November 2013 when it was clear

that Fairyland would be annexed by Euroasia, which would not be welcomed well by

Oceania. Most importantly, on 28 February 2014 CLAIMANT and Euroasia concluded

second contract for a supply of weapons.

Euroasian military intervention

10. On 1 March 2014, the armed forces of Euroasia entered the region of Fairyland, a

territory of Eastasia. On 28 March 2014, Eastasia declared annexation to be illegal.

11. The only reason why the annexation was bloodless was the peaceful approach of

Eastasia, which decided not to send troops to defend its own land.

Law passed by Oceania

12. Since Oceania had to fulfill its international obligations it reacted to the Fairyland's

annexation. On 1 May 2014 the President of Oceania issued the Executive Order on

Blocking Property of Persons Contributing to the Situation in the Republic of Eastasia

(“Executive Order”). It introduced sanctions blocking any transfer of possessions with

Euroasia. Executive Order’s goal was to hinder further military aggression of Euroasia,

which threatened international peace.

3

SUMMARY OF ARGUMENT

JURISDICTION

13. This Tribunal does not have jurisdiction to hear the present case.

14. Firstly, CLAIMANT is not an investor pursuant to Art. 1.2. Euroasia BIT. Even if this

Tribunal found otherwise, CLAIMANT did not to show any necessary genuine connection

between himself and Euroasia.

15. Secondly, CLAIMANT was required to make an investment in accordance with the law

but failed to comply with this requirement. Thus its investment is not protected.

16. Thirdly, Parties did not consent to arbitration as CLAIMANT did not fulfill the terms of

RESPONDENT’s offer. RESPONDENT conditioned its consent on the prior fulfilment of pre-

arbitral steps and CLAIMANT disregarded them. The potential futility of the court

proceedings has no significance because the result of proceedings does not affect the

mandatory character of pre-arbitral steps. Besides, CLAIMANT did not even try to initiate

litigation as required.

17. Finally, defects in consent cannot be cured by the application of the MFN clause

contained in Art. 3(1) Euroasia BIT. Art. 3(1) does not sufficiently demonstrate an

intention of Drafting Parties to extend the MFN clause to dispute settlement. Even under

lower standards, no such intention was and could have been shown.

MERITS

18. Executive Order implemented by RESPONDENT falls under the non-precluded measures

clause included in Art. 10 of Euroasia BIT. For this reason, Art. 4.1 regarding

expropriation cannot be applied to the consequences of Executive Order’s

implementation. Alternatively, even if Art. 10 of Euroasia BIT does not apply,

RESPONDENT did not expropriate CLAIMANT’s alleged investment. This is due to

temporary character of Executive Order.

19. CLAIMANT is not entitled to any compensation for his investment. This is because

CLAIMANT contributed to damage suffered by both willful act and negligent conduct. He

continued to supply weapon to Euroasia and failed to comply with basic law of

RESPONDENT. What is more, RESPONDENT’s actions were not illegal. Various

questionable acts of CLAIMANT constitute 100% contribution to loss suffered, therefore

he should not be awarded any damages.

4

ARGUMENT ON JURISDICTION

I. PARTIES DID NOT CONSENT TO ARBITRATION AS CLAIMANT

ATTEMPTED TO ACCEPT RESPONDENT’S OFFER TO ARBITRATE ON

DIFFERENT TERMS

20. Consent is a cornerstone of any arbitration1 and arbitration is a creature of consent2. The

agreement to arbitrate cannot be general and cannot be presumed.3 This is particularly

true for states which thereby give up a part of their sovereignty.4 In the investment

context, a host state makes an open offer to unidentified investors who may accept it as

made i.e. under its terms and conditions.5 Otherwise, no mutual consent is reached.

21. In the present case Parties did not reach an arbitration agreement. This is because

CLAIMANT failed to accept RESPONDENT’s offer under its conditions. Firstly, CLAIMANT

could not have accepted RESPONDENT’s offer as it was not an investor within the

meaning of Euroasia BIT [A.]. Secondly, RESPONDENT did not offer to arbitrate dispute

arising out of illegal investments [B.]. Finally, CLAIMANT failed to fulfill pre-arbitral

steps necessary for this Tribunal’s jurisdiction [C.].

A. THIS TRIBUNAL LACKS JURISDICTION RATIONE PERSONAE

22. This Tribunal lacks jurisdiction to decide the present case under Euroasia BIT as only

an investor in the meaning of Art. 1.2 of the treaty can be granted protection stemming

from the agreement. To be considered an investor under Euroasia BIT, CLAIMANT must

be a national of Euroasia. This condition is not met as CLAIMANT does not hold

Euroasian nationality as a matter of Euroasian law [a.]. However, even if this Tribunal

found to the contrary, in the absence of a genuine connection between CLAIMANT and

the state of Euroasia, the nationality claimed would have been ineffective [b.].

23. Therefore, this Tribunal cannot hear the present case.

1 Wintershall v. Argentina, para. 160.

2 Z. Douglas, para. 125, p. 74.

3 ICS v. Argentina, para. 280; Wintershall v. Argentina, para 160.

4 Lotus case, at p. 18.

5 Kilic v. Turkmenistan, para 6.2.1.; ICS v. Argentina, para 270.

5

a. CLAIMANT DOES NOT HOLD THE NATIONALITY OF EUROASIA UNDER ITS LAWS

24. As CLAIMANT’s nationality of Eastasia was effective, he could not acquire the

Euroasia’s citizenship lawfully. Therefore, CLAIMANT is not a Euroasian national for the

purpose of this Tribunal’s jurisdiction.

25. ‘[Domestic law] settles, by its own legislation, the rules relating to the acquisition (and

loss) of its nationality’6. Thus, loss of any nationality must be determined, in the first

place, pursuant to the law of the state in question. The same applies to the conditions of

the acquisition of the citizenship.

26. In order for CLAIMANT to renounce his Eastasian nationality, he must have fulfilled

some set conditions under the Eastasian Citizenship Law.7 In the first place, a

submission for such renunciation on the legally prescribed form is required.8 This

requirement has not been met as CLAIMANT sent merely an electronic e-mail declaring

the renunciation of the Eastasian citizenship. 9 Furthermore, such renunciation becomes

effective only upon the Eastasia’s President acknowledgement. 10 Therefore,

CLAIMANT’s mere declaration of his will to renounce the nationality has no legal effect

and, as a consequence, CLAIMANT retained the Eastasian citizenship.

