Higgins

ICC ARBITRATION CASE NO. 28000/AC

PETER EXPLOSIVE

Claimant

v.

THE REPUBLIC OF OCEANIA

Respondent

MEMORIAL OF THE CLAIMANT

19 September 2016

HIGGINS Counsel for Claimant

TABLE OF CONTENTS

Page

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LIST OF AUTHORITIES ......................................................................................................... 1 SUMMARY OF THE ARGUMENTS ...................................................................................... 1 STATEMENT OF FACTS ........................................................................................................ 2 ARGUMENTS ........................................................................................................................... 5 I. CLAIMANT IS AN INVESTOR PURSUANT TO ARTICLE 1.2 OF THE

EUROASIA BIT. ...........................................................................................................5 A. Fairyland, at the Time the Request for Arbitration was filed, was part of

Euroasia. .............................................................................................................5 B. Peter Explosive is a Natural Person residing in Fairyland because he has been

granted euroasia citizenship and issued a Euroasian passport and therefore is a protected investor under the Euroasia BIT. .......................................................7

C. Because Euroasian Law Explicitly Deems Peter Explosive an Investor, the Nottebohm test is not appropriate here. .............................................................8

II. PRE-ARBITRAL STEPS IN ARTICLE 9.1 AND 9.2 ARE NOT A CONDITION PRECEDENT TO ARBITRATION, AND, IN ANY CASE, THIS TRIBUNAL SHOULD NOT IMPOSE THEM ON CLAIMANT. ..................................................11 A. Amicable Consultations Are an Aspirational Requirement that Claimant

Nonetheless met. ..............................................................................................11 Amicable Consultations Are Merely Aspirational and Hortatory. ...........11 1. Peter Explosive Nonetheless Satisfied the Amicable Consultation 2.

Requirement Under the Euroasia BIT. .................................................13 B. Resorting to Oceanian Courts Is Optional, Not a Condition precedent to

Arbitration, That here Would Nevertheless Be Futile. ....................................14 Resorting to Oceanian Courts Would Be Futile. ......................................16 1.

III. PETER EXPLOSIVE MAY INVOKE ARTICLE 8 OF THE EASTASIA BIT PURSUANT TO ARTICLE 3 OF THE EUROASIA BIT. .........................................18 A. Article 3 of the Oceania-Euroasia BIT Is a MFN Provision Requiring Oceania to

Grant to Peter Explosive the Preferential Treatment it Affords to Eastasian Investors ...........................................................................................................18

B. The Article 3 MFN Provision in the Euroasia BIT affords Peter Explosive access to both the preferential procedure and substantive treatment granted to Eastasian investors through the Eastasia BIT. .................................................20

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C. Article 8 of the Eastasia BIT Affords Eastasian Investors Investing in Oceania More Preferential Treatment Than That Which is Afforded to Euroasian Investors Through the Euroasia BIT. ...............................................................22

Preferential Treatment is a Subjective Determination ..............................23 1. Pre-Arbitral Clauses to Be Imported .........................................................23 2.

IV. RESPONDENT’S DEFENSE UNDER THE “CLEAN HANDS DOCTRINE” IS NOT APPLICABLE UNDER THE RELEVANT BITS OR ICC RULES .................26 A. Neither the Euroasia BIT, Nor the ICC Rules Support a Decision in Equity. .....26 B. Respondent Cannot Import Language from the Eastasia BIT. ............................28 C. Claimant Did Not Commit Any Wrongdoing and Claimant Is in Full Compliance

with All Oceania Environmental Laws. ...........................................................30 D. Respondent Has Not Met the Standard of Proof or the Burden of Proof

Regarding its Allegations of Corruption and Bribery. .....................................31 V. RESPONDENT INDIRECTLY EXPROPRIATED ROCKET BOMBS FOR AN

ILLEGITIMATE PUBLIC PURPOSE WITHOUT COMPENSATION AND THEREBY BREACHED ARTICLE 4(1) OF THE EUROASIA BIT .......................35 A. Peter Explosive Was in Control of Assets Protected From Illegal Expropriations

and Was Permanently Deprived of Those Assets ............................................35 B. Oceania’s Conduct Constitutes an Expropriation Within the Meaning of Article

4(1) of the Oceania-Euroasia BIT ....................................................................36 Oceania Indirectly Expropriated Rocket Bombs When the Executive 1.

Order Imposing Sanctions was Issued .................................................36 Alternatively, the Cumulative Acts by Oceania Constitute a “Creeping” 2.

Expropriation .......................................................................................38 C. The Expropriation by Oceania Was Illegal ..........................................................39

The expropriation discriminatorily targeted Rocket Bombs .....................40 1. The expropriation was executed without due process of law ...................40 2. The expropriation was undertaken without a legitimate public purpose ..41 3.

D. In Any Event, Peter Explosive Was Not Compensated by Oceania ....................42 VI. CLAIMANT IS ENTITLED TO DAMAGES AMOUNTING TO THE FAIR

MARKET VALUE OF ROCKET BOMBS ................................................................43 A. Peter Explosive Suffered Damages When Respondent Illegally Expropriated

Rocket Bombs ..................................................................................................43

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B. Peter Explosive is Entitled to Compensatory Damages For the Fair Market Value of Rocket Bombs..............................................................................................43

C. The Tribunal Should Apply the Discounted Cash Flow Method in Assessing Damages ...........................................................................................................44

D. Circumstances Do Not Exist That Merit Diminishing the Amount of Claimant’s Damages Award ...............................................................................................47

REQUEST FOR RELIEF ........................................................................................................ 48

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LIST OF AUTHORITIES

Primary Sources Eastasia-Oceania BIT Euroasia-Oceania BIT ICC Rules Treaties & Statutes 15 U.S.C.S. § 78 Foreign Corruption Practices Act Argentina-United Kingdom BIT Argentina-Spain BIT Energy Charter Treaty Germany-Argentina BIT Greece-Romania BIT ICC Arbitration Rules ICSID Convention Italy-Argentina BIT Israel-Czech Republic BIT OECD Convention on Convention on Combating Bribery Serbian-Montenegro BIT UN Convention Against Corruption Vienna Convention on the Law of Treaties

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Cases Abaclat and other v. Republic of Argentina, ICSID ARB/07/5, Decision in Jurisdiction and Admissibility, 4 Aug 2011. African Holdings v. Democratic Republic of the Congo, ICSID Case No. ARB/05/21, Award, 29 July 2008. ADC v. Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006. Aguas del Turnari v. Bolivia, ICSID, ARB/02/03, Award, 21 October 2005. AIG v. Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003. Amco v. Indonesia, Decision on Jurisdiction, 25 September 1983. AAPL v Sri Lanka, ICSID Case No ARB/87/3, Award, 27 June 1990 AWG v Argentina, UNCITRAL, Decision on Jurisdiction, 3 August 2006. Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009. BG v. Argentina, UNCITRAL, final award, 24 Dec 2007. Biwater Gauff v. Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008. CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005. Compañía del Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000. Dadras International v. Iran (Iran-US Claims Tribunal) (RLA-152), Award, 7 November 1995, Daimler v. Argentina, ICSID Case No. ARB/05/1, Award on Jurisdiction, 22 August 2012. EDF v. Romania, ICSID No. ARB/05/13, Award, 8 October 2009. EDF v. Argentina, ICSID Case No. ARB/03/23, Award, 11 June 2012. Gas Natural SDG v Argentina, ICSID Case No ARB/03/10, Decision on Preliminary Questions on Jurisdiction, 17 June 2005. Generation Ukraine v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003. Hochtief AG v Argentina, ICSID Case No ARB/07/31, Decision on Jurisdiction, 24 October 2011.

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Hulley Enterprises v. Russia Federation, PCA, UNCITRAL, Award, 18 July 2014. ICS v Argentina, PCA Case No 2010-9, Award on Jurisdiction, 10 February 2012. Impregilo v. Argentina, ICSID Case No ARB/07/17, Award, 21 June 2011. LETCO v. Liberia, Decision on Jurisdiction, 24 October 1984. Maffezini v Spain, ICSID Case No ARB/97/7, Award. Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), ICJ, Judge Schwebel, Dissenting Opinion. Metalclad Corp. v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000. Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, 8 September 2006. National Grid v. Argentina, UNCITRAL, Decision on Jurisdiction, 20 June 2006. Nottebohm Case, Judgment of April 6th, 1955: I.C. J. Reports 1955. Phoenix Action v. Czech Republic, ICSID ARB/06/5, Award, 15 April 2009. Siemens v Argentina, ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004. SGS v. Pakistan, ICSID ARB/01/13, Decision on Jurisdiction, 6 Aug 2003. Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7. Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011. Starrett Housing Corp. v. The Government of the Islamic Republic of Iran, Interlocutory Award, 19 December 1983, 4 Iran-US CTR 122. Suez v. Argentina, ICSID Case No ARB/03/19, Decision on Jurisdiction, 3 August 2006. Tecmed v. Mexico, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003. TECO v. Guatemala, ICSID Case No. ARB/10/23, Award, 19 December 2013. Telenor v. Republic of Hungary, ICSID Case No. ARB/04/15, Award, 13 September 2006. Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, Award, 22 June 1984, 6 Iran-US CTR 219.

