TEAM BARROS

FOREIGN DIRECT INVESTMENT ARBITRATION MOOT

Facultad de Derecho, Universidad de Buenos Aires

3-6 November 2016

International Court of Arbitration of the International Chamber of Commerce

IN THE PROCEEDING BETWEEN

Peter Explosive

(Claimant)

v.

The Republic of Oceania

(Respondent)

MEMORIAL FOR RESPONDENT

ii

TABLE OF CONTENT

TABLE OF CONTENT ........................................................................................................... ii

LIST OF AUTHORITIES ...................................................................................................... iv

LEGAL SOURCES ................................................................................................................. iv

STATEMENT OF FACTS ................................................................................................... xvi

ARGUMENTS .......................................................................................................................... 1

PART ONE: ARGUMENTS OF JURISDICTION

1. Claimant is not an “investor” under the Euroasia BIT. ................................................... 2

2. Claimant has failed to take the pre-arbitral steps under Art. 9 of the Euroasia BIT. .. 4

3. MFN clause stipulated in Art. 3 of the Euroasia BIT cannot serve as a basis for the

Tribunal’s jurisdiction. ............................................................................................................ 5

4. Claimant has not made “investments” under the Eastasia BIT. ..................................... 6

PART TWO: MERITS

5. Respondent has not expropriated Claimant’s investments. ............................................. 9

5.1. Respondent has not expropriated Claimant’s investment directly. .................... 9

5.2. Respondent has not expropriated Claimant’s investment indirectly. ................ 9

5.3. Respondent’s sanctions were within its police powers. ...................................... 11

5.3.1. The Executive Order served the public purpose of Oceania. ..................... 12

5.3.2. Introduction of sanctions by Respondent is a non-compensable measure. 14

6. No actions of Respondent can be considered as a violation of Euroasia BIT, since Art.

10 of the Euroasia BIT applies. ............................................................................................. 15

6.1. The Euroasia BIT is lex specialis to international customary law. ................... 15

6.2. Respondent introduced sanctions for maintenance of international peace and

security. ................................................................................................................................ 16

6.2.1. Eurasia annexed Fairyland illegally. ............................................................. 16

6.2.2. The annexation cannot be justified by self-determination of Fairyland

people. .............................................................................................................................. 17

6.2.3. By annexation of the Fairyland Euroasia has breached the principle of

estoppel. ............................................................................................................................ 18

6.3. Respondent is bound not to “recognize as lawful” the annexation of Fairyland

by Euroasia. ......................................................................................................................... 19

6.4. Respondent imposed sanctions to condemn the illegal act of annexation of

Fairyland by Euroasia. ..................................................................................................... 20

7. Claimant contributed to the damage he has suffered. .................................................... 22

7.1. Claimant contributed to the damage suffered by its investment by violation

“clean hands” doctrine. ...................................................................................................... 23

iii

7.2. Claimant contributed to the damage suffered by its investment by supply of

weapons for Euroasian armed forces................................................................................ 25

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

iv

LIST OF AUTHORITIES

LEGAL SOURCES Books

Newcombe A.Newcombe, L. Paradell, Law and

Practice of Investment Treaties: Standards

of Treatment, (The Netherlands: Kluwer

Law International, 2009)

Cheng Bin Cheng, General Principles of Law as

Applied by International Courts and

Tribunals, (Cambridge: Cambridge

University Press, 1953)

Reinisch A. Reinisch, The Oxford Handbook of

International Investment Law, (Oxford:

Oxford University Press, 2008

Sabahi B. Sabahi, Compensation and

Restitution in Investor-State Arbitration:

Principles and Practice

Bimal N. Patel B. N.Patel, R. Nagar, H.Thakkar, Law

and Economics in India: Understanding

and practice, (Rouledge, Taylor&Francis

Group, London and New York,2016)

Shreuer (1) C. Shreuer et al, THE ICSID

CONVENTION (2 ed., University Press,

Cambridge, 2009

v

Dugan C.F. Dugan, D.Wallace, Jr.Noah

Rubins, B.Sabani, Investor-State

Arbitration, (Oxford: Oxford International

Law Library, 2008)

Brownlie I. Brownlie, Principles of Public

International Law, (Oxford: Oxford

University Press, 2003)

Caliskan

J. Caliskan, The Development of

International Investment Law: Lessons

from the OECD MAI Negotiations and

Their Application to a Possible

Multilateral Agreement on Investment,

(Universal-Publishers, 2008)

Salacuse

J. W. Salacuse, The Law of Investment

Treaties, Second Edition, (Oxford: Oxford

International Law Library, 2015)

Sauvant

K. P. Sauvant, Yearbook on

International Investment Law & Policy

2011-2012, (Oxford, 2012)

Dawidowicz M. Dawidowicz, The Obligation Of

Non-Recognition Of An Unlawful

Situation, (Oxford: Oxfort University

Press, 2010)

vi

Blackaby N. Blackaby, C. Partasides, A. Redfern

and J.M.Hunter on International

Arbitration (Sixth Edition), (Oxford:

Oxford University Press,2015)

Dolzer (II) R. Dolzer, Christoph Schreuer,

Principles of International Investment Law,

Second Edition,(Oxford:Oxford University

Press,2012)

Redfern Redfern and Hunter on International

Arbitration (Sixth Edition), Blackaby,

Partasides, et al. (2015)

Ripinsky S. Ripinsky, K. Williams, Damages in

International Investment Law, London

2008

Banifatemi Y. Banifatemi, The Law Applicable in

Investment Treaty Arbitration, In

Arbitration Under International Investment

Agreements: A Guide to the Key Issues,

(Oxford University Press, 2010)

Douglas Z. Douglas, The International Law of

Investment Claims, (CUP, Cambridge,

2009)

Legal Journals

Ovchar A. Ovchar, Estoppel in the

vii

Jurisprudence of the ICJ A principle

promoting stability threatens to undermine

it, Bond Law Review, vol.21, (2009)

Reinisch A. Reinisch, Standards of Investment

Protection, (Oxford: Oxford University

Press,2008)

Moloo R. Moloo, A Comment on the Clean

Hands Doctrine in International Law,

(Gibson, Dunn & Crutcher LLP, 2010)

Maniruzzaman A.F.M. Maniruzzaman, Expropriation

of Alien Property and the Principle of Non-

Discrimination in International Law of

Foreign Investment: An Overview, 8 Journal

of Transnational Law and Policy (1998)

Memeti A. Memeti, B. Nuhija, The concept of

erga omnes obligations in international

law, 14 New Balkan Politics (2013)

Aaken A. van Aaken, International Investment

Law and Targeted Sanctions: An Uneasy

Relationship, (Perspectives on topical

foreign direct investment issues No. 164,

2016)

Kishoiyian B. Kishoiyian, The Utility of Bilateral

Investment Treaties in the Formulation of

Customary International Law, 14 Nw. J.

viii

Int'l L. & Bus. 327 (1993-1994)

McLachlan C. McLachlan QC, L. Shore, M.

Weininger, International Investment

Arbitration, (Oxford Arbitrational Series,

2008)

Dolzer (I) R. Dolzer, Indirect Expropriation, New

Developments?,Environmental Law Journal

11 (2002)

Report of ILC 48 session Report of the Commission to the

General Assembly on the work of its forty-

eighth session, (Vol. II)Part 2,Yearbook Of

The International Law Commission, 1996

Final Draft Articles Final Draft Articles on Most Favoured

Nation Clauses’,Year Book of International

Law Commission, Vol.2, Pt. 2, 30th

session,

1978

Hossain K. Hossain, The Concept of Jus Cogens

and the Obligation Under The U.N.

Charter, 3 Santa Clara J. Int'l L. 72 (2005)

Somarajah M. Somarajah, State Responsibility and

Bilateral Investment Treaties, (Journal of

World Trade, 2008)

S. Talmon S. Talmon, Recognition of States and

ix

governments in international law: With

Particular Reference to Governments in

Exile, (Oxford, 2008)

Talmon S. Talmon, The Duty Not to ‘Recognize

as Lawful’ a Situation Created by the

Illegal Use of Force or Other Serious

Breaches of a Jus Cogens Obligation: An

Obligation without Real Substance?