27. In addition, pursuant to the Euroasia’s Citizenship Act, dual nationality is not allowed.11

Consequently, CLAIMANT, being still a Eastasian national, could not validly acquire the

Euroasian nationality. Recognition of CLAIMANT as a national of Euroasia was thus

unlawful and cannot have any legal consequences under international law.12

28. In light of the above, the alleged Euroasian nationality of CLAIMANT was unlawfully

recognized by the authorities of Euroasia. Hence, it cannot have any legal effect under

international law.

b. CLAIMANT’S NATIONALITY OF EUROASIA IS INEFFECTIVE AND THUS DOES NOT BOUND

THIS TRIBUNAL

29. In any case, this Tribunal is not bound to Euroasian citizenship law and should

determine the issue of nationality having regard to international consequences. Under

6 Soufraki v. The United Arab Emirates, para. 55.

7 PO 3, p. 59, para. 2.

8 PO 3, p. 59, para. 2.

9 PO 3, p. 59, para. 2.

10 PO 3, p. 59, para. 2.

11 PO 2, p. 56, para. 4.

12 PO 2, p. 56, para. 4.

6

those, CLAIMANT cannot be regarded as a national of Euroasia due to a lack of a genuine

link with the state.

30. Although conferring nationality takes place according to municipal laws of states, ‘an

international tribunal is not bound by the national law (…) under all circumstances’.13

This is because there are some limits on the granting of citizenship under i nternational

law.14 A tribunal ‘will in the end decide for itself (…) on the facts and the law before

it’.15

31. A tribunal is not bound by a domestic law in the case of, i.a. ‘ineffective nationality

lacking a genuine link between the State and the individual’.16 Such link must be based

not only on ‘a legal bond’ but also on ‘a social fact of attachment, a genuine connection

of existence, interests and sentiments’.17

32. However, ‘a set of mutual rights and obligations’ granted to a potential citizen is

required.18 Also, the documents evidencing the nationality are not sufficient to establish

citizenship since they are ‘prima facie evidence only’.19

33. CLAIMANT was recognized as a national of Euroasia only on March 23, 2014. 20 Thus, it

was slightly over one month before the issuance of the Executive Order on May 1,

201421 which, as may be alleged by CLAIMANT, is to be regarded as a relevant date for

the nationality determination. Over such short period of time no legal status could be

established covering any set of mutual rights and obligations between CLAIMANT and

Euroasia. Further, the only demonstration of CLAIMANT’s link with Euroasia was the

issuance of an identity card and passport. This cannot be sufficient for the purpose of

the nationality establishment.22

34. On the other hand, Fairyland, CLAIMANT’s domicile, has been a part of Eastasia since

1918.23 Also, since that time his family has held the Eastasian nationality. His

grandparents themselves relinquished their Euroasian citizenship to become

Eastasians.24 CLAIMANT was also born to Eastasian parents.25 He was, therefore, a n

13

Jennings/ Watts, p. 267. 14

I. Brownlie, p. 377. 15

Soufraki v. The United Arab Emirates, para. 55; Jennings/ Watts, p. 853. 16

Jennings/ Watts,p. 267. 17

Nottebohm case, p. 22. 18

K. Hailbronner, p. 35. 19

Siag v. Egypt, p. 43, para. 153. 20

PO 2, p. 56, para. 4. 21

Uncontested facts, p. 36, para. 16. 22

PO 2, p. 56, para. 4. 23

PO 2, p. 56, para. 4. 24

PO 2, p. 56, para. 4. 25

PO 2, p. 56, para. 4.

7

Eastasian national from birth, holding the Eastasian nationality during his business

activities in Oceania.26

35. Concluding, CLAIMANT’s connection with Euroasia appears to be doubtful at best and

constitutes a mere show of the Euroasian nationality rather than any genuine connection

between the two. Thus, CLAIMANT cannot be considered a national of Euroasia.

B. RESPONDENT DID NOT OFFER TO ARBITRATE DISPUTE ARISING OUT OF ILLEGAL

INVESTMENTS

36. RESPONDENT consented to arbitration with regard to investments. Yet, as CLAIMANT

made its alleged investment as a result of corruption, this Tribunal does not have the

jurisdiction to hear this dispute. Firstly, CLAIMANT was required to make an investment

in accordance with the law [a.]. CLAIMANT’s investment does not meet this standard

[b.]. As a consequence, this Tribunal has no jurisdiction to hear the case.

a. CLAIMANT WAS REQUIRED TO MAKE AN INVESTMENT IN ACCORDANCE WITH THE LAW

37. Even though it was not explicitly expressed in the Euroasia BIT, CLAIMANT was

required to make its investment in accordance with the law.

38. It is a principle of international law that businesses should work against corruption in all

its forms, including extortion and bribery. This principle is clearly present in the United

Nations Convention against Corruption. And under this convention, no one can benefit

from its corrupted acts.27 In international investment law this principle is known as the

"clean hands" doctrine and it entails the simple rule that prohibits a party to protect a

result of its own wrongdoings28.

39. The above rule is also recognized as stemming from the good faith principle. 29 This is

because corruption has the ‘effect of undermining the governmental structures of the

host state and distorting the competitive conditions between investors’30. It is so, as it

endangers a host-state’s legal credibility and eliminates all of the guarantees for the

investors, as they can only secure their position by fraudulent conduct. This is why the

international community considers the prohibition of corruption to be an element of

26

Uncontested facts, p. 32, para. 2. 27

Art. 31 United Nations Convention against Corruption. 28

R. Moloo 2, p. 2. 29

World Duty Free v. Kenya, para. 147. 30

C. Miles, p. 329.

8

public policy31. And states cannot be deemed 'to offer access to the (…) dispute

settlement mechanism to investments not made in good faith.'32

40. The ‘clean hands’ doctrine is applied even if a relevant BIT is silent on this issue, as it

emerges from the general principles, independent of the treaty language.33

41. In the present case, the Euroasia BIT does not include an explicit reference to the

international principle of good faith. Yet, RESPONDENT is both a member of the United

Nations and a party to the United Nations Convention against Corruption.34 Therefore,

the Euroasia BIT is subject to the international principles recognized by the United

Nations. The clean hands doctrine is one of such principles. Alternatively, if the

Tribunal accepts CLAIMANT’s argument regarding the MFN clause35, CLAIMANT has to

be treated exactly as Eastasian investors are treated. They are expressly bound by the

legality requirement, so would be CLAIMANT.

42. Hence, for assets to be considered an investment in the meaning of the Euroasia BIT,

they must be in accordance not only with the terms of this BIT, but also in accordance

with the international principles. And the 'clean hands' doctrine is such an

internationally recognized principle. Therefore, CLAIMANT was required to comply with

it while investing.

b. CLAIMANT'S INVESTMENT BREACHED THE 'CLEAN HANDS' STANDARD

43. CLAIMANT’s investment has corruption charges at its very core. They are inseparable.

But for bribery, CLAIMANT’s business would not make any sense. The circumstances

surrounding the case are enough for this Tribunal to find that the claims made in this

arbitration are contaminated by illegality and deny protection to the investment.