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Rompetrol v. Romania, ICSID, ARB/06/3, Award, 6 May 2013. United States v. Giffen, 326 F. Supp. 2d 497, 499 (S.D.N.Y. 2004). Vivendi v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award, 20 August 2007. Siag v. Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009. Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award, 8 December 2008. Yukos v. Russia, UNCITRAL, PCA Case No. AA 227, Final Award, 18 July 2014. Secondary Sources C. Giorgetti. The Rules, Practices, and Jurisprudence of International Courts and Tribunals (Leiden 2012) I. Marboe. Calculation of Compensation and Damages. In International Investment Law 115 (2009) M. Kantor. Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence 95 (2008) Legal Framework for the Treatment of Foreign Investments: Volume II: Guidelines (Washington, D.C.: The International Bank for Reconstruction and Development/The World Bank)(1992) Thomas W. Wälde & Borzu Sabahi. Compensation, Damages And Valuation. In International Investment Law James Crawford, United National General Assembly 1999, Second Report on State Responsibility. R. Dolzer and C. Schreuer. Principles of International Investment Law (Oxford, 2012).

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SUMMARY OF THE ARGUMENTS

1. This Tribunal has jurisdiction over this arbitration for the following reasons:

A. First, Peter Explosive, the Claimant (hereinafter “Claimant” or “PE”), is a national of

Euroasia, and can claim rights under the Oceania-Euroasia BIT (hereinafter “Euroasia

BIT”). PE is a resident of Fairyland, which was pacifically annexed by Euroasia;

B. Second, the pre-arbitral steps under the Euroasia BIT are aspirational, not a condition

precedent to arbitration, and; in any case, PE complied with any such steps or PE

should not be required to comply at this point because the requirement would be

futile; or

C. Third, and alternatively, the most-favored-nation provision (hereinafter “MFN

Provision”) in the Euroasia BIT applies and permits the importation of the more

favorable dispute resolution clause enumerated in Article 8 of the Oceania-Eastasia

BIT (hereinafter “Eastasia BIT”).

2. This Tribunal should render an award on the merits in favor of Claimant for the following

reasons:

A. First, the Republic of Oceania’s (hereinafter “Oceania” or “Respondent”) argument

under the clean hands doctrine fails because the Euroasia BIT does not provide for

any equitable defense, and; in any case, Claimant did not commit any wrongdoing;

B. Second, Respondent unlawfully expropriated PE’s investment in Oceania by indirect

and discriminatory measures through the enactment of the Executive Order of 1 May

2014, which arbitrarily declared Rocket Bombs Ltd’s (hereinafter “Rocket Bombs”)

contracts “void” and thereby rendered Rocket Bombs valueless; and

C. Third, the expropriation by Oceania deprived PE of his investment, and therefore PE

is entitled to compensation of no less than USD$120,000,000, from the time the

expropriation occurred, which includes future profits.

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STATEMENT OF FACTS

1. PE is the President and sole shareholder of RB, a wholly owned corporation located in

Oceania that specializes in arms production.1 At the time PE acquired RB, RB was not

producing because it lacked a license from the National Environment Authority of

Oceania (“NEA”).2 To obtain the license RB had to comply with the Environment Act of

1996 (“Environment Act”), which required RB to adjust the production line with

environmental friendly technology.3

2. On 23 July 1998 RB secured a license from the NEA after meeting with its President.4

However, PE still needed to purchase new technology to bring RB into compliance with

the Environment Act. PE applied for, but the Ministry of Environment of Oceania

subsequently denied, a subsidy after long delays in the application process. PE then took

the initiative to seek other sources of cash flow in order to commence production again at

RB.5

3. PE was able to secure the necessary financial resources by concluding a contract for the

production of arms with the Ministry of National Defense acting on behalf of the

Republic of Euroasia (“Euroasia”) and Super Missiles Ltd. (“Super Missiles”).6 The

contract was effective as of 1 January 1999 for a period fifteen years.7 RB resumed

operations in Oceania as soon as it received the advance from the contract concluded with

the Minister of Defense.8

4. Over the span of several years, RB drastically expanded its operations. This expansion

benefited Valhalla, the town in Oceania where RB’s operations were located, by

employing a substantial amount of the population, which in turn immensely improved life

1 Case Study (hereinafter referred to as “CS”), at 4, 32. 2 Id. at 4. 3 Id. at 4, 33-34. 4 Id. at 4, 33. 5 Id. at 34. 6 Id. at 4. 7 Id. at 4. 8 Id. at 4, 34.

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in Valhalla.9 With RB’s growth came the modernization of the production line in order to

meet the Environment Act’s requirements.10 RB achieved full adherence to the

requirements by 1 January 2014.11

5. As RB’s contract with the Ministry of Defense came to its completion, RB was faced

with need to conclude a substitute contract.12 RB concluded a six-year contract on 28

February 2014 with the Ministry of Defense.13

6. Fairyland is currently and historically part of Euroasia.14 However, due to multiple wars

over the course of 100 years, Fairyland was formerly a province in Eastasia.15 As PE’s

family has always identified themselves as Euroasian, so has the vast majority of the

population from Fairyland.16 As a result, by referendum on 1 November 2013, Fairyland

residents democratically decided to peacefully secede from Eastasia and become part of

Euroasia as Fairyland historically was.17 Fairyland’s reunification with Euroasia was

confirmed on 23 March 2014 after Euroasia officially declared that Fairyland had been

returned to the motherland and formed a Euroasian region.18 PE’s Euroasian nationality

was solidified when he was issued a Euroasian passport and identity card.19

7. On 28 March 2014, Eastasia alleged that Euroasia violated international law, and Eastasia

severed diplomatic ties with Euroasia.20 Oceania subsequently not only refused to accept

Fairyland’s peaceful reunification with Euroasia but also imposed sanctions on all entities

in Oceania with any contractual relationship with Euroasia.21 An Executive Order issued

9 Id. at 4, 34. 10 Id. at 35. 11 Id. at 35. 12 Id. at 4. 13 Id. at 4, 35. 14 Id. at 4, 5. 15 Id. at 4, 5. 16 Id. at 34. 17 Id. at 5, 34. 18 Id. at 5. 19 Id. at 56, ¶ 4. 20 Id. at 35. 21 Id. at 5.

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by the President of Oceania on 1 May 2014 blocked property of persons contributing to

the situation in Eastasia, subjecting RB to crippling sanctions that neutralized all of RB’s

contracts.22

8. RB production halted due to the sanctions, and PE was unable to sell any shares in RB,

rendering RB valueless.23 The imposition of sanctions resulted in all of RB suppliers

claiming that they were no longer bound by their contracts with RB.24 The stock price of

RB eventually plummeted to zero.25

22 Id. at 5, 35. 23 Id. at 5. 24 Id. at 35-36. 25 Id. at 5.

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ARGUMENTS

I. CLAIMANT IS AN INVESTOR PURSUANT TO ARTICLE 1.2 OF THE EUROASIA BIT.

9. This tribunal will have Jurisdiction Ratione Personae under the Euroasia BIT when there

is an investor that is defined as being “any natural or legal person of one Contracting

Party who invests in the territory of the other Contracting Party, and for the purpose of

this definition[,] the term “natural person” shall mean any natural person. Because Peter

Explosive was granted Euroasian nationality and issued a passport accordingly before the

request for arbitration was filed, he is an investor pursuant to Article 1.2 of the Euroasia

BIT.

A. FAIRYLAND, AT THE TIME THE REQUEST FOR ARBITRATION WAS FILED, WAS

PART OF EUROASIA.