(Oxford Legal Studies Research Paper No.

19, 2006)

Sobahi Sabahi, Compensation and Restitution

in Investor-State Arbitration: Principles

and Practice, Mexican Annuary

International Law Journal, (2011)

Sadowski W. Sadowski, Yukos and Contributory

Fault, Transnational Dispute Management

11 (2014)

Kryvoi Y. Kryvoi, M. Tsarova, Protecting

Foreign Investors in Crimea: Is Investment

Arbitration an Option? CIS Arbitration

Forum (2015)

Zadorozhnii O. Zadorozhnii, Russian doctrine of

international law after the annexation of

Crimea: Monograph, Kyiv, K.I.S., 2016

x

List of cases

ADC ADC Affiliate Limited and ADC &

ADMC Management Limited v. The

Republic of Hungary, ICSID Case No.

ARB/03/16,Award, 2 October 2006

AAPL Asian Agricultural Products Ltd v.

Republic of Sri Lanka, ICSID Case No.

ARB/87/3, Final Award, 27 June 1990

Amco Amco Asia Corporation v. Republic of

Indonesia, ICSID Case No. ARB/81/,

Award, 20 November 1984

Ceac Ceac Holdings Limited v. Montenegro,

ICSID Case No. AARB/14/8RB/8, Award,

14 July, 2014

Enron Enron Corporation and Ponderosa

Assets, L.P. v. Argentine Republic, ICSID

Case No. ARB/01/3, Decision on

Jurisdiction, 14 January 2004

Fireman’s Fund Fireman’s Fund Insurance Company v.

United Mexican States, ICSID Case No.

ARB(AF)/02/1, Decision on the Pleminary

Question, 17 July 2003

Gustav Gustav F W Hamester GmbH & Co KG

v. Republic of Ghana, ICSID case No.

ARB/07/24, Award dated 18 June 2010

xi

Al-Warraq Hesham Talaat M. Al-Warraq v.

Republic of Indonesia, UNCITRAL case,

Final award,15 December 2014

Hulley Hulley Enterprises Limited v. The

Russian Federation, UNCITRAL, PCA

Case No. AA 226, Final Award, 18 July

2014

Fraport Fraport AG Frankfurt Airport Services

Worldwide v. The Republic of the

Philippines, ICSID Case No. ARB/03/25,

Award,16 August 2007

Wall in the Occupied Palestinian

Territory

Legal Consequences of the

Construction of a Wall in the Occupied

Palestinian Territory, ICJ, Advisory

Opinion, 4 July 2004

Methanex Methanex Corporation v. United States

of America, UNCITRAL case, Final

Award of the Tribunal on Jurisdiction and

Merits, 3 August 2005

Nicaragua Military and Paramilitary Activities in

and Against Nicaragua (Nicaragua v. The

United States of America),ICJ, Judgment on

the Merits, 27 June 1986

Plama Plama Consortium Limited v. Republic

of Bulgaria, ICSID case No. ARB/03/24,

Award, 27 August 2008

xii

Quiborax Quiborax S.A. and Non Metallic

Minerals S.A. v. Plurinational State of

Bolivia, ICSID Case No. ARB/06/2,

Award, 16 September, 2015

Saluka Saluka Investments B.V. v. The Czech

Republic, UNCITRAL case, Partial Award,

17 March 2006

Sempra Sempra Energy International v. The

Argentine Republic, ICSID Case No

ARB/02/16, Award, 28 September 2007

SASL South American Silver Limited v.

Plurinational State of Bolivia, PCA Case

No. 2013-15 , Objections to Jurisdiction,

Admissibility and Counter-Memorial on the

merits, 30 November 2015

Starrett Starrett Housing Corp v. Government

of the Islamic Republic of Iran, 4 Iran-US -

CTR Case No. 24, 19 December 1983

Shufeldt Claim Shufeldt Claim (US v. Guatemala),

UNRIAA VOLUME II pp. 1079-1102,

Award, 24 July 1930

Tippets Tippetts, Abbett, McCarthy, Stratton v.

TAMS-AFFA Consulting Engineers of Iran,

6 Iran-US CTR Case No. 7, 29 June 1984

Yukos Yukos Universal Limited (Isle of man)

xiii

v. The Russian Federation, PCA, Case No.

AA 227, Final Award, 18 July 2014

Veteran Veteran Petroleum Limited v. The

Russian Federation, UNCITRAL, PCA

Case No. AA 228, Final Award, 18 July

2014

World Duty Free Company Limited World Duty Free Company Limited v.

Kenya, ICSID Case No ARB/00/7, Award,

4 October 2006

Treaties:

UN Charter Charter of the United Nations, 1945

DPIL Declaration on Principles of

International Law concerning Friendly

Relations and Co-operation among States

in accordance with the Charter of the

United Nations, 1970

Draft Articles on Diplomatic

Protection with commentaries

Draft Articles on Diplomatic

Protection with commentaries, 2006

Environmental Licence Environmental License containing an

approval for arms production, 23 July

1998

xiv

Executive Order Executive Order on Blocking

Property of Persons Contributing to the

Situation in the Republic of Eastasia, 1

May 2014

European Convention on Nationality,

1997

ILC Articles International Law Commission,

Articles on State Responsibility for

Internationally Wrongful Acts, 2001

ILC Articles, commentary International Law Commission,

Articles on State Responsibility for

Internationally Wrongful Acts (including

official Commentary), Yearbook of the

International Law Commission 2001,

Vol. II (Part 2)

Hague Conv. on Questions of

Nationality Laws

Hague Convention on Certain

Questions Relating to the Conflict of

Nationality Laws, 1930

Eastasia BIT The Agreement for the Promotion and

Reciprocal Protection of Investments

between the Republic of Oceania and the

Republic of Eastasia, 1 January 1992

Euroasia BIT The Agreement for the Promotion and

Reciprocal Protection of Investments

xv

between the Republic of Oceania and the

Republic of Euroasia, 1 January 1995

Rome Statute Rome Statute of the International

Criminal Court, 1998

U.S. Model BIT

United States Model Bilateral

Investment Treaty, 2012

VCLT Vienna Convention on the Law of

Treaties, 23 May 1969

Miscellaneous

1. Definition of Aggression, United Nations General Assembly Resolution 3314

(XXIX).

2. General Assembly Resolution 32/105N, 14 December 1977, (South Africa);

3. General Assembly Resolution 34/93G, 12 December 1979, (South Africa).

4. Obligations Erga Omnes in International Law, Resolution of Institut De Droit

International, 2005.

5. Report of the International Law Commission on the Work of its 48th Session,

GAOR, 51st Session, Supp. No. 10 (A/51/10), 1996.

6. Security Council Resolution 253, 29 May 1968 (Rhodesia).

xvi

STATEMENT OF FACTS 1. Claimant, Peter Explosive, recognised by the Euroasian authorities as a national

of Euroasia, invested in Oceania in February 1998 by purchasing 100% of the

shares in the company, ―Rocket Bombs Ltd, operated in the arms industry and

specialized in arms production.

2. Respondent is the Republic of Oceania.

3. Rocket Bombs had lost its environmental license containing an approval for arms

production in November 1997. In order to resume arms production, Rocket

Bombs was obliged by the environmental law of Oceania to obtain a license from

the National Environment Authority of Oceania (―NEA‖). To obtain such a

decision, Rocket Bombs was obliged to adjust its production line to the

environmental requirements contained in the Environment Act.

4. To resume arms production, Rocket Bombs was obliged by the environmental

law of Oceania to obtain an Environmental License from the National

Environment Authority of Oceania containing an environmental approval for the

commencement of arms production from the NEA (―Environmental License‖).

To obtain such a decision, Rocket Bombs was obliged to adjust its production

line to the environmental requirements contained in the Environment Act 1996.

5. To gain the necessary financial resources, Claimant needed Rocket Bombs to

resume production as soon as possible and to generate income necessary to cover

the initial expenses. He decided to turn to the Ministry of Environment of

Oceania with a request for a subsidy, which was possible, according to the

Environmental Act.