44. The ‘clean hands’ doctrine ensures that the relevant investment is made legally and in

good faith. In general, such a requirement applies to the actions connected with the

making of an investment36. Art. 1.1 (e) Euroasia BIT classifies a license for production

as an element of an investment. However, it refers merely to legal investments . The

purchase of shares and obtaining of the license should be considered as a single

31

World Duty Free v. Kenya, para. 147. 32

Phoenix Action, Ltd. v. Czech Republic, para. 106. 33

Hamester v. Ghana, para. 124. 34

PO 3, para. 3. 35

RA, p. 3. 36

Fraport v. Philippines para. 345; Inceysa v. El Salvador, para. 237; C. Miles, p. 329.

9

commercial activity. It is because they are intertwined so that one of is pointless without

the other.37.

45. In the present case, CLAIMANT’s purchase of Rocket Bombs’ shares was not sufficient

for the investment to have its proper shape. An environmental license was required so

that the enterprise could commence production. The license was a necessary part of

CLAIMANT's investment.

46. Nevertheless, CLAIMANT obtained the license due to corruption. CLAIMANT could only

afford the purchase of shares. It had no money to modernize the enterprise so that

Rocket Bombs could lawfully obtain the necessary license. Instead of waiting for a

decision of National Environment Authority, CLAIMANT decided to take steps in order to

accelerate the process. He met the President of the National Environment Agency of

Oceania in person. This same President would be later convicted for corruption38.

47. After the meeting in question, the decision was issued in favor of CLAIMANT, against

impossible odds, even though CLAIMANT’s production line did not comply with the

requirements until 201439. However, this did not prevent CLAIMANT from commencing

production and obtaining profits. What is even more surprising, from 1998 to 2014,

there was no evidence of CLAIMANT being forced to stop production. This would have

happened if CLAIMANT would fail to comply in regular circumstances.40

48. In light of the above, it is clear that CLAIMANT's investment was tainted with corruption.

Therefore, CLAIMANT never made an investment in the meaning of the Euroasia BIT. As

a result, there is no investment and this Tribunal has no jurisdiction over the dispute.

C. CLAIMANT DID NOT FULFILL CONDITIONS REQUIRED BY RESPONDENT’S OFFER TO

ARBITRATE

49. In any case, CLAIMANT brought its claims before this Tribunal regardless of the

preconditions of the offer to arbitrate [a.]. CLAIMANT, due to its failure to fulfill these

conditions, could not have accepted RESPONDENT’s offer to arbitrate [b.]. Further,

CLAIMANT cannot be excused from the pre-arbitral requirements [c.]. Therefore, this

Tribunal has no jurisdiction over this dispute.

37

Mitchell v. Congo, para. 51. 38

Statement of Uncontested Facts, para. 19. 39

Statement of Uncontested Facts, para. 13. 40

PO 3, para. 1.

10

a. RESPONDENT CONDITIONED ITS CONSENT ON THE INVESTOR’S SATISFACTION OF

CONSULTATION AND LITIGATION REQUIREMENTS

50. RESPONDENT successfully conditioned its consent to arbitrate on the investor’s

satisfaction of consultation and litigation requirements. Firstly, such contingent consent

is acceptable and in accordance with general practice [i.]. Secondly, the language of

Euroasia BIT proves that the fulfillment of the pre-arbitral steps is mandatory [ii.].

Finally, non-fulfillment of the pre-arbitral steps results in the lack of jurisdiction of this

Tribunal [iii.].

i. Consent may be conditioned on the fulfillment of pre-arbitral steps

51. Consent to arbitrate, just as any other offer, may be conditional and it may be

conditioned upon satisfaction of pre-arbitral steps.

52. For a tribunal to have jurisdiction, it must first establish whether parties consented to

such jurisdiction before commencing arbitration. As a general rule, parties may

condition their consent to arbitrate on the occurrence of any event they see fit. 41 If so,

only subject to such conditions ‘jurisdiction may be said to exist and be capable of

being exercised.’42 In particular they may condition consent on the prior satisfaction of

pre-arbitral steps.43 And the determination of whether a party fulfilled the pre-arbitral

steps included in the offer to arbitrate is necessary for finding jurisdiction.44

53. When treaty parties carefully craft a system of sequential steps, where one step depends

on the satisfaction of the previous one, ignoring the existence of such system violates

their express intent.45 And this written intent is the sole basis of the tribunal’s

jurisdiction.

54. In the present case, RESPONDENT’s conditioned its consent to arbitrate.

55. Firstly, Art. 9 Euroasia BIT provides for a fixed sequential process whose order must be

strictly observed. Focusing merely on the last sentence of Art. 9(3) Euroasia BIT, as

CLAIMANT suggests, is not justified. This is confirmed by the fact that each consecutive

step refers expressly back to the prior step. Art. 9(2) Euroasia BIT comes into play only

‘if the dispute cannot be settled amicably’. This means that litigation is contingent on

41

C. Schreuer, p. 30 42

Kilic v. Turkmenistan, para. 6.3.4. 43

Murphy v. Ecuador; Burlington v. Ecuador; Impregilo v. Argentina; Daimler v. Argentina; Kilic v.

Turkmenistan; ICS v. Argentina; Wintershall v. Argentina. 44

ICS v. Argentina, p. 270. 45

Phosphates in Morocco, para. 144.

11

prior amicable attempts. Further, Art. 9(3) Euroasia BIT (the possibility to refer the

dispute to arbitration) applies only ‘after twenty four months from the date of the notice

on the commencement of proceedings before the courts’. This means that arbitration is

contingent on prior litigation. Thus, it is clear that the Drafting Parties’ intention was to

make each step in the dispute settlement process contingent upon the fulfil lment of the

prior one.

56. Concluding, the consent to arbitrate may be conditioned upon the satisfaction of

sequential pre-arbitral steps. And RESPONDENT conditioned its consent making the

fulfillment of such steps mandatory.

ii. Conditional consent stems from the language of Euroasia BIT

57. Art. 9 Euroasia BIT provides a system of steps which have to be fulfilled to be able to

accept RESPONDENT’s offer to arbitrate.

58. When the language of a dispute resolution clause is imperative or conditional, the multi-

tiered clause is based on the premise of the binding nature of all provided steps.46 They

must be fulfilled if the investor wishes to resort to arbitration.47. This is so irrespective

of whether verbs “may” or “shall” are used48 as long as the language indicates a close

inter-relation.49 Such an inter-relation stems from the entire dispute resolution clause,

not just from its one subparagraph.50

59. Moreover, a different interpretation would be out of context and would contradict the

basic canons of interpretation.51 Treating preconditions to jurisdiction as non-mandatory

would disregard parties’ intention and constitute a clear violation of the rule that ‘a

clause must be so interpreted as to give it a meaning rather than so as to deprive it of

meaning’.52

60. Art. 9(1) Euroasia BIT, the starting point for the chain of remedies, uses the imperative

wording. By stipulating that investment dispute “shall” be settled amicably, the Drafting

Parties obliged the investors first to attempt to achieve an amicable solution of a

dispute. Only then, may follow the subsequent procedure, i.e. the litigation period. And

only afterwards arbitration may be commenced - as a remedy of the last resort.