10. It is a well established principle of international law that jurisdiction is to be determined

in light of the situation as it exists on the date the judicial proceedings are instituted, or in

this case, 11 September 2015.26 More specifically, tribunals delving into the issue of

ratione personae in the context of State succession have paralleled this established

principle of international law, deciding again that the tribunal must look at the nationality

of the investor at the time of the commencement of the judicial proceedings to determine

its nationality, and consequently the tribunal’s jurisdiction ratione personae.27

11. It is uncontested that PE is a resident of Fairyland.28 In August 2013, the authorities of

Fairyland held a referendum on the secession of Fairyland from Eastasia and its

reunification with Euroasia.29 On 1 November 2013, the referendum took place and the

26 Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v. Belgium), 14 February

2002, ICJ Reports (2002), p. 1, ¶ 26. 27 Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia, UNCITRAL, Partial

Award on Jurisdiction, 8 September 2006 28 CS, at 32, ¶ 2. 29 CS, at 34, ¶ 4.

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majority of the Fairyland population decided in favor of secession.30 On 23 March 2014,

Euroasia officially annexed Fairyland.

12. Therefore, at the time of the request for arbitration, Fairyland was part of Euroasia.

13. The factual contentions of the case at hand can be paralleled to the factual scenario in the

Mytilineos case.31 In Mytilineos, claimant was engaging in the business of metal trading

with the Federal Republic of Yugoslavia. Within the timeframe of this investment, the

Federal Republic of Yugoslavia, the original contracting party, was broken up and the

two remaining states created the State Union of Serbia and Montenegro.32 Then, in 2006,

Serbia and Montenegro separated, creating independent republics. The tribunal

consequently discussed the issues of State succession as they pertained to jurisdiction.

14. In Mytilineos, at the time of the request for arbitration, the claimant was a Serbia and

Montenegro national. Several years after the commencement of the proceedings,

Montenegro declared its independence. The Respondents consequently argued that

Montenegro nationals were no longer protected under the applicable Serbian and

Montenegro BIT and as such the tribunal no longer had jurisdiction ratione personae

over the claimants.33 However, the tribunal in that case decided, relying on an abundance

of decisions from various international judicial bodies, that the tribunal in that case

retained jurisdiction over claimant because at the time the arbitration was filed,

claimant’s state was a protected signatory under the treaty.34 The notion that the time of

the breach is the point in time at which a tribunal determines ratione personae

jurisdiction has been a well established and often reaffirmed point of law.35

30 CS, at 34, ¶ 4. 31 Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia. 32 Id. at 158. 33 Id. at 164. 34 Id at 160. 35 See Holiday Inns v. Morocco, Lalive, The First ‘World Bank’ Arbitration (Holiday Inns v. Morocco)- Some Legal

Problems, 51 British Year Book of International Law (1980), 142-146; Amco v. Indonesia, Decision on Jurisdiction, 25 September 1983, l ICSID Reports 403; LETCO v. Liberia, Decision on Jurisdiction, 24 October 1984, 2 ICSID Reports 351.

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15. As such, because Fairyland was deemed a region of Euroasia covered by the Euroasia

BIT when the request for arbitration was filed, PE is a covered investor under the

Euroasia BIT.

B. PETER EXPLOSIVE IS A NATURAL PERSON RESIDING IN FAIRYLAND BECAUSE HE

HAS BEEN GRANTED EUROASIA CITIZENSHIP AND ISSUED A EUROASIAN

PASSPORT AND THEREFORE IS A PROTECTED INVESTOR UNDER THE EUROASIA

BIT.

16. Under the Euroasia BIT, an investor is a natural person, meaning any natural person

having the nationality of either Contracting Party in accordance with its laws, who invests

in the territory of the other Contracting Party.36 A tribunal must rely on the national laws

of each respective contracting party to determine nationality.37 PE qualifies as Euroasian

under Euroasian law and an investor under the Euroasia BIT.

17. As a result of the passing of the Citizenship Act, and the subsequent issuance of a

Euroasian identity card and passport, PE is a protected investor under the Euroasia BIT.

18. As of 23 March 2014, PE officially acquired the nationality of Euroasia, in accordance

with, and in fact facilitated by Euroasian law and was even issued a Euroasian passport.

Using a good faith reading with the ordinary meaning given to the terms of the treaty, in

their context and in the light of its object and purpose,38 PE is a natural person having

Euroasian nationality in accordance with the Euroasian Citizenship Act.

19. In anticipation of the annexation of Fairyland, Euroasia introduced an amendment to its

Citizenship Act, which in turn permitted all residents of Fairyland to apply for Euroasian

citizenship.39 PE took advantage of this opportunity, and on 23 March 2014, when

Fairyland officially was annexed by Euroasia, Euroasia likewise recognized PE as a

national of the Republic of Euroasia. This recognition was materialized when PE was

36 CS, at 40. 37 See Soufraki v. The United Arab Emirates, ICSID Case No. ARB/02/7 38 Vienna Convention on the Law of Treaties (hereinafter referred to as “VCLT”), Article 31. 39 CS, at 56, ¶ 4.

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subsequently issued a Euroasian identity card and passport.40 Again, the request for

arbitration was filed on 11 September 2015, more than a year after Fairyland legally

became part of Euroasia.

20. Tribunals, triggered by a similar definition of “investor” as here, must determine whether

a purported national is indeed a national in accordance with the contracting party’s law.41

21. The tribunal should affirm PE’s Euroasian nationality. As mentioned above, it is

uncontested that the Euroasian government amended its Citizenship Act in anticipation,

and for the sole purpose of granting Euroasian nationality to residents of Fairyland. PE

was the target audience for this amendment and is directly and affirmatively included

among those who benefitted from the amendment.42 The Euroasia BIT defines an

investor among other things as a natural person. A natural person is defined as “any

natural person having the nationality of either Contracting Party in accordance with its

laws.”43 PE has been granted citizenship through the Citizenship Act. For those reasons,

PE can be regarded as a protected investor under Article 1(2) of the Euroasia BIT.

C. BECAUSE EUROASIAN LAW EXPLICITLY DEEMS PETER EXPLOSIVE AN

INVESTOR, THE NOTTEBOHM TEST IS NOT APPROPRIATE HERE.

22. In the context of annexations, cessions, or secessions of territory, the predominant

practice has been that the treaties of the annexed State lapse and those of the annexing

State apply to the territory.44 On 23 March 2014, Euroasia officially annexed Fairyland in

support of the jus cogens right to self-determination exercised through the referendum

held in November of 2013.45 Therefore, as of 23 March 2014 and as a result of the

annexation of Fairyland into Euroasia, residents of Fairyland came under the protection

of Euroasian treaties. This same principle of international law has been applied in several

other instances, most notably in the United State’s annexation of the Republic of Texas, 40 Id. 41 Soufraki v. The United Arab Emirates. 42 CS, at 56, ¶ 4. 43 CS, at 40. 44 Succession of States in Respect of Treaties: The Vienna Convention of 1978, 19 Va. J. Int’l. 885, 898 (1978-1979). 45 Id. at p. 35, ¶ 1.

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the French annexation of Algiers, and the U.S. annexation of Hawaii. For these reasons,

the Euroasia BIT is properly applicable to Fairyland as of 23 March 2014.

23. The Nottebohm tribunal’s correction46 is not parallel to the case at hand. In the

Nottebohm Case, the investor attempted to acquire a nationality of convenience to

circumvent disfavorable Guatemalan laws passed as a consequence of the Investor’s state

being deemed a belligerent state under Guatemalan law.47 The tribunal, only after seeing

the investor’s action as transparent in motive, was unwilling to recognize the investor as a

national of Lichtenstein without looking for a genuine link between the investor and his

sought-after state of convenience. This extra inquiry, the Nottebohm Correction, is used

to clarify which nationality best applies to a claimant when more than one nationality

could be invoked. The tribunal in Nottebohm, after looking at the factual ties, the

investor’s habitual residence, his family ties and his public life in Lichtenstein

determined that the investor was indeed not sufficiently linked to the state to claim its

nationality.

24. The tribunal in Nottebohm only took the extra step to looking at their self-professed

“genuine link” between the purported state and the investor because of their doubt in the

investor’s nationality. This “Nottebohm Correction” was only effected because the

investor was trying to bypass the trade embargo instated between Guatemala and Austria,

the investor’s true nationality, by declaring a nationality of convenience.

25. In our case, it is undisputed that PE at all relevant times in the dispute has been a resident

of Fairyland, a region legally annexed by Euroasia.48 The analysis performed by the

Nottebohm tribunal would be irrelevant here because the genuine link between PE,

Fairyland, and consequently Euroasia is not under question; it is in fact undisputed.49

Euroasia issued PE a passport and an ID card because he was the exact target of the

amendment to the Citizenship Act. Euroasia purposely and affirmatively included PE as a

46 Nottebohm Case (second phase), Judgnzent of April 6th, 1955: I.C. J. Reports 1955, p. 4. 47 Id. 48 CS, at 32, ¶ 2. 49 Id.

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national under their laws. As such any attempt at comparing Nottebohm to the case at

hand would be fruitless.