6. Claimant decided to try to expedite the decision of the Ministry of Environment

regarding the subsidy and in July 1998, he managed to have a private meeting

with the President of NEA. On 23 July 1998, NEA issued an environmental

license approving the commencement of arms production by Rocket Bombs.

7. On 3 August 1998, the Ministry of Environment of Oceania denied the request

for subsidy. And on 8 September 1998, Claimant approached his friend, who was

now Minister of National Defence (―Minister‖) in the Republic of Euroasia

(―Euroasia‖). Minister revealed to Claimant that the contract between the

Ministry of National Defence acting on behalf of Euroasia and Super Missiles

xvii

Ltd. (―Super Missiles‖) for the arms production would soon expire. Euroasia was

still in the process of modernising the equipment. Minister promised that a new

contract for the arms production will be concluded with Rocket Bombs. On 23

December 1998, Claimant met with representatives of the Ministry of the

National Defence, including the Minister himself. On that day, they concluded a

contract for the arms production.

8. Soon Rocket Bombs received the advance, its arms production was commenced.

Claimant concluded a number of contracts with Oceanian companies for the

delivery of the materials necessary for the arms production. Later Rocket Bombs

became very prosperous company and one of the largest arms producers in

Oceania. Claimant managed to conclude, on behalf of Rocket Bombs, a great

number of contracts for arms production and opened several new factories. As

the business became profitable, Claimant modernised the production and it fully

complied with the legal requirements in Oceania by 1 January 2014.

9. After annexation of Fairyland, Oceania declared that the annexation was

unlawful and on 1 May 2014 the President of Oceania issued an Executive

Order. The Executive Order introduced a system of sanctions. The sanctions

were applied to Rocket Bombs, which was the only company designated by the

sanctions. Claimant was unable to sell the shares in the company to a third

person, he could neither conduct the business, nor sell it.

10. Throughout 2013, the General Prosecutor‘s Office of Oceania was conducting an

investigation regarding the corruption in the National Environment Authority of

Oceania.On 21 November 2013, the investigation resulted in a formal initiation

of criminal proceedings against those officials, including the President of the

National Environment Authority of Oceania. On 1 February 2015, the President

of the National Environment Authority, along with the other officials, was

convicted of accepting bribes. The scandal heavily engaged the media and the

public of Oceania.As a result there were numerous investigations by the General

Prosecutor‘s Office. Those investigations focused on people who bribed the NEA

President and other officials. On 5 May 2015, Claimant was informed that he was

under investigation with regard to the environmental license obtained on 23 July

xviii

1998 for Rocket Bombs. On 23 June 2015, the General Prosecutor‘s Office

officially initiated criminal proceedings against the Claimant.

1

ARGUMENTS

PART ONE: ARGUMENTS OF JURISDICTION

11. Under Art. 6.2 of the International Chamber of Commerce (―ICC‖) Arbitration

Rules the parties accept that the arbitration shall be administered by the Tribunal

by agreeing to arbitration under the ICC Rules.

12. Respondent has not agreed to arbitration under the ICC Rules over the present

dispute.

13. Claimant argues the Tribunal has jurisdiction based on Respondent‘s consent

expressed in the Eurasia BIT. Art. 9 of the Euroasia BIT says that to fall under

the Tribunal‘s jurisdiction (i) the dispute must be a dispute regarding investment

(jurisdiction ratione materiae), and (ii) the parties of the dispute must be a

Contracting Party and an ―investor‖ of another Contracting Party (jurisdiction

ratione personae), as they as defined in Art. 1 of the Eurasia BIT, as well as (iii)

the dispute may be referred to the Tribunal only after twenty four months from

the date of the notice on the commencement of proceedings before the competent

judicial or administrative courts of the Contracting Party in whose territory the

investment is made, i.e. of Oceania.

14. All three criteria are obligatory. However, the last two of them are not met in

case of this dispute, and therefore, the Tribunal lacks jurisdiction over it.

15. To avoid the third criteria mentioned above, the Respondent tries to invoke Art. 8

of the Eastasia BIT based on MFN clause contained in Eastasia BIT. Such

invocation fails, because (i) the Claimant may not benefit from MFN clause

contained in the Euroasia BIT, as it is not investor under the Euroasia BIT; (ii)

MFN clause may not broaden the scope of the Respondent‘s consent to

arbitration; (iii) also the rules on settlement of investment disputes from the

Eastasia BIT may not apply, because this dispute may is not a dispute concerning

―investments‖.

2

1. Claimant is not an “investor” under the Euroasia BIT. 16. To be granted protection under Euroasia BIT, i.e. Claimant must be qualified as

an ―investor‖ under Euroasia BIT. Claimant is not ―investor‖ for the purposes of

Euroasia BIT, because he acquired nationality of Euroasia as a result of an

international wrongful act of Euroasia.

17. Namely, Euroasian citizenship was granted to Peter Explosive, as to the citizen of

annexed Fairyland, already after illegal entrance of Euroasian military forces into

the territory of Fairyland on March 1, 2014 and on the same day as annexation of

Fairyland by Euroasia was officially declared1. As it will be discussed infra, the

(i) entrance of Euroasian military forces into the territory of Eastasia on March 1,

2014, as well as (ii) annexation of Euroasia with regard to the territory of

Fairyland were illegal and constituted an international wrongful act.2

18. Under Art. 1 of the Euroasia BIT, a natural person is an ―investor‖ under

Euroasia BIT, if he has the nationality of either Contracting Party in accordance

with its laws.3 Euroasian authorities recognized Peter Explosive as a national of

the Republic of Euroasia on 23 March 2014, and he was subsequently issued a

Euroasian identity card and passport.4 Recognition of a natural‘s nationality

based on the discretion of the state granting the nationality is widely accepted,

however, the right of a state, i.e. of Euroasia, to decide who are its nationals, is

not absolute.5

19. In CEAC, the tribunal reemphasized that the question of its jurisdiction is a

matter for international, and not domestic, law.6

20. Art. 4 of the Draft Articles on Diplomatic Protection, states:

―for the purposes of the diplomatic protection of a natural

person, a State of nationality means a State whose

nationality that person has acquired, in accordance with

the law of that State, by birth, naturalization, succession of

1 Section 6.2.1. of this Memorandum.

2 Ib.

3 Euroasia BIT, Art. 1

4 Procedural Order No 2, para. 4.

5 Draft Articles on Diplomatic Protection with commentaries, art. 4, para. 7.

6 CEAC, paras. 154, 155.

3

States, or in any other manner, not inconsistent with

international law‖.7

21. The commentary to this article clarifies the ILC‘s approach to definition of

―nationality‖:

[t]his definition is premised on two principles: first, that it

is for the State of nationality to determine, in accordance

with its municipal law, who is to qualify for its nationality;

secondly, that there are limits imposed by international

law on the grant of nationality‖.

22. The commentary provides examples of various other treaties, requiring states to

comply with international standards in the granting of nationality.8

23. In the case at hand, therefore, the question of Claimant‘s nationality cannot be

decided based on the fact that Eurasia recognizes him as its citizen. In contrast, it

should derive from the fact that grant of such citizenship results from an

international wrongful act and recognition of such citizenship, i.e. by

Respondent, would violate international law.

24. Recognition of Claimant‘s citizenship of Euroasia is inconsistent with the ex

iniuria ius non oritur general principle of law, and would violate the obligation

of non-recognition of unlawful situations under Art. 41(2) of the ILC Articles on

State Responsibility.