46

ICS v. Argentina, paras 247, 251; Kilic v. Turkmenistan, paras.6.3.12, 9.3.; Murphy v. Ecuador, para.132. 47

Philip Morris v. Uruguay, para. 139. 48

Daimler v. Argentina, para. 181. 49

Kilic v.Turkenistan, para. 6.2.6. 50

Wintershall, para. 161. 51

Generation Ukraine v. Ukraine, para. 14.3. 52

Cayuga v. United States, p. 542.

12

61. Moreover, Art. 9 Euroasia BIT does not provide for any exceptions to the rule that

investors have to fulfill all pre-arbitral steps to have a right to commence arbitration.

62. To conclude, Art. 9 Euroasia BIT is unambiguous. It sets a rule that to obtain access to

international arbitration the pre-arbitral steps have to be fulfilled. With no exception.

iii. Claimant’s actions cannot affect consent expressed by states

63. It is true that RESPONDENT made an offer to arbitrate. What CLAIMANT, however, misses

is the condition to fulfill pre-arbitral steps53. Without their satisfaction an acceptance of

RESPONDENT’s is impossible.

64. If a tribunal allowed an investor to ‘choose at will to omit [one] step [when such a

possibility] is simply not envisaged by the BIT’, it would rule grossly beyond its

power.54 When parties did not provide for any exceptions to the fulfillment of the pre-

arbitral steps, the ‘inevitable legal sanction’ for omitting such steps is the dismissal of

the case.55‘This is because the Host state’s consent is premised on [disputes] being first

submitted to the courts.’56

65. Also, an attempt to classify the issue of conditional consent as referring to the

admissibility of claims must fail.57 This is because the problem in question is one of

jurisdiction58. As put in the Armed Activities case, ‘any conditions to which such

consent is subject must be regarded as limits [to consent to arbitrate]’ and thus, the

jurisdiction of the tribunal. 59

66. As opposed to the issue of admissibility, defects which completely bar a tribunal’s

power to hear a case relate to the matter of jurisdiction.60 It is so, because:

‘Labeling the issue as one of admissibility would have

avoided this result, but it is an inaccurate label:

admissibility goes to the suitability of the particular claim

for adjudication; whereas the failure to comply with [pre-

arbitral steps] had nothing to do with any defect in the

formulation of the claim’61

53

Art. 9(1) and 9(2) Euroasia BIT. 54

Wintershall v. Argentina, para. 160. 55

Dissent in Abaclat, para. 28. 56


Murphy v. Ecuador, para.149; Burlington v. Ecuador, para. 315; Daimler v. Argentina, para. 194 58

J. Paulsson, p. 616; Wintershall v. Argentina, para. 172. 59

Armed Activities case, p. 39, para. 88. 60

Dissent in Abaclat, para 21; Georgia v. Russia, para. 141. 61

Z. Douglas, para 329, p. 157.

13

67. And the result of the pre-arbitral steps, being an issue of jurisdiction, is that dispute

resolution providing for mandatory pre-arbitral steps does ‘not provide a menu of

dispute settlement options available to disputing parties on an a la carte basis’.62

68. In the present case, CLAIMANT seems to confuse international treaty with a restaurant

menu. CLAIMANT’s interpretation of Art. 9 Euroasia BIT simply ignores the existence of

provisions mandating the parties to have consultations and negotiations to resolve their

disputes. CLAIMANT believes that although there is an explicit treaty requirement,

CLAIMANT is to decide whether or not to comply with it.

69. The clear language, the context and object63 of Art. 9 Euroasia BIT does not allow for

any other conclusion than that the issue of the satisfaction of pre-arbitral steps is a

matter of jurisdiction.

70. Moreover, it is not a case where a claim is wrongly formulated. CLAIMANT’s claim is

not unsuitable for adjudication. It is simply presented before the wrong forum, as no

litigation with regard to this claim was ever commenced. Thus, as arbitration must be

preceded by arbitration, it is consent which is lacking. And no consent means no

jurisdiction.

71. Hence, RESPONDENT made it clear that it requires the prior satisfaction of pre-arbitral

steps. Without such fulfillment no consent necessary for this Tribunal’s jurisdiction,

was reached.

72. In light of the above, RESPONDENT successfully conditioned its consent to arbitrate on

the investor’s satisfaction of consultation and litigation requirements. The mandatory

character of these conditions stems from the Euroasia BIT. And the non-fulfillment of

these steps affects this Tribunal's jurisdiction, obliging this Tribunal to dismiss the case.

b. CLAIMANT FAILED TO FULFILL PRECONDITIONS NECESSARY FOR THIS TRIBUNAL’S

JURISDICTION

73. CLAIMANT disregarded both mandatory pre-arbitral steps. He neither attempted to

resolve the dispute amicably, nor did he refer the dispute to the competent courts in

Oceania.

74. To fulfill consultation requirement, at least good faith attempts to reach an amicable

solution is necessary.64

62


Art. 31 VCLT 64

Burlington v. Ecuador, para. 315.

14

75. And such conduct cannot be ascribed to CLAIMANT. The only thing CLAIMANT did was

sending a letter which stated that CLAIMANT would start arbitration ‘if Oceania fails to

negotiate.’65 Such a warning not accompanied by even a smallest effort to begin

negotiations cannot be equal to amicable consultations required by Art. 9(1) Euroasia

BIT. CLAIMANT did not describe what kind of breach it alleged. CLAIMANT did not offer

to meet. CLAIMANT did not even communicate with RESPONDENT in any other way.

76. In any case, CLAIMANT did not fulfill its obligation to submit the dispute to

RESPONDENT’s courts. Consequently, CLAIMANT also did not satisfy the requirement to

wait for a period of 24 months from the date of the initiation of litigation before

commencing arbitration.

77. In light of the above, CLAIMANT did not fulfill the mandatory pre-arbitral steps. It is

undisputed that CLAIMANT failed to fulfill obligations from Art. 9(2) Euroasia BIT.

CLAIMANT also failed to satisfy requirement from Art. 9(1) Euroasia BIT. Hence, this

Tribunal should dismiss all CLAIMANT’s claims, as it lacks jurisdiction over the dispute.

c. IN ANY CASE, CLAIMANT CANNOT BE RELIEVED FROM PRE-ARBITRAL REQUIREMENTS

78. If CLAIMANT wishes to make use of the protection under the treaty, it cannot be excused

from the preconditions expressed in the Euroasia BIT.