***

26. Because PE is an investor and a national of Euroasia, this tribunal has Ratione Personae

jurisdiction under article 1.2 of the Euroasia BIT.

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II. PRE-ARBITRAL STEPS IN ARTICLE 9.1 AND 9.2 ARE NOT A CONDITION PRECEDENT TO

ARBITRATION, AND, IN ANY CASE, THIS TRIBUNAL SHOULD NOT IMPOSE THEM ON

CLAIMANT.

27. There are two likely gate issues to assert a dispute to arbitration under the Euroasia BIT,

attempt to settle through amicable consultations and resort to Respondent’s local courts.

Neither one is a mandatory condition precedent to arbitration.

A. AMICABLE CONSULTATIONS ARE AN ASPIRATIONAL REQUIREMENT THAT

CLAIMANT NONETHELESS MET.

28. For instance, amicable consultations are only an aspirational requirement and not a legal

duty requirement. Nonetheless, Claimant has fulfilled the “amicable consultations

aspirational requirement.

Amicable Consultations Are Merely Aspirational and Hortatory. 1.

29. Amicable consultations are a mere aspirational requirement and are not mandatory.

Article 9.1 of the Euroasia BIT provides for an attempt to settle the dispute through

amicable consultations as far as possible. This merely reflects “an expression of the

parties good will to try to settle the dispute amicably.”50

30. Attempting to settle a dispute through amicable consultations is aspirational and

hortatory, not a mandatory requirement.51 “Deciding that amicable settlement’s waiting

period is procedural and directory in nature, neither mandatory nor jurisdictional, its

purpose is to induce settlement and not to impede or obstruct arbitration proceedings.”52

50 Abaclat and others v. Republic of Argentina, ICSID, ARB/07/5, Decision of Admissibility and Jurisdiction, 4 August 2011, ¶ 564. 51 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, ¶ 343. Abaclat and Others v. Argentine Republic (formerly Giovanna a Beccara and Others v. The Argentine Republic)., ICSID ARB/07/5, Decision on Jurisdiction and Admissibility, English, 4 August 2011, ¶ 565. 52 Id. at ¶ 343.

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31. International customary law codified in the Vienna Convention on Law of Treaties 1969

(“VCLT”) Article 31 and 32 expresses the guideline for treaty interpretation.53 Treaty

Interpretation is a “process of progressive encirclement”54 where the interpreter starts

under the general rule with the (1) ordinary meaning of the language of the treaty, (2) in

the context of the treaty (systematic interpretation), and (3) in light of the treaty object

and purpose (usually exposed in the treaty preamble) and “cycling through”55 each of

these three aspects. The “Vienna Convention does not privilege any of these three aspects

and of interpretation method.”56 After all, “[t]he meaning of a word and a phrase is not

only a matter of dictionaries and linguistics.”57

32. Article 9.1 of the Euroasia BIT establishes that “any dispute regarding an investment (...)

shall, to the extent possible, be settled in an amicable consultations between the parties.”

There is no time limitation, no cooling of period, and no procedural or substantive

requirements shaping the parties’ efforts to consult under Article 9.1. There is nothing in

the language of the BIT that meaningfully measures or qualifies the parties’ amicable

consultations.

33. Although, Article 9.1 may at the first glance use mandatory language such as “shall”,

“shall” is immediately followed by “to the extent at possible.” Under the VCLT

interpretation, both wordings shall be interpreted together, and when read together, “any

dispute regarding an investment (...) shall, to the extent possible”,58 it is clear that the

purpose of “amicable consultations” in Article 9.1 was aspirational.

34. In Abaclat, the Italy-Argentina BIT also referred to an alleged consultations requirement:

53 Article 31 of the VCLT is wildly recognized as international customary law, varies international courts and tribunals had recognized it in its decisions, including investment tribunals such as the Yukos Tribunal. Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Final Award, 18 July 2014, ¶ 1344. 54 Aguas del Turnari v. Bolivia, ICSID, ARB/02/03, Award, 21 October 2005, ¶ 91; Gardiner, Richard. Treaty Interpretation. 2nd Edition. Oxford University Press: Oxford, UK, 2015, p. 158. 55 Id, ¶ 91. 56 Id. 57 Id. 58 CS, at 44, ¶ 9.1.

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Any dispute in relation to the investments between a Contracting Party and an investor of

the other Contracting Party in relation to the issues governed by this Agreement shall be

settled, if possible, by means of amicable consultation between the parties to the

dispute.59

35. There, the Tribunal found that “the consultation requirement (...) is not to be considered

of a mandatory nature but as the expression of the good will of the Parties to try firstly to

settle any dispute in an amicable way.” That is demonstrated there by the wording “to the

extent possible.”

36. Also, in Spyridon Roussalis v. Romania, the Greece-Romania BIT had similar language

as the Euroasia BIT providing for the same subsequent language “shall” and “possible”:

Disputes between an investor of a Contracting Party and the other Contracting Party

concerning an obligation of the latter under this Agreement, in relation to an investment

of the former, shall, if possible, be settled by the disputing parties in an amicable way.

37. There the Tribunal found that “in accordance with the interpretation rules of Article 31 of

the VCLT, the Treaty neither imposes a legal duty nor creates a legal right for the

Parties to negotiate a settlement.”60 As was found in Abaclat and in Spyridon Roussalis,

this Tribunal should find that such language provides for an aspirational requirement and

not a legal duty.

Peter Explosive Nonetheless Satisfied the Amicable Consultation 2.

Requirement Under the Euroasia BIT.

38. In any event, Claimant met the requirement of amicable consultations under Article 9.1

of the Euroasia BIT. Amicable consultations as defined in Abaclat “only refers to the

possibility of such amicable settlement talks, whereby such term is to be reasonably

59 Abaclat and others v. Republic of Argentina, ¶ 514. 60 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, ¶ 335.

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understood as referring not only to the technical possibility of settlemen (sic) talks, but

also to the possibility, i.e. the likelihood, of a positive result.”61

39. Here, Claimant had notified the Oceania Ministry of Foreign Affairs on 23 February

2015,62 about this investment dispute and his intention to seek redress in arbitration.

Claimant had also notified the Oceania Ministry of Finance, the Ministry of Defense and

the Ministry of Environmental Protection.63 Claimant had notified Respondent on

February of 2015, six months prior to the Request of Arbitration being filed64, on 11

September 2015.65 Until this date, neither the Respondent, nor the Minister of Foreign

Affairs, Finance, Defense nor Environmental Protection responded.

40. It is important to highlight that “an obligation to negotiate does not imply an obligation to

reach an agreement.”66 However, Claimant nonetheless complied with the requirements

on Article 8.1 and 8.2 of the Eastasia BIT when PE had, to the extent as possible,

attempted to amicably settle this dispute within six months. 67 To settle amicably within

six months under the Eastasia BIT is a much higher standard than attempts to settle

through amicable consultations without a definite time period, as provided in Article 9.1

of the Oceania BIT.

41. Even if the Tribunal found that the attempt to settle through amicable consultations is a

mandatory requirement, which PE asserts it is not, Claimant nonetheless fulfilled this

alleged requirement.

B. RESORTING TO OCEANIAN COURTS IS OPTIONAL, NOT A CONDITION

PRECEDENT TO ARBITRATION, THAT HERE WOULD NEVERTHELESS BE FUTILE.

42. Resorting to Oceanian courts is also not a mandatory requirement. Rather, it is another

option for dispute resolution. Even if it were an imposed requirement, in these 61 Abaclat and Others v. Argentine Republic, ¶ 564. 62 CS, at 60, ¶ 4. 63 Id. at 4. 64 ICC Rules, Article 4.2. 65 CS, at 2. 66 Railway Traffic between Lithuania and Poland, Advisory Opinion, 15 October 1931, PCIJ Series A/B, No. 42, 116. 67 CS, at 60, ¶ 4.

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circumstances, it would be futile, result in significant delay, increase the parties’ costs

and open the door to potential dilatory tactics by Respondent.

43. Resort to Oceanian courts is an option to resolve disputes arising under the Euroasia BIT,

not a condition precedent to arbitration. The Euroasia BIT does not contain a multi-tiered

dispute resolution clause. Rather, Article 9.2 and 9.3 of the Euroasia BIT establish an

optional forum for dispute resolution: “[i]f the dispute cannot be settled amicably, it may

be submitted to the competent judicial or administrative courts.”68

44. Multi-tiered clauses, unlike here, have clear language imposing several steps before filing

a case before arbitration. Usually those steps are clearly identified within an escalation

procedure and are also indicated by a mandatory language such as “shall”. For example

in Wintershall Aktiengesellschaft v. Argentine,69 and in BG Group v. Argentina,70 the

Germany-Argentina BIT, Article 10, and the Argentina-United Kingdom BIT, Article 8,

have the mandatory language “shall”.71 Here, the Euroasia BIT’s language in Article 9.2

is “may”, indicating local courts or local administrative courts as an option, rather than an

obligation.