25. Art. 41(2) of the ILC Articles on State Responsibility provides that:

―[2] No State shall recognize as lawful a situation created

by a serious breach within the meaning of article 40, nor

render aid or assistance in maintaining that situation‖.9

26. The ILC explains, that this general obligation of non-recognition reflects ―a well

established practice‖ and is thus said to embody existing customary international

law.10

27. To comply with the obligation of non-recognition of unlawful situations, the

states have, inter alia, been required to exclude any dealings with responsible

7 Draft Articles on Diplomatic Protection with commentaries, art. 4, para. 7.

8 European Convention on Nationality 1997, art. 3.2; Hague Conv. on Questions of Nationality Laws, art. 1.

9 ILC Articles, art. 41.2.

10 Report of ILC 48 session, p. 72, art. 53, para. 2.

4

states, which could imply formal recognition of an unlawful situation11

, i.e.

recognition of passports or travel documents issued by a regime.12

28. Considering otherwise would lead to international compromise with the

―annexation by passport‖ activities, being able to undermine the whole system of

international peace and security. As E. Murray precisely notes with regard to

Russia‘s policy of granting citizenship to people in other state: ―Passportisation is

dangerous for international peace and security. Russia will be able to utilize

passportisation as a window for intervention. Accordingly, Russia‘s next

intervention will seemingly follow the distribution of Russian passports‖.13

Respondent hopes that neither Russia, nor Euroasia will be encouraged by the

international community to follow this strategy.

29. Considering the above, Claimant cannot be considered as a national of Euroasia,

is not an ―investor‖, and, therefore, the Tribunal lacks jurisdiction ratione

personae.

2. Claimant has failed to take the pre-arbitral steps under Art. 9 of the

Euroasia BIT.

30. In accordance with Art. 9 of the Euroasia BIT, if a dispute has not been resolved

amicably, an investor may submit the claim to the competent court of the host

State. Such submission will also empower the investor to further refer the

dispute to international arbitration, provided that before such submission a

twenty four months‘ term from the date of the notice on the commencement of

proceedings before the competent courts of the host State has elapsed.14 Art. 9 of

the Euroasia BIT, therefore, preconditions the Tribunal‘s jurisdiction over the

dispute upon taking specific pre-arbitral steps. Claimant has failed to comply

with it.

31. According to the common practice in investment disputes resolution, the

obligation to comply with the waiting period is not subject to derogations. It

11

Dawidowicz, p. 684. 12

Security Council Resolution 253, 29 May 1968 (Rhodesia); General Assembly Resolution 32/105N, 14

December 1977 (South Africa); General Assembly Resolution 34/93G, 12 December 1979 (South Africa). 13

Zadorozhnii. 14

Euroasia BIT, art. 9.2.

5

constitutes one of the jurisdictional requirements, and a failure to fulfill it results

in rejection of the right to arbitrate.15

32. Claimant has not submitted the dispute to any courts of Oceania at all.

33. In Enron the tribunal declared:

―[T]he Tribunal wishes to note in this matter, however,

that the conclusion reached is not because the six-month

negotiation period could be a procedural and not a

jurisdictional requirement as has been argued by the

Claimants and affirmed by other tribunals. Such

requirement is in the view of the Tribunal very much a

jurisdictional one. A failure to comply with that

requirement would result in a determination of lack of

jurisdiction‖. 16

34. Considering that Claimant has failed to comply with the pre-arbitral steps

requirement stipulated in Art. 9 of the Euroasia BIT the Tribunal lacks

jurisdiction.

3. MFN clause stipulated in Art. 3 of the Euroasia BIT cannot serve as a basis

for the Tribunal’s jurisdiction.

35. Claimant alleges, that requirement of pre-arbitral steps under Art. 9 of the

Euroasia BIT can be circumvented by invocation of Art. 8 of Eastasia BIT based

on the MFN clause stipulated in the Euroasia BIT, namely:

―[E]ach 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‖. 17

36. Art. 8 of Eastasia BIT indeed does not require prior submission of a dispute to

national courts. However, the cited MFN clause may not be invoked for its

application to the dispute at hand.

15

Blackaby, p. 480. 16

Enron, para. 88. 17

Euroasia BIT, art. 3.1.

6

37. First, as stated above18

Art. 3 of Euroasia BIT is not applicable, as Claimant is

not Euroasian national, and therefore, not an investor under the Euroasia BIT.

38. Second, the MFN clause does not invoke the provisions on pre-arbitral steps,

being the jurisdictional ones.

39. The need to distinguish between jurisdictional and substantive rights granted by

BITs was stressed, i.e. by Douglas:

―MFN clause in the basic investment treaty does not

incorporate by reference provisions relating to the

jurisdiction of the arbitral tribunal, in whole or in part, set

forth in a third investment treaty, unless there is an

unequivocal provision to that effect in the basic

investment treaty‖. 19

40. Art. 3 of the Euroasia BIT does not include any provisions on extension of MFN

regime to jurisdictional requirements.

41. Case law reflects the reasoning for MFN‘s applicability only to merits.20

42. In Anglo-Iranian Oil Company, the court dismissed the United Kingdom‘s

submission because, a priori, the MFN clauses could not extend to jurisdictional

matters:

―The Court needs only observe that the most-favoured-

nation clause in the Treaties between Iran and the United

Kingdom has no relation whatever to jurisdictional matters

between the two Governments. If Denmark is entitled

under Art. 36, para. 2, of the Statute, to bring before the

Court any dispute as to the application of its Treaty with

Iran, it is because that Treaty is subsequent to the

ratification of the Iranian Declaration. This can not give

rise to any question relating to most-favoured-nation

treatment‖.21

43. Claimant cannot refer to MFN clause as it can be referred only in questions of

merits. Then before going to the Arbitration, Claimant should apply for national

court of Oceania. As a result, the Tribunal has no jurisdiction.

4. Claimant has not made “investments” under the Eastasia BIT.

18

Section 1 of this Memorandum. 19

Douglas, para. 644. 20

Plama, para. 215. 21

Anglo-Iranian Oil Co, para. 93.

7

44. Even if Art. 8 of the Eastasia BIT could be invoked based on Art. 3 of the

Euroasia BIT, Art. 8 of Eastasia BIT does not apply to the dispute, as it does not

concern ―investments‖.

45. Art. 8 of the Eastasia BIT applies only to the ―disputes concerning

investments‖.22

46. The definition of ―investment‖ for the purposes of Eastasia BIT:

―[t]he term ―investment‖ comprises every kind of asset

directly or indirectly invested by an investor of one

Contracting Party in the territory of the other Contracting

Party in accordance with the laws and regulations of the

latter ‖.23

47. The underlined phrase of the definition reflects the Contracting Parties‘ intent to

limit the notion of ―investment‖ with the ―clean hands‖ obligation. As noted by

the Phoenix tribunal, ―the purpose of the international protection is to

protect legal and bona fide investments…‖24, however, the Claimant‘s

investments were not of this sort.

48. In February 1998 Claimant acquired shares in Rocket Bombs. In order to resume

arms production, Rocket Bombs was obliged by the environmental laws of

Oceania to obtain a license from the NEA containing an environmental approval

for the commencement of arms production. To obtain such a decision, Rocket

Bombs was obliged to adjust its production line to the environmental

requirements contained in the Environment Act 1996.25 However, Сlaimant

obtained the Environmental License and carried out more than 15 years activity

without compliance with all the requirements of the Environmental Act, thereby

breaking the law of Oceania. As Claimant did not comply with the environmental

laws‘ requirements, Respondent alleges that the process of the Environmental

License‘s obtainment must have involved corruption, which is also affirmed by

collateral facts.26

22

Eastasia BIT, art. 8.1. 23

Eastasia BIT, art. 1. 24

Phoenix, para. 100. 25

Uncontested Facts, paras. 2-4. 26

Uncontested Facts, paras. 18-19.

8

49. Claimant has, therefore, failed to invest in accordance with the laws and

regulations of Oceania, most importantly, having violated its anti-corruption

laws. The importance of anti-corruption laws‘ compliance is strengthened

widely. In World Duty Free Company Limited the tribunal stated: ―claims based

on contracts of corruption or on contracts obtained by corruption cannot be

upheld‖.27

50. The Environmental License, shares‘ cost, as well as any business relations of

Claimant are, therefore, based on illegal activity, i.e. are operated with violation

of ―clean hands‖ doctrine.