79. First of all, a tribunal should honor the language of a BIT as well as its context and

object.66 Consequently, a tribunal:

cannot create exceptions to treaty rules where these are

merely based upon an assessment of the wisdom of the

policy in question, having no basis in either the treaty text

or in any supplementary interpretive source.67

80. This would be ‘equivalent not to interpreting the treaty, but to reconstructing it’.68

81. Moreover, the requirement to submit disputes to local courts for a specified period of

time should be understood as an extended “cooling-off” period.69 Such a “cooling-off”

period gives parties more time for finding a solution for the dispute without involving

an international tribunal for a limited time. Consequently, such a clause requiring an

investor to refer the dispute to courts does not close the way to justice but merely gives

65

RA, p. 4 66

Art. 26, 31 VCLT 67

ICS v. Argentina, para. 267. 68

PCIJ, Acquisition of Polish Nationality, Advisory Opinion, p. 20. 69

Philip Morris v. Uruguay, para 142

15

the parties time to try to resolve the dispute.70 It is ‘hardly plausible to impute to such

clauses the purpose of resolving an investment dispute’.71

82. Also, when consent is contingent on the commencement of litigation, and not on the

resolution of a dispute, a potential futility of proceedings has no significance.72 This is

because the condition is submitting a dispute to a local court, not obtaining a judgment.

83. Additionally, it cannot be successfully claimed that litigation requirement is generally

unreasonable.73 It gives the state a chance to redress an alleged breaches of the

investor’s rights,74 and thus allows it to avoid potential international responsibility.

84. Even if the existence of futility exception was accepted, claimants often are unable to

meet its threshold. At least an attempt to submit dispute to a local court is required.75

This is because to ‘decide, a priori and unilaterally, not even to try to resolve the

dispute (…) constitutes a grave breach’ of a BIT.76

85. The current case does not give any grounds for establishing futility of pre-arbitral steps.

86. Firstly, Drafting Parties did not provide for any exception to the rule that investors have

to initiate first court proceedings and wait 24 months until obtaining an access to

international arbitration.

87. Secondly, there are no grounds to claim that referring the dispute to RESPONDENT’s local

courts would be futile. This is because Drafting Parties did not condition their consent

on the resolution of a dispute but on the commencement of litigation. The lapse of 24

months from the moment of the commencement of litigation is crucial. Not whether

Oceanian courts will resolve the dispute or not. Thus, there can be no “futility” as the

court’s participation was upfront anticipated to be aimed at extending a “cooling-off”

period and giving the parties an additional chance to resolve the dispute without

engaging an international tribunal.

88. Finally, CLAIMANT did not even attempt to examine the prospects of proceedings in

Oceania. The fact that he did not even file a suit is the best evidence of CLAIMANT’s

obvious disregard to the provisions of Euroasia BIT.

89. In conclusion, the circumstances of this case did not provide any ground for allowing

the CLAIMANT to disregard the pre-arbitral steps required under the Euroasia BIT.

70

Murphy v. Ecuador, para. 151. 71

Ambiente v. Argentina, para. 604. 72

Wintershall v. Argentina, para. 73

Philip Morris v. Uruguay, para. 137 74

Philip Morris v. Uruguay, para. 137 75

ICS v. Argentina, para 269. 76

Murphy v. Ecuador, para. 135.

16

CLAIMANT, just as other investors, was obliged to abide the Euroasia BIT terms. By

failing to do so, CLAIMANT deprived this Tribunal of jurisdiction over this dispute.

II. DEFECTS IN CONSENT CANNOT BE CURED BY AN MFN CLAUSE

90. CLAIMANT misreads the Euroasia BIT by assuming that Art. 3(1) Euroasia BIT gives

grounds to cure the lack of both the consent to arbitrate and the jurisdiction of this

Tribunal. Art. 3 (1) Euroasia gives no grounds for such assumptions, as it solely

provides that:

‘Each Contracting Party shall, within its own territory,

accord to investments made by investors of the other

Contracting Party, to the income and activities related to

such investments and to such other investment matters

regulated by this Agreement, a treatment that is no less

favourable than that accorded to its own investors or

investors from third-party countries.’

91. It is true that CLAIMANT was granted a great portion of rights by Euroasia BIT.

However, to enforce them in international arbitration, RESPONDENT’s consent to

arbitrate is necessary. And consent cannot be found in a generally worded MFN clause

[A.]. Alternatively, the applicable MFN clause present in Art. 3(1) Euroasia BIT cannot

be extended to issues of jurisdiction [B.].

A. AN MFN CLAUSE CANNOT BE APPLIED TO CURE THE LACK OF CONSENT TO ARBITRATE

92. CLAIMANT cannot invoke Art. 3(1) Euroasia BIT to create this Tribunal’s jurisdiction

under any circumstances. This is because this provision is not sufficiently clear in

demonstrating Drafting Parties’ intention to refer dispute to arbitration [a.]. Moreover,

no investor-friendly interpretation of Euroasia BIT can confer the jurisdiction on this

Tribunal [b.].

a. THE MFN CLAUSE IN ART. 3(1) EUROASIA BIT DOES NOT COVER DRAFTING PARTIES’

INTENTION TO ARBITRATION

93. The MFN clause in the Euroasia BIT cannot create grounds for this Tribunal’s

jurisdiction. This is because it cannot cure the lack of consent to arbitrate.

94. The goal of an investment treaty is to grant extra protection to investors by vesting in

them individual rights against a state. To enforce such rights in a forum other than a

host state’s court, an additional jurisdictional agreement is necessary. And the consent

17

to arbitrate cannot be replaced by an MFN clause alone,77 but has to be accompanied by

a clear ‘manifestation of consent to the arbitration of investment disputes’.78 Thus, ‘it is

well established principle that such an agreement should be clear and unambiguous .79

A generally worded MFN clause is not sufficient to recognize existence of parties’

intent to arbitrate.80

95. This high standard is justified by the fact that the acceptance of the jurisdiction by an

arbitral tribunal means interfering with the state’s sovereignty.81 And a wrong

conclusion may impose on a state obligations it never contemplated.82 If a blank

acceptance of an MFN clause’s applicability to the consent to arbitrate was given,

tribunals could invalidly undermine the parties’ intentions by groundlessly constructing

the alleged state’s consent to arbitrate. 83

96. The fact that a state has agreed to a specific dispute resolution mode should not be

overridden by an unlimited pro-investor approach.84 This is because ‘matters of

jurisdiction (…) go to the core of matters that must be deemed to be specifically

negotiated’.85

97. In the present case, the MFN clause contained in Art. 3(1) Euroasia BIT does not meet

the above standard and therefore cannot be extended to the dispute resolution clause.

98. The MFN clause in question has no indication of covering the dispute resolution clause,

whatsoever. It does not explicitly encompass dispute resolution matters. It also does not

mention provisions of Euroasia BIT concerning dispute resolution mechanism.

99. Thus, the MFN clause in Art. 3(1) Euroasia BIT is not sufficient to cure the lack of

consent to arbitrate. It is generally worded and as it does not refer explicitly to the

dispute resolution clause it does not apply to it.