45. Both Articles 9.2 and 9.3 of the Euroasia BIT shall be read together within its context in

good faith according to the VCLT Article 31. Article 9.2 provides investors the option to

go to Oceanian courts, rather than making Oceanian courts a requirement. Respondent

may argue that Article 9.3 establishes a 24-month waiting period from the beginning of

the local court’s proceedings to then submit the claim to international arbitration.

However, the 24-month waiting period is only triggered if a dispute is taken to the local

courts. Where a dispute is not taken to local courts, then the 24-month waiting period is

not triggered. Here, Claimant opted, according to the discretion the treaty provides, not to

go to local courts, and therefore, the 24-month period was never triggered. Moreover,

68 Id. at 44, ¶ 9.2. 69 Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/04/14, Award, 8 December 2008, ¶ ¶ 114-5. 70 BG Group Plc. v. The Republic of Argentina, UNCITRAL, award, 24 December 2007, ¶ 146. 71 “Shall”, English version. “Será”, Spanish version; “Werden”, German version.

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Article 9.4 is intended to prevent concurrent proceedings, so it follows that Claimant

should not have to resort to Oceanian courts.

Resorting to Oceanian Courts Would Be Futile. 1.

46. Even if this Tribunal finds that PE should have gone to local courts, in this circumstance,

the resort to local courts would be futile. Resort to local courts will open the possibility of

Respondent delaying due process and would increase arbitration costs.

47. First, Oceanian courts lack jurisdiction to resolve claims brought directly under

international treaties.72 Such claims may not be adjudicated under international law or

Oceanian national law.73 If Oceanian Courts are not able to hear a claim in the first place

then any attempt to go to local courts would be unavailing.

48. Second, requiring PE to expend resources and pursue Oceanian courts would, at most,

result in an ineffective redress. In BG Group Plc. v. Argentina, the Argentina-United

Kingdom BIT had mandatory language that required the parties to go to local courts for

18 months before filing the case in arbitration.74 Nonetheless, the Court found that such

requirement was not enforceable because to bring the case before the Argentinian

judiciary after the enactment of the Emergency Law would have lead to an absurd and

unreasonable result.75

49. Here, this case is even more compelling because there is no mandatory language

requiring the parties to submit disputes to local courts. Even if there was mandatory

language, as was decided in BG Group, such requirement is unenforceable because

Oceania courts came under significant pressure after the enactment of the Executive

Order of 1 May 2014, just like the Argentina Emergency Law pressured the Argentinian

Courts. Although, the Oceanian Constitutional Tribunal may set aside any legal act,

including and executive order, if it finds it unconstitutional,76 the Oceania Constitutional

72 Id. at 60, ¶ 5. 73 Id. 74 Argentina-United Kingdom BIT, Article 8(2)(a)(i). 75 BG Group Plc. v. Argentina, ¶ 147. 76 CS, at 60, ¶ 6.

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Tribunal has given historic deference to the executive branch in the conduct of foreign

policy.77 It is very unlikely that the Oceanian Constitutional Tribunal would set aside the

Executive Order of 1 May 2014.78

50. Third, another trace of ineffective redress in seeking Respondent’s local courts is the

undue delay that it will cause in the proceedings, under the only probable claim under

Oceanian National Law, an action questioning the constitutionality of the Executive

Order of 1 May 2014. This constitutional action is, as this Tribunal conceded, an

extremely lengthy process of up to three or four years.79

51. The BG Group Plc. Tribunal considered the length of six years to reach a similar decision

in the case, as not the central point, but a factor for consideration of the local courts

rule.80 How long a proper procedure under local courts would take to resolve the dispute

should also guide this Tribunal’s evaluation of a local courts clause. Here, the 24 month

requirement is insufficient and unrealistic, when the proceedings before Respondent’s

local courts would likely take up to three or four years.

***

52. The suggested pre-arbitral steps, whether amicable consultation or optional resort to local

courts in the Euroasia BIT, are just aspirational requirements, not conditions precedent to

go to arbitration. Nevertheless, Claimant had complied with Article 9.1, and enforcement

of Article 9.2 would be futile and ineffective.

77 Id. 78 Id. 79 Id. 80 BG Group Plc. v. Argentina, ¶ 156.

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III. PETER EXPLOSIVE MAY INVOKE ARTICLE 8 OF THE EASTASIA BIT PURSUANT TO

ARTICLE 3 OF THE EUROASIA BIT.

53. Article 3 of the Euroasia BIT is a MFN Provision and relevantly states:

“1. 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 ...

investors from third-party countries.”81

54. Such a clause affords the investors of Contracting parties the ability to import clauses

from substantively similar treaties to which their contracting party counterpart is a

signatory to. Here, the Eastasia BIT, of which Oceania is a contracting party to, affords

more preferential protections than the protections granted through the Euroasia BIT.

Consequently, PE, through the MFN Provision in Article 3 of the Euroasia BIT, can

import the preferential provisions Oceania has granted to Eastasia but failed to grant to

Euroasia. In the case at hand, this specific provision is Article 8 of the Eastasia BIT. This

article provides several procedural protections that are not afforded to Euroasian

investors in the Euroasia BIT and are therefore “importable” through the Article 3 MFN

Provision of the Euroasia BIT. PE need not apply the MFN Provision of the Euroasia BIT

because he has already satisfied the pre-arbitral steps required in the Euroasia BIT.

Nevertheless PE contends that even if this tribunal were to deem the Euroasia BIT steps

not fulfilled, the tribunal nonetheless maintains jurisdiction due to PE’s importation (and

satisfaction) of the Eastasia BIT’s pre-arbitral steps.

A. ARTICLE 3 OF THE OCEANIA-EUROASIA BIT IS A MFN PROVISION REQUIRING

OCEANIA TO GRANT TO PETER EXPLOSIVE THE PREFERENTIAL TREATMENT IT

AFFORDS TO EASTASIAN INVESTORS

55. Article 3 of the Euroasia BIT accords “... to investments made by investors ... a treatment

that is no less favorable than that accorded to ... investors from third-party countries.”

81 CS, at 40, ¶ 3.1.

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(emphasis added).82 Adhering to the customary international law application of Articles

31 and 32 of the VCLT, Article 3 of the Euroasia BIT requires that Oceania grant PE’s

Investment (“investments made by investors” referenced above) a treatment that is no less

favorable that that accorded to Eastasian Investors (“investors from third-party

countries” referenced above).83

56. Additionally, PE adheres to the further requirements imposed by the language of Article

3. RB is undisputedly within the territory of Oceania in adherence to the “within its own

territory” clause,84 and the broad language “to the income and activities related to such

investments, and to such other investment matters regulated by the Agreement...”

encompasses the more favorable procedural treatment afforded under the Eastasia BIT

because this treatment pertains to the income and activities of the investment and the

investment matters regulated by the Agreement as further laid out below. Furthermore, it

is undisputed that PE’s going concern in Oceania qualifies as an investment made by an

investor. As such, PE qualifies for MFN Protection.

57. As a result, Oceania has the positive obligation, as expressed in the language of the

article – (“shall”)85 – to accord to PE’s Investment the same treatment that is granted to

Eastasian Investors. Eastasian Investors are afforded the full protection of the Eastasia

BIT and as such, so must PE.

58. PE, as a Euroasian investor, is therefore entitled to the more preferential procedural

provisions afforded under the Eastasia BIT to Eastasian Investors, a right afforded

through the Euroasia BIT’s MFN Provision.

82 Id. 83 Id. 84 Id. at 32, ¶ 2. 85 Id.

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B. THE ARTICLE 3 MFN PROVISION IN THE EUROASIA BIT AFFORDS PETER

EXPLOSIVE ACCESS TO BOTH THE PREFERENTIAL PROCEDURE AND

SUBSTANTIVE TREATMENT GRANTED TO EASTASIAN INVESTORS THROUGH THE

EASTASIA BIT.

59. It cannot be challenged that a dispute settlement clause in investor-state arbitration grants

rights to investors. This is exemplified simply by looking at the title of such articles:

“Article 9 Settlement of Disputes between Investors and Contracting Parties” (Euroasia

BIT, Article 9); “Article 8 Settlement of Disputes between Investors and Contracting

Parties” (Eastasia BIT, Article 8).