51. The assets Claimant has invested in breach of Oceanian laws are, therefore,

outside of the notion of ―investments‖, and the dispute about such assets may not

be settled based on Art. 8 of the Eastasia BIT. In Fraport the tribunal ruled: ―[a]

party who asks for redress must present himself with clean hands‖28

, still

Claimant is trying to avoid this maxima.

52. Considering that (i) Claimant is not in ―investor‖ under the Euroasia BIT, (ii) it

has not complied with pre-arbitral steps requirement under Art. 9 of the Euroasia

BIT and (iii) cannot circumvent this requirement by invocation of Art. 8 of the

Eastasia BIT, the Tribunal lacks jurisdiction over the dispute.

27

World Duty Free Company Limited, para 157. 28

Fraport, para. 328; Cheng, p. 156.

9

PART TWO: MERITS

5. Respondent has not expropriated Claimant’s investments. 53. Art. 4 of the Euroasia BIT establishes that investments shall not be directly or

indirectly expropriated, except for public purpose on conditions of due process of

law, non-discriminatory basis and prompt, adequate and effective

compensation.29

54. In the case at hand, Respondent could not expropriate any investments, since

Claimant had not made any.30

Even if the Tribunal recognizes that Claimant has

made investments in the sense of Art. 1 of the Euroasia BIT, no expropriation

occurred.

5.1. Respondent has not expropriated Claimant’s investment directly.

55. Expropriation is defined as taking or deprivation of property by the host state

―owned by private persons by means of administrative or legislative action‖.31

56. The international investment law recognizes two types of expropriation: direct

and indirect expropriation.32 A direct expropriation is the one in its traditional

meaning.33 Direct expropriation occurs when a host state deliberately seizes

property and transfers legal title to itself.34

57. Respondent did not seize any Claimant‘s property, as well as did not it transfer

any Claimant‘s legal title to itself, and therefore, no direct expropriation has

occurred in the case at hand.

5.2. Respondent has not expropriated Claimant’s investment indirectly.

58. Executive Order introduced certain sanctions, which also applied to Claimant and

his company.35 Though the sanctions have had adverse effect on Claimant‘s

business, they cannot be considered as amounting to indirect expropriation.

29

Euroasia BIT, art. 4.1. 30

Section 4 of this Memorandum. 31 McLachlan, p. 290; Tecmed, para. 113. 32

Dolzer, p. 101. 33

McLachlan, p. 290. 34

Newcombe. p. 323. 35

Uncontested Facts, paras. 16-17.

10

59. There is not consistent approach to understanding of indirect expropriation in

international investment law, and its identification depends on a case-by-case

analysis of the specific facts36, e.g. in Starrett, the tribunal concluded that an

expropriation had taken place as a result of the appointment of Iranian managers

to the housing project,37 while in Tippetts, the tribunal did not regard the

government appointment of an Iranian manager itself as an expropriation.38

60. International tribunals have identified a number of factors to be taken into

account for adjudicating indirect expropriations, including: (1) the effect of the

government measures on an investment; (2) the intent, purpose, nature or

character of the governmental act or measure, (3) the degree of reliance on the

government‘s representations, (4) the duration of the effect of the governmental

act or measure, (5) whether the investor has sought domestic remedies, (6)

whether the government act has been validated by domestic courts, and (7)

whether the government has transferred the investment to itself or to a third

party.39

61. The seventh factor, i.e. whether the government has transferred the investment to

itself or to a third party, is of particular importance.

62. So, UNCITRAL tribunal in Lauder denied existence of an indirect expropriation,

inter alia, because the measures complained of did ―not amount to an

appropriation or the equivalent—by the State, since it did not benefit the Czech

Republic or any person related thereto‖.40

63. The ICSID tribunal in Amco expressly held that it is generally accepted in

international law, that a case of expropriation exists not only when a state takes

over private property but also when the expropriating state transfers ownership to

another legal or natural person.41

64. The measures taken by Respondent concerning Claimant did not transfer any

Claimant‘s assets to itself or a third party. Notably, Respondent was not a party

to the contracts with Claimant terminated as a result of Respondent‘s sanctions.

36

Reinisch, p. 439. 37

Starrett, para. 156. 38

Tippetts. 39

Dugan, p.469. 40

Lauder, para. 203. 41

Amco.

11

In contrast, Respondent‘s economy, which used to benefit from Claimant‘s

business, will probably deteriorate.

65. Respondent contends that at least because it has not benefited from the

expropriation in any way, and the title to any assets of Claimant has not been

passed to Respondent, or any third party, no indirect expropriation has occurred

either.

5.3. Respondent’s sanctions were within its police powers.

66. In expropriation disputes it is important to recognize a state‘s legitimate right to

regulate and its police power to act in the interests of public welfare. Such

actions should not be confused with acts of expropriation.42

67. In Quiborax the Tribunal noted that:

―[i]f the Revocation Decree was the legitimate exercise of

its sovereign right to sanction violations of the law in its

territory, it would not qualify as a compensable taking.

International law has generally understood that regulatory

activity exercised under the so-called ―police powers‖ of

the State is not compensable‖.43

68. Similarly, in Saluka, the tribunal said that in its opinion, the principle that a State

does not commit an expropriation and is thus not liable to pay compensation to a

dispossessed alien investor when it adopts general regulations that are

―commonly accepted as within the police power of States‘ forms part of

customary international law today.44

69. According to the police powers doctrine, governments are traditionally entitled to

take private property in the legitimate exercise of their police powers without any

compensation.45 In Methanex, the tribunal expressly endorsed the classic police

powers doctrine, specifically applying for the three traditional criteria in the

assessment of legality: public purpose, non-discrimination and due process. If

42

Salacuse, p. 327. 43

Quiborax, para. 202. 44

Saluka, para. 262. 45

Dolzer, p.79-80; Fireman’s Fund, para. 176.

12

these criteria are met, a regulatory measure does not amount to an indirect

expropriation and consequently no compensation is due.46

5.3.1. The Executive Order served the public purpose of Oceania.

A) Respondent has the right to define its public purposes independently.

70. The public purpose is the first criterion which should be met for the

indirect expropriation to be lawful. It is necessary to understand, who has the

authority to assess actions, whether they were taken to serve public purpose or

not.

71. The legal doctrine establishes that state has the authority to decide whether

its public interest is in danger or not.47 Case-law also supports this approach.

72. In Shufeldt Claim the arbitrator stated in respect of the state expropriation act:

„[i]t was perfectly competent for the Government of

Guatemala to enact any decree they like and for any

reasons they see fit, and such reasons are no concern of

this tribunal‖.48

73. The President of the Republic of Oceania was competent to introduce the

Executive Order on the basis of the International Emergency Economic Powers

Act 1992, which authorizes her to declare the existence of an unusual and

extraordinary threat to, among others, national and/ or international security

which in whole or substantial part originates outside the Republic of Oceania.49

74. Thus, under the international law the concept of ―public purpose‖ is broad and

subjected to host state‘s discretion.50 That is essentially for the state to adjudge

what is the scope of its public interests.51 So, Respondent was authorized to issue

the Executive Order for Oceania public purpose.

B) The Executive Order served the public purpose requirements.

75. Respondent submits that he has acted to protect its national defense interest.52

46

Methanex, paras. 7, 15. 47

Reinisch, p. 179. 48

Shufeldt Claim, the Arbitrator‘s Statement. 49

Procedural Order No 2, para. 7. 50

Reinisch, p. 182; Feldman, para. 99. 51

Feldman, para. 99. 52

Procedural Order No 2, para. 7.

13

76. One group of states, among which there was Respondent, declared that the

annexation was unlawful under public international law.53 Similar sanctions to

the ones imposed by means of the Executive Order of 1 May 2014 were also

imposed by some other countries which were against the annexation of Fairyland

by Euroasia.54

77. Therefore, Respondent had significant justification grounded in the protection of

public

78. purpose considerations while issuing the Executive Order.

C) The Executive Order was not discriminatory.