77

ICS v. Argentina, para. 277. 78

Plama v. Bulgaria, paras. 198-199. 79

Plama v. Bulgaria, paras. 198-199. 80

Renta 4 v Russia, para. 93; Berschader v. Russia, para. 180. 81

Lotus case, p. 18. 82

Renta 4 v. Russia, para. 93 83

Sornajah, p. 322. 84

Thulasidhass, p.17; Société Générale v. Dominican Republic, para. 41. 85

Tecmed v. Mexico, para. 69.

18

b. NO PURPOSE-ORIENTED INTERPRETATION OF EUROASIA BIT CAN CREATE THIS

TRIBUNAL’S JURISDICTION

100. This Tribunal cannot extend the scope of the MFN clause contained in the Euroasia BIT

so as to include within it the dispute resolution mechanism. Such a pro-investor

interpretation would be simply unjustified.

101. A purpose of BIT is to grant additional protection to investor. Yet when interpreting a

BIT, ‘placing undue emphasis on the “object and purpose”[could] deny the relevance

of the intention of the parties.’86 The aim of a treaty cannot substitute the consent to

arbitrate.87

102. With regard to pre-arbitral steps, when treaty parties provide for the litigation

requirement they agree that such a requirement is ‘perfectly consistent with the objects

and purposes of the Treaty.’88 A tribunal which agrees to such terms of the parties

consent, does not disregard the aim of a BIT, but, in fact, embraces it.89

103. In the present case, Drafting Parties agreed that a dispute resolution mechanism, as

provided in Art. 9 Euroasia BIT, will advance purpose of ‘promot[ing] greater

economic cooperation’ and will guarantee ‘effective means of asserting claims.’90 Thus,

it is not for this Tribunal to reexamine the intent of the Drafting Parties. Thus, the MFN

clause cannot be extended so as to cross out of the dispute resolution mechanism the

mandatory pre-arbitral steps.

104. Therefore, there are no grounds for this Tribunal’s jurisdiction even under most-

investor-friendly interpretative approach.

B. ALTERNATIVELY, THE SPECIFIC MFN CLAUSE FROM ART. 3(1) EUROASIA BIT

CANNOT EXTEND TO JURISDICTIONAL AGREEMENTS

105. Even if the Tribunal found that consent to arbitrate does not have to be explicitly stated

in a MFN clause, Art. 3(1) Euroasia BIT still does not apply to the dispute resolution

clause.

106. Nothing can override treaty parties’ understanding of the meaning of treaty provisions.

A MFN clause ‘can only operate in regard to the subject-matter which the States had in

86

Sir Sinclair, p. 130. 87

Armed Activities case, para. 125. 88


Telenor v. Hungary, para. 96. 90

Euroasia BIT, preamble, p.40.

19

mind when they inserted the clause in their treaty’.91 Stipulating that “all matters” are

covered by a MFN clause might be proof of the specific extension of the clause’s

application.92 Yet, expressions such as “investment related activities” or “associated

activities” refer solely to activities of the investor for the conduct of his business, not to

the dispute settlement mechanism.93

107. Also, no mention of dispute resolution process among exceptions to an MFN clause

does not prove that the clause in fact applies to such matters.94 This is because such

exceptions almost always refer to direct treatment of a state and to matters that are

traditionally considered to be within the scope of a clause.95 In other words, ‘one cannot

prove the non-existence of apples based upon the existence of oranges.’96

108. Besides, to apply an MFN clause claimants have to show that the other treatment is

objectively more favorable.97 An investor, that may first submit the dispute to the local

courts, and only afterwards refer the dispute to arbitration,

‘receives two bites at the apple: once before the domestic

courts, and – if the investor is still not satisfied – again

before an international arbitral tribunal’.98

109. Thus, such a multi-tiered clause is objectively more favorable to the claimant, as it has

in fact two possibilities to receive a favorable ruling – first, before the local courts, and

second, before a tribunal.

110. In the present case, there was no specific intention of Drafting Parties to apply the MFN

clause to the dispute resolution mechanism.

111. Art. 3(1) Euroasia BIT does not provide for “treatment” covering “all matters regulated

by the agreement”, but it covers solely ‘the income and activities related to such

investments and to such other investment matters’ This indicates that Drafting Parties

decided to limit its applicability to substantive matters, like income and other

investment activities. This excludes the application of the MFN clause to the dispute

resolution mechanism.

112. Additionally, litigation as a pre-arbitral step is not discriminatory. If CLAIMANT submits

the dispute to RESPONDENT’s courts and does not obtain satisfactory outcome, it may

91

Draft Articles on MFN clauses., p. 27; Anglo-Iranian Oil case, p. 110. 92

Salini, paras. 117-119; Wintershall, para. 172. 93


Austrian Airlines v. Slovakia, paras. 130-131. 95

ICS v. Argentina, para 312. 96

Daimler v. Argentina, paras. 238-239. 97


Daimler v. Argentina, para. 244.

20

still choose to initiate arbitration. Eastasian investors are not given such an opportunity.

They have only one path to go and if it is unsuccessful, no safety net is granted. Thus, it

cannot be said that Eastasian dispute settlement is objectively more favorable.

113. Concluding, the language of Euroasia BIT shows that RESPONDENT did not wish to

create other jurisdictional rules than those expressed in Art. 9 Euroasia BIT. Thus, the

MFN clause cannot cure the lack of this Tribunal’s jurisdiction.

SUMMARY

114. This Tribunal does not have jurisdiction to hear the present case.

115. First of all, CLAIMANT is not an investor within the meaning of Art. 1.2. Euroasia BIT.

However, even if this Tribunal found otherwise, CLAIMANT failed to demonstrate a

genuine connection between himself and Euroasia.

116. Secondly, CLAIMANT was required to make an investment in accordance with the law

and its investment failed to comply with this requirement. Thus, he did not make an

investment pursuant to Euroasia BIT at all.

117. Thirdly, CLAIMANT did not accept RESPONDENT’s offer to arbitrate investment disputes

as it failed to fulfill the offer’s terms. RESPONDENT conditioned its consent on the prior

fulfilment of pre-arbitral steps and CLAIMANT disregarded them. The potential futility of

the proceedings in Oceania has no significance because it is not the outcome of

proceedings but the lapse of time that matters. Besides, CLAIMANT did not even try to

initiate litigation as required.

118. Finally, defects in consent cannot be cured by the application of the MFN clause

contained in Art. 3(1) Euroasia BIT. It does not clearly demonstrate an intention of

Drafting Parties to extend the MFN clause to dispute settlement. Even under lower

standards, any such intention was not and could not have been shown.

21

ARGUMENT ON MERITS

III. RESPONDENT IS NOT IN BREACH OF ART. 4.1 EUROASIA BIT

119. Executive Order falls under the scope of Art. 10 Euroasia BIT and thus Art. 4.1 of the

same treaty is not applicable [A]. Alternatively, even if Art. 10 Euroasia BIT does not

apply, CLAIMANT’s investment was not expropriated indirectly due to temporary nature

of Executive Order [B].