60. When the MFN Provision in the Euroasia calls for “treatment no less favorable than that

accorded to investors from third-party countries,”86 it must therefore include the dispute

settlement clause in the Eastasia BIT, without considering for whether the rights are

substantive or procedural, because this clause grants rights directly to investors,87 with no

explicit restriction.

61. Other tribunals have analyzed BIT language and have come to the same conclusion when

analyzing the scope of application of similar BIT MFN provisions, including: the German

Model BIT, the Netherland Model BIT, the United States Model BIT, the Canadian

Model BIT and the Spain Model BIT, to name a few. Each use a derivative of the phrase

“...a treatment no less favourable than that accorded to its own investors or investors from

third-party countries.”

62. Tribunals have almost universally confirmed that this language allows the importation of

third party BIT clauses into the applicability of the dispute.88 Because the language of the

86 Id. at 41, ¶ 3.1. 87 See ¶63, supra) 88 See Maffezini v. Spain, Siemens v. Argentine Republic (ICSID Case No ARB/02/8, Decision on Jurisdiction, 3

August 2004), Gas Natural SDG v. Argentina (ICSID Case No ARB/03/10, Decision on Preliminary Questions on Jurisdiction, 17 June 2005) and Hochtief AG v. Argentina (ICSID Case No ARB/07/31, Decision on Jurisdiction, 24 October 2011)).

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MFN Provision is so broadly worded, the only restriction imposed on the application of

the MFN Provision are those mentioned above.89

63. One case stands at the inception of broad MFN provision interpretation: Maffezini v.

Spain.90 In Maffezini, an Argentinian individual invested in Spain.91 After the investment

faltered, the Claimant applied the MFN provision of the Spain-Argentina BIT to

successfully import preferential treatment negating the main BIT’s “referral to domestic

courts” clause.92

64. The restrictions imposed upon PE are akin to those discussed in Maffezini, and

consequently, Respondent cannot argue that the MFN provision is beyond the scope of

application of the Eastasia BIT. Just as in Maffezini where the applicable MFN provision

in the Argentina-Spain BIT broadly called for MFN protection “in all matters to this

agreement, this treatment shall not be less favorable than that extended by each Party to

the investments made in its territory by investors of a third country...,” here the MFN

Provision calls for similar protection for “...such other investment matters regulated by

this Agreement, a treatment that is no less favorable than that accorded to tits own

investors or investors from third-party countries.”93

65. In that sense, the broad language of the MFN Provision warrants a broad application of

this MFN Provision; an application that includes the importation of the dispute settlement

arrangements explicitly granted to investors. The Maffezini tribunal, in holding that

“there are good reasons to conclude that today dispute settlement arrangements are

inextricably related to the protection of foreign investors,” reasoned that because the

language of the prefatory clause in the MFN provision applies to “all matters in this

agreement,” the language was broad enough to allow the investor to benefit from the

dispute resolution clause in a third party BIT. In our case, “investment matters regulated

by this agreement“ is akin to “all matters subject to this agreement” because this is an

89 See ¶¶58-62, supra. 90 Maffezini v. Spain. 91 Id. 92 Id. at ¶39. 93 CS, at 41, ¶ 3.1.

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investment treaty and therefore all matters subject to the agreement are investment

matters.

66. Tribunals have not all granted claimants the application of MFN provisions to bypass

pre-arbitral hurdles,94 however the language in these cases is distinguishable. In our case,

investments are afforded the same treatment that is afforded to third party investors.95

Contrary to our case, the cases mentioned in footnote 122, the investments are afforded

the same treatment that is afforded to third party investments. It has been established

above that the dispute resolution clauses grant rights to investors, not investments. These

“investors” are the same “investors” covered by the dispute resolution clauses of the

Euroasia BIT and the Eastasia BIT. Consequently, this MFN provision, in this treaty

grants PE the widest applicability of the MFN provision and consequently the full

importation of Article 8 of the Eastasia BIT.

C. ARTICLE 8 OF THE EASTASIA BIT AFFORDS EASTASIAN INVESTORS INVESTING

IN OCEANIA MORE PREFERENTIAL TREATMENT THAN THAT WHICH IS

AFFORDED TO EUROASIAN INVESTORS THROUGH THE EUROASIA BIT.

67. The Euroasia and Eastasia BITs are substantively similar treaties. The most notable

difference however is in the Article titled “Settlement of Disputes Between Investors and

Contracting Parties.”96 The differences in this Article transform the treaty between

Eastasia and Oceania as more preferential to investors than the treaty between Euroasia

and Oceania. This, however, is remedied by the application of the Article 3 MFN

Provision in the Euroasia BIT, which permits PE to import the provisions he deems more

favorable from the Eastasia BIT into the Euroasia BIT.

94 See Wintershall Aktiengesellschaft v. Argentina; Daimler Financial Services AG v. Argentine Republic (ICSID Case No. ARB/05/1, Award on Jurisdiction, 22 August 2012); ICS Inspection and Control Services Ltd (United Kingdom) v. Argentine Republic (PCA Case No 2010-9, Award on Jurisdiction, 10 February 2012). 95 CS, at 41, ¶ 3.1. 96 See Id., at 44, ¶ 9; Id. at 49, ¶ 8.

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Preferential Treatment is a Subjective Determination 1.

68. The preferential treatment imported from one treaty to the other using MFN provisions is

a treatment determined to be preferential by the person invoking the MFN provision.97

This is a subjective determination.98 PE merely has to make a subjective determination

that the pre-arbitral clauses in the Eastasia BIT afford him an advantage when contrasted

to those in the Euroasia BIT and the tribunal should deem the clauses to be preferential

and therefore importable.

Pre-Arbitral Clauses to Be Imported99 2.

69. First, The Euroasia BIT affords an option for dispute settlement to the local courts of

Oceania. The Eastasia BIT, however, does not afford such option to Oceania. The

Eastasia BIT clause is therefore more preferential than the Euroasia clause because an

attempt at the resolution of such a contentious issue in Oceania courts would severally

disadvantage PE. The Oceania courts would have an obvious bias towards Oceania, as it

is a party to this dispute. Oceania would get an Oceanian court to make the first

determination as to the validity of Oceania’s actions, a determination likely to be tainted

by bias to one’s own country.

70. The application of the Article 3 MFN Provision to remove this avenue for Oceania is

therefore appropriate in this instance. This is a well-established application of modern

MFN provisions.100 In Suez v. Argentine Republic,101 in an ICSID dispute arising out of a

97 C. Giorgetti, The Rules, Practices, and Jurisprudence of International Courts and Tribunals (Leiden 2012), p.

106-07, (discussing the tribunal’s deliberation in Maffezini v. Spain). 98 Id. 99 CS, at 44, ¶¶¶ 9.1, 9.2, 9.3; CA, at 49, ¶¶ 8.1, 8.2. 100 See, National Grid Transco PLC v Argentina (UNCITRAL, Decision on Jurisdiction, 20 June 2006); AWG

Group Ltd v Argentina (UNCITRAL, Decision on Jurisdiction, 3 August 2006); Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal SA v Argentina (ICSID Case No ARB/03/19, Decision on Jurisdiction, 3 August 2006); Impregilo SpA v Argentina (ICSID Case No ARB/07/17, Award, 21 June 2011) (see Legal update, Stern dissent renews debate on whether MFN clauses extend to dispute resolution provisions); Teinver SA v Argentina (ICSID Case No ARB/09/1, Decision on Jurisdiction, 21 December 2012) (see Legal update, Claimants satisfied pre-conditions to arbitration in BIT (ICSID)).

101 Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Aqua SA v Argentina.

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breach of the Argentina-Spain BIT, the investor invoked the BIT’s MFN provision to

negate the pre-arbitral “submission to local court” provision. The tribunal held that:

“Claimants InterAguas and AGBAR, relying on Article IV of the Argentina-

Spain BIT, may invoke the more favorable treatment afforded in the Argentina-

France BIT and may therefore bring an ICSID arbitration without the necessity of

first having recourse to the local courts of Argentina.”102

71. PE, just as InterAguas, is therefore not required to submit his claim to Oceanian courts

before submitting this dispute to neutral ICC Arbitration.

72. Second, The Euroasia BIT provides for a 24-month “referral to domestic courts” period

between the date of the notice on the commencement of proceedings before the court and

the submission to arbitration,103 whereas the Eastasia BIT only gives the option for a six

month “referral to domestic courts” period.104

73. Here however, it is preferential to have a lesser limbo period for the investor because

during the duration of the proceedings, his livelihood is impeded whereas the Respondent

can maintain its favorable position with the status quo. The longer the “referral to

domestic courts,” the more challenging the recovery from such a financial impediment

will be. Because all of PE’s suppliers are precluded from supplying him as a result of the

May 2014 Executive Order, his operations have completely shut down.105 There is a

prima facie advantage to shortening the length of immobilizing proceedings and as such,

PE may seek this superior protection granted by the application of the MFN Provision to

import Article 8(2) of the Eastasia BIT.