79. A discriminatory expropriation is forbidden both under the customary

international law

80. and treaty provisions addressing the legality of expropriation.55 The Iran-US

Tribunal in Amoco stated that the expropriation of a concern cannot be held

discriminatory solely on the basis that another concern in the same economic

branch was not expropriated.56

81. In the present case with coming into force of the Executive Order all companies

that operated in the targeted sectors, in particular arms production services were

subjected to the sanctions.57 Rocket Bombs was the only company involved in

arms trade with the Republic of Euroasia.58 Rocket Bombs‘ activity was very

favorable to Respondent, because a large number of Valhalla‘s residents were

employed in this company and it was concluded a number of contracts for arms

production that benefited the local community and Valhalla itself.59

82. So, for Respondent it was unprofitable to enter discrimination measures

concerning Claimant because activity of his company rendered favorable effect

on Oceania‘s economy.

D) Respondent has met due process of law requirement.

53

Uncontested Facts. para. 16. 54

Procedural Order No 3, para. 11. 55

Maniruzzaman, p. 57. 56

Amoco, para. 142. 57

Executive Order, section 1 (a); Procedural Order No 3, para. 10. 58

Procedural Order No 2, para. 6. 59

Uncontested Facts, paras. 3, 12.

14

83. Most treaties do not define due process of law, which, of course, has deep roots

in many legal systems.60 In ADC, in which the claimants argued that Hungary had

not respected due process of law when it expropriated their investment, the

tribunal sought to define the term. It stated:

―[d]ue process of law demands an actual and substantive

legal procedure for a foreign investor to raise its claims

against the depriving actions already taken or about to be

taken against it. Some basic legal mechanisms, such as

reasonable advance notice, a fair hearing and an unbiased

and impartial adjudicator to assess the actions in dispute,

are expected to be readily available and accessible to the

investor to make such legal procedure meaningful. In

general, the legal procedure must be of a nature to grant an

affected investor a reasonable chance within a reasonable

time to claim its legitimate rights and have its claims

heard‖.61

84. According to the International Emergency Economic Powers Act 1992 the

President of Oceania was competent to introduce the Executive Order. After a

declaration, the President may block transactions and freeze assets to cope with

the threat. The Executive Order was prepared and published in accordance with

Oceanian law. The media reported on the preparation of the Executive Order

before it was actually published and entered into force.62 So Claimant was

informed with Respondent‘s intention to enter the Executive Order in force and

consequently Claimant knew about sanctions to him and his company.

85. Thus, Respondent submits that he has not violated due process of law, because

Claimant‘s rights were not violated on behalf of Respondent and Executive Order

was introduced in accordance with Oceania's law.

5.3.2. Introduction of sanctions by Respondent is a non-compensable measure.

86. Regulatory measures taken for a public purpose which are non-discriminatory

and enacted in accordance with due process are simply not expropriation and,

therefore, are not subject to compensation, wholly aside from all other arguments

advanced by Respondent here.63

60

Salacuse, p. 351. 61

ADC, para. 435. 62

Procedural Order No 2., para. 7. 63

Methanex, para. 7; Saluka, para. 255; LG&E, para. 195.

15

87. In the present case Respondent‘s actions should be recognized as the exercise of

regulatory power, adopted in full compliance with criteria which were marked

out mentioned above. Besides, if the Tribunal were to decide that Respondent‘s

actions amounted to indirect expropriation, Respondent requests the Tribunal to

find that its actions through Rocket Bombs has constituted the lawful

expropriation for the very same reasons as in case of the Executive Order.

88. Consequently, Claimant does not have any right to compensation of its damages

resulting from the sanctions.

6. No actions of Respondent can be considered as a violation of Euroasia BIT,

since Art. 10 of the Euroasia BIT applies. 89. Under Art. 10 of the Euroasia BIT:

―[N]othing in this Agreement shall be construed to

prevent either Contracting Party from taking measures to

fulfil its obligations with respect to the maintenance

of international peace or security‖.64

6.1. The Euroasia BIT is lex specialis to international customary law. 90. Each BIT is a lex specialis between parties designed to create a mutual regime of

investment protection.65

91. The AAPL66 tribunal concluded that the parties to the arbitration had agreed to the

applicability of the Sri Lanka-United Kingdom bilateral investment treaty as lex

specialis and applicability of the international or domestic legal relevant rules ―as

a supplementary source‖ by virtue of the provisions of the treaty itself.

92. A very similar reasoning was adopted by the Tribunal in Azurix67 and by the

Tribunal in LG&E68 although in the context of the absence of a choice of law

provision under the United States-Argentina bilateral investment treaty.69

93. Therefore, even if international customary law could provide otherwise, Art. 10

of the Eurasia BIT applies and authorizes Respondent to take measures to fulfil

64

Euroasia BIT, art. 10. 65

Kishoiyian, p. 329; Sornarajah, p. 79, 82; Caliskan, p. 52. 66

AAPL paras.19-20. 67

Azurix, paras. 65–67. 68

LG&E, para. 85. 69

Banifatemi.

16

its obligations with respect to the maintenance of international peace or

security.

6.2. Respondent introduced sanctions for maintenance of international peace

and security.

6.2.1. Eurasia annexed Fairyland illegally.

94. In the light of international law annexation is the act of aggression. Aggression

constitutes a crime against the peace, for which there is responsibility under international

law.70

95. Under Rome Statute:

―[A]ct of aggression‖ means the use of armed force by a

State against the sovereignty, territorial integrity or

political independence of another State, or in any other

manner inconsistent with the Charter of the United

Nations‖.71

96. Euroasia violated general principles of international law such as the principle of

non-use of force and threat of force, the principle of territorial integrity of the

state and the principle of the inviolability of state borders, when on 1 March

2014, the armed forces of Euroasia entered the territory of Fairyland.72

97. This act of annexation was illegal, as under Declaration on Principles of

International Law concerning Friendly Relations and Co-operation among States

in accordance with the Charter of the United Nation:

―[E]very State has the duty to refrain in its international

relations from the threat or use of force against the

territorial integrity or political independence of any State,

or in any other manner inconsistent with the purposes of

the United Nations. Every State has the duty to refrain

from the threat or use of force to violate the existing

international boundaries of another State‖.73

98. The principle of prohibition of illegal use of force is jus cogens74 norm and erga

omnes75 obligation.

70

DPIL; Definition of Aggression, United Nations General Assembly Resolution 3314 (XXIX)., art. 5.2; Rome

Statute, art. 8 bis. 71

Rome Statute, art. 8 bis, para. 2. 72

Uncontested Facts, para. 14. 73

DPIL. 74

UN Charter, art. 2.4.; Nicaragua, para. 190.; Hossain, p. 96. 75

ILC Articles, commentary, Chapter iii, para. 7.; Memeti.

17

99. Therefore, interference of Euroasia in the territory of Eastasia was violation of

international law, in particular, jus cogens obligation, which contributed to the

responsibility of Euroasia.

6.2.2. The annexation cannot be justified by self-determination of Fairyland

people.

100. Self-determination is closely related to the protection of the rights of the

minority and if such rights are protected in practice there is no reason and

justification for external self-determination in the form of secession.76 For a long

time there was no requests of self-determination by people living in Fairyland.

They live like citizens of Eastasia, which means that self-determination held at

the national level.

101. Annexation of Fairyland cannot be considered as self-determination of

Fairyland‘s people, since it was the occupation of Eastasia‘s territory by

Euroasia. Although under international law Fairyland is still a part of Eastasia,

the only effective power in control on the region is Euroasia. That would suggest

that Fairyland might be considered an occupied territory.

102. Declaration on Principles of International Law concerning Friendly Relations

and Co-operation among States in accordance with the Charter of the United

Nations proclaims that:

―[T]he territory of a State shall not be the object of

military occupation resulting from the use of force in

contravention of the provisions of the Charter. The

territory of a State shall not be the object of acquisition by

another State resulting from the threat or use of force. No

territorial acquisition resulting from the threat or use of

force shall be recognized as legal‖.77

103. Therefore, Euroasia violated international law and specifically erga omnes

obligation not to occupy the territory of another state.

104. Alternatively, even if there was self-determination of Fairyland people, there

was violation of estoppel by Euroasia and therefore violation of international

76

Kryvoi. 77

DPIL.