A. EXECUTIVE ORDER FALLS UNDER THE SCOPE OF ART. 10 EUROASIA BIT

120. Executive Order was implemented in response to annexation of Fairyland by Euroasia.

Actions of the latter were a violation of international peace and security. For these

reasons, provisions regarding expropriation cannot be applied to Executive Order.

121. Every non-precluded measures clause consists of three structural elements. 99 First, the

“nexus” - link between the clause and measure adopted by state. This link can feature

various intensity, also presented in a clause wording range from “necessary” to simple

“for”.100 Second, the “scope” – is the breadth of clause application against BIT’s other

regulations. It can be drafted to apply to an entire BIT or only to its certain

provisions.101 Third, the “permissible objectives” - define applicable measures based on

the substantive angle.102

122. In the case at hand the non-precluded measure clause is included in Euroasia BIT’s Art.

10, which reads:

‘Nothing in this Agreement shall be construed to prevent

either Contracting Party from taking measures to fulfill its

obligations with respect to the maintenance of

international peace or security.’103

123. The “nexus” of this clause creates the broadest possible link by using phrase “measures

to”. Additionally, the “scope” covers all provisions of Euroasia BIT, as indicated by

wording “nothing in this Agreement”. This means that any measure covered by

“permissible objective” of this clause must be excluded from Euroasia BIT’s Art. 4.1

provisions. The “permissible objective” refers to maintenance of international peace and

99

W. Burke-White and A. Staden, p. 329. 100




Euroasia BIT, Art. 10.

22

security. Executive Order was implemented by Oceania as a response to actions and

policies of the Republic of Euroasia, especially annexation of Fairyland.104 This

annexation took form of an invasion of Euroasian armed forces on the territory of

Eastasia.105 The possible open conflict was avoided only because Eastasia did not send

any armed forces on its own.106 Military intervention naturally endangers international

peace, especially if it is illegal. Situation was not any different in this case. Euroasia

annexed Fairyland which was not recognized by an international community. Moreover,

it was declared illegal by a significant part of the community and triggered breaking off

diplomatic relations with Euroasia and consequently divided the international

community.107 All this demonstrates that the Euroasian government’s actions violated

international peace.

124. In conclusion, Executive Order was implemented as an attempt to maintain international

peace and security. Hence, it falls under Art. 10 Euroasia BIT and, further, is excluded

from other provisions thereof.

B. ALTERNATIVELY, CLAIMANT’S INVESTMENT WAS NOT EXPROPRIATED INDIRECTLY

125. Alternatively, even if the Tribunal finds that Executive Order does not fall under Art. 10

Euroasia BIT, RESPONDENT submits that there was no indirect expropriation. This is due

to the fact that Executive Order and the effect it has on CLAIMANT’s investment has

temporary character.

126. When establishing occurrence of indirect expropriation, one of important factors to be

taken into account is duration of a measure affecting an investor.108 Only permanent

interference can lead to an expropriation.109

127. As mentioned above, Executive Order was implemented as a response to threat to

international peace posed by Euroasia.110 Due to its nature, it is a temporary measure

which will be revoked as soon as international situation stabilizes. Further, throughout

the process of Executive Order implementation, Rocket Bombs production capabilities

remained unhindered and CLAIMANT remained an owner of his alleged investment.

Although CLAIMANT’s contracts were terminated, once Executive Order is revoked,

104

Executive Order, Preamble; Uncontested Facts, para. 16. 105

Uncontested Facts, para 14. 106



Dolzer, page 112. 109

LG&E v Argentina, para. 193. 110

Supra, para. 123.

23

Rocket Bombs will be able to regain its position on the market. For these reasons, the

impact that Executive Order had on CLAIMANT’s investment is reversible.

128. Concluding, Executive Order has temporary character and its effect on Rocket Bombs is

reversible. Therefore, implementation of this measure cannot be considered an indirect

expropriation.

IV. CLAIMANT CONTRIBUTED TO DAMAGE SUFFERED

129. RESPONDENT did not expropriate CLAIMANT’s investment. Alternatively, shall this

Tribunal for any reason make different findings, CLAIMANT is not entitled to any

compensation for his investment as he contributed to damage suffered. This is because

he contributed to his loss by willful act of continued weapon supply and negligence in

conducting his business [A.]. Additionally, his contribution amounts to 100 % of the

loss suffered, thus excluding any compensation [B.].

A. CLAIMANT CONTRIBUTED TO DAMAGE SUFFERED UNDER ARTICLE 39 ILC ARTICLES ON

RESPONSIBILITY OF STATES

130. Art. 39 ILC Articles on Responsibility of States provides a fundamental rule of

contribution to damage that this Tribunal shall also apply in this proceeding. It stipulates

that:

‘In determination of reparation, account shall be taken of

the contribution to the injury by willful or negligent action

of omission of the injured State or any person or entity in

relation to whom reparation is sought.’

131. Therefore, it provides a general rule for assessing reparation in international law, even if

Euroasia BIT does not provide any special provision regarding that matter. And

CLAIMANT has contributed to damage both by his willful acts [a.] and negligence [b.].

a. CLAIMANT CONTRIBUTED TO DAMAGE BY WILLFUL ACTS

132. Art. 39 ILC Articles on Responsibility of States stipulates that ‘account shall be taken

of the contribution to the injury by willful or negligent action of omission’. Thus, firstly,

when assessing compensation, behavior of a person who seeks it should always be taken

into consideration as a relevant factor in measuring the amount of damages. Secondly, it

sets a very wide scope for a form of action that may be considered a contribution to

damage suffered.

24

133. This approach is not a novelty in international disputes 111, as such scope of

responsibility for contribution was proposed long before ILC Articles on Responsibility

of States :

‘[a]ll the circumstances that can be adduced against the

concessionaire company and for the Portuguese

Government mitigate the latter’s liability and warrant ... a

reduction in reparation.’112

134. Therefore, any behavior of CLAIMANT that contributed to the loss suffered may result in

reduction of reparation. And such contribution is, above all, continued weapon supply to

Euroasia after it has planned annexation of Fairyland.

135. It is not an overly sophisticated concept that if a country violates an international

territorial order and intrudes other country’s province with armed forces and intention of

annexation, such action will be considered reprehensible by the international

community. Such state constitutes a threat to long-established peace and order and its

actions misbalance power and interests in whole region. If not faced with a firm answer,

such actions may encourage other countries, who will always have their particular

interests, to execute their claims in alike manner. This outcome cannot be allowed.

136. Supply of weapon to a country which chooses abovementioned way of conducting its

“international policy” is obviously non-consistent with reason and justified expectations

of the international community.

137. Firstly, supporting development of military forces of the instigator simply enhances a

threat to peace.

138. Secondly, acts like those of Euroasia in Fairyland should not be granted any support or

acceptation, even from private parties, especially if they are influential. Continued

weapon supply in light of the above, equals “acting like nothing happened”.