74. Again, this has been a recognized application of MFN provisions. In the seminal case on

this issue, Maffezini v. Spain,106 the tribunal held it appropriate for the investor to apply

the MFN provision of the Argentina-Spain BIT to invoke the lesser “referral to domestic

102 Id at ¶ 66. 103 CS, at 44, ¶ 9. 104 Id. at 49, ¶ 8. 105 Id. at 35. 106 Maffezini v. Spain.

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courts” of the Chile-Spain BIT. Tribunals have followed this application of MFN

provisions for cooling off periods since then.107

75. Because PE can apply the MFN Provision of the Euroasia BIT to import the preferential

treatment from Article 8 of the Eastasia BIT, PE must adhere to the pre-arbitral steps as

laid out in Article 8 of the Eastasia BIT. PE has done so. PE has attempted to amicably

settle the dispute by contacting the Oceanian Ministry of Foreign Affairs, the Ministry of

Finance, the Ministry of Defense, and the Ministry of Environmental Protection.108 PE

received no response from any of the above-mentioned Ministers within the six month

time frame.109 As such, he has, satisfied his obligation to attempt amicable settlement and

has furthermore satisfied the pre-arbitral steps required by the Eastasia BIT.

***

76. Together, the above-mentioned restrictions imposed by the Euroasia BIT create a

comparatively unfavorable investment regime for Euroasian investors than that afforded

by Oceania to Eastasian investors. If this tribunal were to disallow the application of the

MFN provision for the above mentioned clauses, PE would be further injured by what

would equate to Oceania having inequitable control over these proceedings through their

own courts and their elongated cooling down periods. This would lead to a blatant

inequity for PE and a tangential turn away from the purpose of Investment Arbitration

under the auspices of the ICC.

107 See Siemens v Argentine Republic (ICSID Case No ARB/02/8, Decision on Jurisdiction, 3 August 2004); Gas

Natural SDG v Argentina; Hochtief AG v. Argentina. 108 CS, at 4. 109 Id.

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IV. RESPONDENT’S DEFENSE UNDER THE “CLEAN HANDS DOCTRINE” IS NOT APPLICABLE

UNDER THE RELEVANT BITS OR ICC RULES

77. The Clean Hands Doctrine (hereinafter “CHD”) is not applicable in this case. This

Tribunal has no authority to decide this case under equitable principles according to the

ICC Rules, 21.3, and there is no language under the Euroasia BIT that an investment is to

be created “in accordance with the laws and regulations of (the host State). Such

language is contained in the Eastasia BIT, which is not the main treaty under which this

dispute has been brought.

78. Even if “clean hands” were applicable, Claimant had not committed any wrongdoing

while creating and establishing his investment in Oceania territory, and, moreover, RB is

in full compliance with all Oceanian environmental laws.110

79. Nevertheless, Respondent neither met its standard of proof nor its burden of proof

demonstrating that Claimant had committed an act of corruption and bribery.

A. NEITHER THE EUROASIA BIT, NOR THE ICC RULES SUPPORT A DECISION IN

EQUITY.

80. A Tribunal can only decide under equitable principles when the Tribunal has the power to

rule in equity. The BIT or the arbitration rules must specifically establish a tribunal’s

power to decide in equity. Here, neither the ICC Rules nor the Euroasia BIT gives the

Tribunal the power to decide in equity.

81. According to Black’s Law Dictionary, “clean hands doctrine” refers to “[t]he principle

that a party cannot seek equitable relief or assert an equitable defense if that party has

violated an equitable principle, such as good faith.”111

82. The clean hands doctrine is neither a general principle of international law nor customary

international law.112 To the contrary, authors and several tribunals have recognized that

110 Id. at 35, ¶13. 111 Black's Law Dictionary (10th ed. 2014), “clean-hands doctrine”.

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clean hands is not customary international law.113 James Crawford, in the United National

General Assembly (1999) of Second Report on State Responsibility, has stated that “it is

not possible to consider the clean hands theory as an institution of general customary

law.”114

83. There is not a single majority decision in any Court or Tribunal that had applied the clean

hands doctrine”.115 Judge Schwebel’s dissenting opinion in Military and Paramilitary

Activities in and against Nicaragua (Nicaragua v. United States of America), which

many cite as a foundation to the clean hands defense, also established that clean hands is

a principle in equity, under the famous maxim that "an unlawful act cannot serve as the

basis of an action at law”, that “equality is equity” and “who seeks equity must do

equity”.116

84. Moreover, other tribunals, like that in Yukos v. Russia, have expressly noted that “clean

hands” is not a general principle of international law.117

85. The Euroasia BIT does not mention the clean hands doctrine. Even less, it does not give

the arbitral tribunal the power to decide under the rules of equity. Therefore, this Tribunal

should find that Respondent is bared from bringing any equitable defense, including the

unclean hands doctrine.

86. Likewise the ICC rules, Article 21.3, specifically establishes that a tribunal only has the

power to decide according to principles of equity and fairness if the parties have agreed

to give the Tribunal such authority to act as an ex aequo et or amicable compositeur.

Amicable compositeur or ex aequo refers to the power to decided under equitable

principles.

112 Hulley Enterprises Limited (Cyprus) v. Russia Federation, PCA, UNCITRAL, Award, 18 July 2014, ¶¶ 1357- 63; United National General Assembly 1999, Second Report on State Responsibility, by James Crawford, ¶ 336, citing Rousseau, Droit international public, p. 177; See also the ILC Drafts in State Responsibility, p.72. 113 Id. 114 United National General Assembly 1999, Second Report on State Responsibility, by James Crawford, ¶ 336 (citing Rousseau, Droit international public, p. 177); see also ILC Draft Articles on State Responsibility, p. 72. 115 Hulley Enterprises Limited, ¶1362. 116 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), ICJ, Judge Schwebel dissent opinion, ¶¶ 269-70. 117 Yukos Universal Limited (Isle of Man) v. The Russian Federation, ¶¶ 1358, 1360, 1362-3.

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87. The parties must agree to have the Tribunal decide under equitable principles in order for

it to do so. The ICC Guidelines, published by the ICC itself reinforce this purpose of

Article 21.3: “[t]he exercise of the powers of an amicable compositeur is strictly limited

to situations in which the parties have agree to give the arbitral Tribunal such powers.”118

Ideally, such an agreement will be in writing and will often be included in the arbitration

agreement.119 As stated by the ICC Secretariat, “[a]n arbitral tribunal (...) as a matter of

good practice, [should] require written evidence or written confirmation of the parties’

agreement for it to do so.”120

88. Here, the Euroasia BIT does not have such a provision granting this Tribunal the

authority to decide according to equitable principles, but is limited to the law.

Furthermore, the parties have not empowered this Tribunal to decide under equitable

principles, as shown by their absence from the Terms of Reference.121

89. The ICC Guidelines clarify that the purpose of article 21.3 is to empower the Tribunal

with the authority to decide the dispute “according to general principles of fairness in

justice.”122 Clarifying that “it goes under various names but is commonly referred as

amiable compositeur, ex aequo et bono or both.”123

90. “The arbitral tribunal cannot grant itself the powers of amicable compositeur even when

it has to determine the rules of law governing the merits pursuant to Article 21.1.”124

Acting as amible compositeur implies the absence of rules of law so does not fall within

the scope of Article 21.1.

B. RESPONDENT CANNOT IMPORT LANGUAGE FROM THE EASTASIA BIT.

91. Article 1 of the Euroasia BIT does not contain any language referencing to the legality of

the investment. By contrast, Article 1 of the Eastasia BIT does require investments be

118 The Secretariat’s Guide to ICC Arbitration, p. 230. 119 Id. 120 Id. 121 Id. 122 Id. 123 Id. 124 Id.

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made “in accordance with the laws and regulations” of the host State. The Respondent

cannot import the language from another BIT under these circumstances.

92. The Yukos Tribunal addressed the issue of whether the clean hands doctrine could have

been implied from the language of the treaty, the ECT – Energy Charter Treaty (which

does not have such express language) following an Article 31 good faith VCLT

interpretation. There, the Tribunal found that in the absence of any specific textual hook,

taking a good faith interpretation of the object and purpose of the treaty, the Tribunal did

not find that clean hands doctrine could have been implied from the treaty text.125

Likewise here, the clean hands doctrine is not express or implied in the language of the

Euroasia BIT. It would be improper for this Tribunal to base its decision on rights and

principles outside the scope of the Euroasia BIT.