18

obligation not to change fixed borders with use of force and, consequently,

Euroasia breached international law, when annexed Fairyland.

6.2.3. By annexation of the Fairyland Euroasia has breached the principle of

estoppel.

105. Estoppel is a general principle of international law.78

106. Estoppel consists of three fundamental elements: (1) a State must make a

representation to another; (2) the representation must be unconditional and

made with proper authority; and (3) the State invoking estoppel must rely

on the representation. Once these elements are established, estoppel is

invoked.79

107. Historically, Fairyland was part of the territory of the Republic of Euroasia.

However, at the outbreak of the World War in 1914, Eastasia annexed the

territory of Fairyland. The annexation of Fairyland by Eastasia was

recognised by the international community when the World War came to an

end in 1918. The Peace Treaty of 1918, which was signed by all countries

involved in the World War, including Euroasia, confirmed the common

agreement on the border changes. Since then, the residents of Fairyland have

been treated as other Eastasian nationals by the Republic of Eastasia.80

108. Therefore, after Euroasia signed The Peace Treaty of 1918, and recognized new

borders, in particular, annexation of Fairyland by Eastasia, Euroasia accepted

circumstances of Fairyland and thereby made representation of acceptance of

these new borders. When Euroasia signed The Peace Treaty of 1918, Euroasia

made it with proper authority. So that until 2013 Eastasia has relied on the

representation of Euroasia.

109. Regardless of the above, Euroasia interfered in the territory of Eastasia -

allegedly with intention to help with self-determination of Fairyland people and

therefore – and thereby breached estoppel and committed an internationally

wrongful act.

78

Brownlie, p. 616. 79

Ovchar. 80

Procedural Order No 3, para. 9.

19

6.3. Respondent is bound not to “recognize as lawful” the annexation of

Fairyland by Euroasia.

110. ILC Articles provide in Art. 41(2) that ―no State shall recognize as lawful a

situation created by a serious breach‖ of an obligation arising under a peremptory

norm of general international law.81

111. The prohibition of illegal use of force is jus cogens82 norm and erga omnes83

obligation.

112. In the advisory opinion on the Wall in the Occupied Palestinian Territory, the

ICJ confirmed that the obligation ―not to recognize as legal‖ territorial

acquisitions resulting from the threat of use of force reflects customary

international law.84

113. This finding is supported by a long list of declarations and instruments to this

effect, starting in 1949 with the Draft Declaration on the Rights and Duties of

States which provided in Art. 11 that ―every State has the duty to refrain from

recognizing any territorial acquisition by another State‖ in violation of the

prohibition of the threat or use of force. In 1964, the Second Conference of

Heads of State and Government meeting in Cairo stated in a Declaration on

Peaceful Coexistence and the Codification of its Principles by the United Nations

that ―States must abstain from all use or threat of force directed against the

territorial integrity and political independence of other States; a situation brought

about by the threat or use of force shall not be recognized‖. 85

114. The obligation ―not to recognize as legal‖ the acquisition or occupation of

territory resulting from aggression or the threat or use of force was also included

in the 1970 Declaration on Principles of International Law Concerning Friendly

Relations and Co-operation among States in Accordance with the Charter of the

United Nations (Friendly Relations Declaration), the 1970 Declaration on the

Strengthening of International Security, the 1974 Definition of Aggression, the

1975 Helsinki Final Act of the Conference of Security and Co-operation in

81

ILC Articles, art. 41.2.; Talmon. p. 99. 82

UN Charter, art. 2.4.; Nicaragua, para. 190.; Hossain, p. 96. 83

ILC Articles, commentary, Chapter iii, para. 7.; Memeti. 84

Wall in the Occupied Palestinian Territory, para. 87. 85

Talmon. p. 102.

20

Europe, and the 1987 Declaration on the Enhancement of the Effectiveness of the

Principle of Refraining from the Threat or Use of Force in International

Relations.86

115. The obligation of non-recognition thus arises for each State as and when it forms

the view that a serious breach of a jus cogens obligation has been committed and

each State will bear responsibility for its decision.87

116. Therefore, Respondent complied with Art. 41(2) of the ILC Articles,

international customary norm not to ―recognize as lawful‖ a situation created by

the illegal use of force as erga omnes obligation.

6.4. Respondent imposed sanctions to condemn the illegal act of

annexation of Fairyland by Euroasia.

117. Under articles 22, 48(1b), 54 of the ILC Articles every State other than an

injured State is entitled to invoke the responsibility of another State if the

obligation breached is owed to the international community as a whole (erga

omnes) and to issue countermeasures with purpose to ensure cessation of the

breach and reparation in the interest of the injured State or of the beneficiaries of

the obligation breached.88

118. For instance, in October 1978, the United States Congress adopted legislation

prohibiting exports of goods and technology to, and all imports from, Uganda.

The legislation recited that ―[t]he Government of Uganda […] has

committed genocide against Ugandans‖ and that the ―United States should take

steps to dissociate itself from any foreign government which engages in the

international crime of genocide‖.89

119. In the present case, Respondent on 1 May 2014 issued an Executive Order on

Blocking Property of Persons Contributing to the Situation in the Republic

of Eastasia. The Executive Order introduced a system of sanctions. The

sanctions were introduced against the persons engaged in certain sectors of the

86

Ib., p. 103. 87

Ib., p. 122.; Report of the International Law Commission on the Work of its 48th Session, GAOR, 51st

Session, Supp. No. 10 (A/51/10), 1996, p. 73. 88

ILC Articles, art. 22, 48(1b), 54; Resolution of Institut De Droit International, Obligations Erga Omnes In

International Law, art. 2. 89

ILC Articles, commentary, art. 54, para. 3.

21

Euroasian economy, including those producing arms for Euroasia. The sanctions

also included a ban on business operations with such persons, suspending

existing contracts and making future contracts with them illegal.90 The

sanctions were applied to Rocket Bombs, as well as to Peter Explosive.91

120. Respondent impose sanctions as countermeasures according with articles 22,

48(1b) and 54 of the ILC Articles lawfully as a response to the international

wrongful act by Euroasia.

121. Such countermeasures are in principle illegal under international law but

considered legal when taken as a response to an international wrongful act.92

122. Newer BITs of the USA and Canada extend the NPM clause (non-precluded

measure clauses) to the maintenance or restoration of international peace or

security, clearly allowing for uncompensated targeted sanctions. Interestingly,

current European BITs do not contain NPM clauses93 such as Art. 10 of Euroasia

BIT.

123. So that there are possibility to impose ―smart‖ sanctions under international

customary law as countermeasures and under provision of a BIT, if the BIT

includes such provision.

124. Therefore, Respondent could invoke the responsibility of Euroasia as principle

of international law such as ―refrain in their international relations from the threat

or use of force against the territorial integrity or political independence of any

State‖94 through the form of agression had been breached. This principle of

international law is jus cogens. 95 Therefore, from the character of the prohibition

of use of force, which is widely recognized as a jus cogens norm it is

incontrovertible that the prohibition of aggression is valid erga omnes.96

125. Therefore, under international law97 and Art. 10 of Euroasia BIT Respondent

introduced sanctions against investors from Euroasia as part of an international

90

Uncontested Facts, para. 16. 91

Uncontested Facts, para. 17. 92

Aaken. 93

Ib. 94

UN Charter, art. 2.4. 95

Nicaragua, paras. 14, 190. 96

Memeti. 97

Section 6.2.1. of this Memorandum.

22

response to condemn an illegal act of annexation of Fairyland by

Euroasia.98

126. Consequently, Respondent should not pay compensation for the expropriation of

Claimant‘s investment and implementation of Executive Order, which imposed

sanctions, because Respondent took measures to fulfil its obligations with

respect to the maintenance of international peace and security under Art. 10

of Euroasia BIT.

127. Respondent‘s countermeasures would be reduced after the purpose of

countermeasures will be reached as internationally wrongful act will be

terminated.99

128. Alternatively, if Tribunal states that Art. 10 of Euroasia BIT does not apply, and

Respondent is to pay compensation for lawful expropriation under Art. 4 of

Euroasia BIT100, the amount of compensation should be reduced as Claimant

contributed to the damage he has suffered.