139. In this regard, requiring from CLAIMANT that he should have known about planned

annexation and therefore stop immediately the weapon supply is nothing but reasonable

for two reasons. Firstly, a significant part of political dispute in this respect was made

public. Secondly, it would be counterfactual to assume that despite the fact long-term

business relationship with Ministry of National Defense of Euroasia and personal

relationship with John Defenseless, CLAIMANT was not in possession of any more

detailed information.

111

Articles on Responsibility of States, pp.109, 110. 112

Delagoa Bay Railway, footnote 625.

25

140. Thirdly, operating in controversial business like arms production, CLAIMANT should be

even more alert than the rest of society to the meaning of his actions when the difficult

political times come.

141. In light of the above, such actions of CLAIMANT could not be accepted by RESPONDENT

and CLAIMANT should have expected means that were introduced to deal with the

situation. Therefore, CLAIMANT did contribute to damage by the weapon supply.

142. It must be also emphasized that an obligation of reparation arises from an illegal act.

The case that is considered to lay foundation for understanding the content of the

obligation of reparation as to its scope and effects 113, Factory at Chorzów, requires

compensation to wipe-out all consequences of illegal act, as it is essential principle

contained in the actual notion of the reparation.

143. However, not coincidentally, it is illegal act that gives rise to an obligation of

reparation. In the case at hand, President of the Republic of Oceania issued Executive

Order within the scope of his discretion and competence and its formal legality is not

questionable. Executive Order was also issued for valid reasons and was a typical and

not superstitious instrument of international policy, as well as general act. Therefore, it

did not trigger any responsibility of reparation of losses as a wrongful act, nor did it

give rise to justified compensation claim under the Euroasia BIT, as it did not

expropriated CLAIMANT.

144. Summarizing, CLAIMANT is not entitled to compensation for his loss, as he contributed

to the damage suffered. Further, there was no wrongful act that would trigger a

responsibility of compensation towards CLAIMANT and thus his investment was not

expropriated.

b. CLAIMANT CONTRIBUTED TO DAMAGE BY NEGLIGENT BUSINESS CONDUCT

145. Not only weapon supply can be considered a contribution to damage, but also other acts

of CLAIMANT gave only more reasons for Executive Order, that prevented CLAIMANT

from concluding business, to be justified.

146. CLAIMANT as an investor acted with gross negligence that established his contribution

do the damage suffered. Firstly, he obtained an environmental license by means of

corruption. Secondly, for years he did not abide Environment Act of 1996 by not having

his production lines adjusted to its requirements.

113

Crawford/ Lee/ Lauterpacht, p. 239.

26

147. An investor is obliged to act with diligence, especially concerning compliance with law

of a host state. In Occidental Petroleum114, tribunal found that failure to obtain

ministerial authorization was a contribution to damage caused by negligence of

applicant. In MTD v. Chile,115 a failure to take into consideration important construction

and administrative regulations, along with bad business decision assuming realization of

non-compliant project, led the Tribunal to finding 50% contribution to damage suffered

by investor.

148. These cases are an accurate reflection of situation of CLAIMANT in the case at hand.

149. Firstly, CLAIMANT acted negligently by obtaining in by means of corruption the

environmental license, which allowed him to commence production, even if his

production line did not fulfill the law requirements.116

150. Secondly, he acted as negligently businessman, disregarding the political surrounding of

his business. This was even though, as a resident of Fairyland, he has the best possible

insight to the political tension in this region.

151. Finally, he took upon himself additional business risk not diversifying both his supply

and demand side - contracting only Oceanian companies as his suppliers and concluding

only one, crucial for the existence of Rocket Bombs agreement, so that one act targeted

at putting an end to arms supply resulted in decrepitating CLAIMANT’s investment.

152. Concluding, CLAIMANT acted negligently, giving one more basis for this Tribunal to

find compensation for CLAIMANT not due.

B. CLAIMANT IS NOT ENTITLED TO ANY COMPENSATION FOR HIS INVESTMENT

153. Compensation for CLAIMANT not only shall be reduced, but also it should be denied in

the entire amount, as CLAIMANT's contribution covers almost the whole injury he

suffered.

154. Although contribution to damage is an instrument to measure damages accordingly to

injured party share in causing the loss, a situation when contribution of injured equals

almost 100 % of loss is imaginable. Therefore, in such circumstances an investor should

not be awarded any damages. 117

155. CLAIMANT concluded new contracts on weapon supply with Euroasia just before he

military annexation of Fairyland. Considering that he was a resident of the annexed

114

Occidental Petroleum, paras. 679,680. 115

MTD v. Chile, paras. 239-244. 116

Supra paras. 45-48. 117

Articles on Responsibility of States, p. 110.

27

Fairyland, he must have been fully aware of the tension in the region, and of the result

that arms dealing with Euroasia would cause. Additionally, even if his investment

would have not suffered from issuing Executive Order, for years he has been exposing it

to high risk of losing a license in case of control of authorities118. CLAIMANT failed to

comply with the basic laws of RESPONDENT. He also obtained his environmental license

in questionable circumstances and there has been initiated a criminal proceeding against

him concerning bribery.

156. In light of case law presented above119, a sole fact of non compliance and bad business

decision can equal 50 % of damage. In the case at hand, list of CLAIMANT’S acts, that

contributed to damage is much longer and in fact it equals to 100 % of loss incurred.

157. To conclude, CLAIMANT is not entitled to any compensation, as his actions contributed

to damage suffered not partially, but entirely.

SUMMARY

158. Provisions regarding expropriation cannot be applied to Executive Order as it excluded

by Art. 10 of Euroasia BIT. Alternatively, even if Art. 10 of Euroasia BIT cannot be

applied RESPONDENT did not expropriate CLAIMANT’s investment due to temporary

character of Executive Order.

159. CLAIMANT is not entitled to any compensation for his investment. He contributed to loss

incurred through willful acts and negligent conduct. As his various actions equal entire

damage suffered, no compensation for his investment is due.

118

PO 3. 119

Supra paras. 137, 143.

28

PRAYER FOR RELIEF

RESPONDENT respectfully requests the Tribunal to find that:

I. CLAIMANT is not an investor pursuant to Article 1.2 Euroasia BIT;

II. CLAIMANT was required to comply with the pre-arbitral steps as provided in the Article

9 Euroasia BIT prior to bringing his claims before the Tribunal;

III. CLAIMANT may not invoke Article 8 Eastasia BIT by the operation of the Article 3

Euroasia BIT;

IV. CLAIMANT did not make a protected investment, especially in the light of the “clean

hands” doctrine with reference to Article 1.1 Eastasia BIT;

V. RESPONDENT did not expropriate CLAIMANT’s investment by the implementation of

sanctions and introduction of Executive Order of 1 May 2014;

VI. CLAIMANT contributed to the damage suffered by his investment.

Counsels for RESPONDENT

TEAM JESSUP

September 26, 2016

peter explosive claimant · i team jessup international chamber of commerce peter explosive...

Documents