7. Claimant contributed to the damage he has suffered.

129. The concept of contributory fault in international law has been developed to

address the consequences of blamable conduct of a party injured by an

internationally wrongful act.101

[U]nder Art. 39 of the ILC Articles:

―[I]n the determination of reparation, account shall be

taken of the contribution to the injury by wilful or

negligent action or omission of the injured State or

any person or entity in relation to whom reparation is

sought‖.102

130. The conduct should show manifest lack of care.103

131. This concept has been applied most recently in the three awards104 rendered in

the arbitration between the majority shareholders of Yukos and the Russian

98

Answer to Request for Arbitration. 99

ILC Articles, commentary, art. 49, para. 7. 100

Euroasia BIT, art. 4.1. 101

Ripinsky, p. 315-318. 102

ILC Articles, art. 39. 103

Sabahi. 104

Veteran; Hulley and Yukos. The proceedings in the Veteran, Hulley and Yukos cases were joined and handled

by the same tribunal, which issued three virtually identical awards in all three cases on the same day.

23

Federation.105 In these awards, the tribunal reduced the damages awarded to the

claimants by 25 %, which was the figure corresponding to the tribunal‘s

assessment of the claimants‘ contribution to the injury. In nominal terms, this led

to the reduction of damages by USD 16.7 billion, from USD 66.7 billion to USD

50 billion.106

132. Under Art. 39 of the ILC Articles on State Responsibility contributory fault in

the cases on compensation of damages for existing internationally wrongful acts

is established provided that the following requirements are met: (i) blameable

conduct107 of the injured party and (ii) the causal link108 between that blameable

conduct and the injury suffered by that party.109

133. Commentary to the ILC Articles on State Responsibility, in particular, to Art. 39

proclaim that:

―[A]rticle 39 deals with the situation where damage

has been caused by an internationally wrongful act of

a State, which is accordingly responsible for the

damage in accordance with Articles 1 and 28, but where

the injured State, or the individual victim of the breach,

has materially contributed to the damage by some willful

or negligent act or omission‖.110

134. In the present case, the internationally wrongful act alleged by Claimant is

imposition of sanctions on persons contributing to the situation in the Republic of

Eastasia, which resulted in the deterioration in the Claimant‘s company‘s

financial situation111 and therefore lawful expropriation of Claimant‘s investment.

7.1. Claimant contributed to the damage suffered by its investment by violation

“clean hands” doctrine.

135. The ―clean hands‖ doctrine derives from fundamental principles of equity and

justice and is the corollary of the maxim ―Nemo Auditor Propiam Turpitudinem

105

Sadowski. 106

Ib. 107

ILC Articles, art. 39; Yukos, para. 1596. 108

ILC Articles, art. 31; Yukos, para. 1598. 109

Sadowski. 110

ILC Articles, commentary, art. 39, para. 1. 111

Answer to Request for Arbitration.

24

Allegans‖ pursuant to which nobody can benefit from its own wrong or

negligence.112

136. The requirement to have ―clean hands‖ as a condition to access justice is a

general principle in international law.113 The Al-Warraq tribunal concluded that

―the doctrine of ―clean hands‖ renders the Claimant‗s claim inadmissible‖.114

137. Without expressly mentioning the ―clean hands‖ doctrine, other investments

tribunals have reached the same conclusion. For example, in Gustav Hamester,

the tribunal explained that:

―[A]n investment will not be protected if it has been

created in violation of national or international principles

of good faith; by way of corruption, fraud, or deceitful

conduct; or if its creation itself constitutes a misuse of the

system of international investment protection under the

ICSID Convention. It will also not be protected if it is

made in violation of the host State‗s law‖.115

138. In the present case, Claimant violated national legislation of Respondent.

Claimant has breached anticorruption laws of Oceania as the circumstances in

which Claimant secured an environmental license, especially his private

meeting with the President of the NEA, cast a serious shadow over the legality

of the investment.116

139. The President of the NEA has been in the office since the introduction of the

Environment Act 1996. On 1 February 2015, the President of the NEA, along

with the other officials, was convicted of accepting bribes. The scandal heavily

engaged the media and the public of Oceania. Such pressure resulted in the

commencement of numerous investigations by the General Prosecutor‘s Office.

The interest of those investigations focused on people who bribed the NEA

President and other officials. On 5 May 2015, Claimant was informed that he

was under investigation with regard to the environmental license obtained on 23

112

Inceysa Vallisoletana S.L, para. 240.; Plama, para. 143. 113

SASL. 114

Al-Warraq, para. 646. 115

Gustav, para. 123. 116

Answer to Request for Arbitration.

25

July 1998 for Rocket Bombs. On 23 Jun 2015, the General Prosecutor‘s Office

officially initiated criminal proceedings against Claimant.117

140. The convicted President of the NEA named a number of persons, including

Claimant, from whom he allegedly received bribes and against whom he is

willing to testify.118

141. Therefore, when Claimant received license, he breached anticorruption laws of

Respondent so that Claimant breached ―clean hands‖ doctrine. And therefore

Claimant contributed to the damage suffered by its investment by his willful

conduct of receiving license.

7.2. Claimant contributed to the damage suffered by its investment by supply of

weapons for Euroasian armed forces.

142. On 1 March 2014, the armed forces of Euroasia entered into the territory of

Fairyland.119 Before the Euroasian armed forces entered Fairyland, in February

2014, Peter Explosive on behalf of Rocket Bombs started negotiations with John

Defenceless, still the Minister of the National Defence, for the conclusion a new

contract for arms production, aiming at completing the modernization process of

the equipment for the Euroasian armed forces. On 28 February 2014, they

concluded a contract, effective of 1 April 2014, for a period of another six

years.120

143. Therefore, Claimant must have known about future intervention of Euroasia into

the territory of Fairyland since February 2014 and when Claimant signed contract

for a period of another six years, Claimant contributed to his damages thereby as

Claimant continued supply of weapons to Euroasia even after February 2014,

when he should have known of Euroasia‘s intention to incorporate Fairyland into

its territory by direct military intervention if necessary.121 If Claimant had not

concluded the contract, continued supply of weapons, the sanctions, which were

imposed by Executive Order on Claimant‘s business and him, would not affect

his investment. So that, Claimant contributed to the damage suffered by its

117

Uncontested Facts, para. 19. 118

Procedural Order No 2, para. 5. 119

Uncontested Facts, para. 14. 120

Uncontested Facts, para. 15. 121

Answer to Request for Arbitration.

26

investment as there was bleameble conduct(continued supply of weapons), causal

link between his conduct (production of weapons and sale) and intervention to

Eastasia.

144. Consequently, compensation for lawful expropriation should be reduced as

Claimant contributed to the damage suffered by its investment by his willful

conduct, when he violated ―clean hands‖ doctrine and continued supply weapons

to the territory of Euroasia.

27

COMPENSATION

145. Respondent should pay compensation, which should be diminished as Claimant

contributed to the damage suffered by its investment.

146. Countermeasures (sanctions) should be reduced after the purpose of

countermeasures was reached as internationally wrongful act was terminated122.

122

ILC Articles, commentary, art. 49, para. 7.

28

PRAYER FOR RELIEF 147. In the course of the submission as presented above, Respondent respectfully

requests the Tribunal to adjudge and declare:

a) that the Tribunal has no jurisdiction over this dispute under the Euroasia

BIT;

Even if the Tribunal has jurisdiction

b) b) Claimant cannot require to protect of his investment under the Euroasia

BIT since the Claimant has breached the ―clean hands‖ doctrine in

connection with its investment;

c) Respondent has not violated Art. 2 of the Euroasia BIT;

d) even if Respondent has violated the BIT, its actions are exempt under the

BIT‘s;

e) essential security provision or the customary international law defense of

necessity;

f) Respondent‘s actions have not amounted to expropriation;

g) Respondent is entitled to rely on Art. 10 of the Euroasia BIT as a defense

to Claimant‘s claim;

h) Claimant contributed to the damage suffered by its investment.