93. Although one may argue that likewise in Phoenix v. Czech Republic the illegality of an

investment is implied even if not expressly in the BIT, this argument must fail.126 The

treaty in Phoenix, the Czech Republic-Israel BIT, contained the language “in accordance

with the laws and regulations”127 of the host State. The dispute before the Phoenix

Tribunal was whether or not there was an investment within the language of ICSID and

the BIT.128 The Phoenix Tribunal ruled that an investment is defined it by 6 elements, the

sixth element being “assets invested bona fide”.129

94. Unlike in Phoenix, PE made a bona fide investment. PE acquired RB in accordance with

the laws and regulations of Oceania on March of 1998,130 long before the request of

arbitration was filed, on September 2015.131 Claimant fully complied with the

125 Yukos Universal Limited (Isle of Man), ¶ 1345. 126 Phoenix Action, Ltd. v. The Czech Republic, ICSID, ARB/06/5, Award, 15 April 2009, ¶ 101. 127 Czech Republic-Israel BIT, Article 1. 128 Phoenix Action, Ltd. v. The Czech Republic, ¶ 74. 129 Id. ¶ 114. 130 CS, at 32, ¶ 2. 131 Id. at 3.

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Environmental Act requirement since 2014,132 its license had never been revoked, and

RB carried out its stated business purpose.133

C. CLAIMANT DID NOT COMMIT ANY WRONGDOING AND CLAIMANT IS IN FULL

COMPLIANCE WITH ALL OCEANIA ENVIRONMENTAL LAWS.

95. PE and RB have not committed any illegality. RB is in full compliance with the

environmental regulations, since January 2014.134 When PE acquired RB in February-

March of 1998, the company was in dire circumstances and lacked an environmental

license.135

96. RB lost its environmental license in November 1997.136 This loss resulted in the

suspension of arms production, which took its toll on the local community that was

facing mass unemployment and poverty.137 PE made the company a prosperous business

and changed the reality of that Oceania community who in turn had more jobs than ever

before.138

97. To acquire a new environmental license the company had to comply with the Oceania

Environmental Regulations and update the production line with environmental-friendly

equipment, which required immense financial resources.139

98. RB applied for acquiring an environmental license and to get subsidy to finance the new

environmental friendly equipment with Oceania Ministry of Environment.140 The

administrative procedure to obtain an environmental decision from Oceania NEA takes

considerable time and delays are frequent141, so PE managed to expedite the proceedings

and met in July with the President of the NEA.142 There is no evidence in the record or

132 Id. at 35, ¶ 13. 133 Id. at 59, ¶ 1. 134 Id. at 35, ¶ 13. 135 Id. at 32, ¶ 2. 136 Id. at 32, ¶ 3. 137 Id. 138 Id. at 34, ¶ 12. 139 Id. at 32, ¶ 3. 140 Id. 141 Id. at 33, ¶ 6. 142 Id.

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anything to suggest, aside from Respondent’s baseless allegations, that PE paid any

government official during this time.

99. Even assuming PE paid a government official, this would constitute a facilitating

payment. Expedition payments, “facilitating payments” also called “grease payments” are

not bribery. The OECD Convention on Convention on Combating Bribery Of Foreign

Public Officials In International Business Transactions, in its commentaries makes clear

that “bribery of a foreign public official” does not include facilitating payments.143

100. Also, under the FCPA, “although there is a prohibition to bribery payments, an exception

exists to ‘facilitating’ payments to expedite or to secure the performance of a routine

governmental action by a foreign official, political party, or party official”.144

101. Even if there was an alleged payment here, from what has been stated that was only an

expedition and “facilitating” payment to reassure that political officials will perform its

duties in a reasonable time, which is not considered bribery.

102. Peter Explosive thus has not committed any wrongdoing; and RB is in compliance with

the Environmental Law and its license has never been revoked.145

D. RESPONDENT HAS NOT MET THE STANDARD OF PROOF OR THE BURDEN OF

PROOF REGARDING ITS ALLEGATIONS OF CORRUPTION AND BRIBERY.

103. Respondent has neither met its standard of proof nor its burden of proof demonstrating

that Claimant had committed an act of corruption and bribery.

104. Respondent has not met the standard of proof for corruption because there is neither

direct nor circumstantial evidence in the record to show that PE paid a government

official at any given time. “Standard of proof defines how much evidence is needed to

establish either an individual issue or the party’s case as a whole.”146 “There is a general

consensus among international tribunals and commentators regarding the need for a high

143 Commentaries on the OECD Convention on Bribery, Art. 1. 144 15 U.S.C.S. § 78dd-2(b); See United States v. Giffen, 326 F. Supp. 2d 497, 499 (S.D.N.Y. 2004). 145 CS, at 35, ¶ 13. 146 Rompetrol Group N.V. v. Romania, ICSID, ARB/06/3, 6 May 2013, ¶178.

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standard of proof of corruption.”147 The seriousness of bribery accusation demands clear

and convincing evidence.148 Although it might be difficult to prove corruption and

bribery, circumstantial evidence is not enough to prove corruption.149 The standard of

proof should be “a standard of ‘clear and convincing evidence’, that being somewhere

between the traditional civil standard of ‘preponderance of the evidence’ (otherwise

known as the ‘balance of probabilities’), and the criminal standard of ‘beyond reasonable

doubt’.”150

105. In EDF v. Romania, the party that claimed bribery (in that case Claimant) had

testimonials, emails and audiotape evidence that allegedly proved that the Romanian

State officials had requested bribery. There, the tribunal found that the evidence

presented was far from clear and convincing, and thus, the party had not met its burden of

proof.151

106. Here, the Respondent initiated investigations against its own officials, and since 5 May

2015 had formally initiated investigations against PE concerning the environmental

license obtained on 23 July of 1998.152

107. On 1 February 2015, the President of the NEA was convicted of accepting bribes.153 On

23 June 2015 domestic criminal proceedings had been filed against PE. Mere

investigations and proceedings are not conclusive evidence against PE for wrongdoing.

Neither the conviction of the Environmental Official nor the conviction of the Ministry of

Environment for accepting bribes is conclusive evidence that RB’s environmental license

is involved in the scheme.

147 EDF (Services) Limited v. Romania, ICSID, No ARB/05/13, Award, 8 October 2009, ¶ 221. 148 Id; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award, 1 June 2009, paragraph 326; African Holdings Company of America Inc and Societe Africaine de Construction au Congo SARL v. Democratic Republic of the Congo, ICSID Case No. ARB/05/21, Award, 29 July 2008, French, ¶ 52. 149 Dadras International v. Iran (Iran-US Claims Tribunal) (RLA-152), Award, 7 November 1995, ICC Case No. 6401 (1991), (Westinghouse and Burns and Roe v Nat‘l Power v. Co and the Republic of Philippines) (“clear and convincing evidence amounting to more than a mere preponderance and cannot be justified by mere speculation.”). 150 Waguih Elie George Siag and Clorinda Vecchi v. the Arab Republic of Egypt, ¶¶ 325-6; See also The Rompetrol Group N. V., v. Romania, ¶ 183. 151 Id, ¶ 221. 152 CS, at 37. 153 Id.

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108. The Tribunal should also consider that its decision could have repercussions on PE’s

criminal proceedings in Oceania. In Oceania, corruption and bribery is a crime. In

African Holdings v. Congo,154 the Tribunal found that the standard of proof should be

taken even more seriously in cases that involve countries in which corruption is

considered a crime.155 Likewise, here, the standard of proof corruption should be higher

because this Tribunal decision may be bound by the criminal case against PE in Oceania.

109. Moreover, Respondent had not met its burden of proof. “[B]urden of proof defines which

party has to prove what, in order for its case to prevail.”156 Arbitral Tribunals have

routinely found that the party who alleges has the burden of proof to their claims and

defenses.157 Here, Respondent has the burden to prove to this Tribunal that Claimant had

in fact committed the alleged acts of corruption and illegality.

110. As the Tribunal in Metal-Tech points out there are some “red flags” commonly associated

with acts of bribery and corruption. In Metal Tech v. Uzbekistan, the issue before the

Tribunal was to determine if the $4.4 billion paid in alleged consultations fees raised

suspensions of corruption. There, the tribunal found that “the international community

has established lists of indicators, sometimes called ‘red flags’”158 indicating that a bribe

or corruption may have occurred. They are as follows:

(a) excessive commissions to third-party agents or consultants; (b) unreasonably large

discounts to third-party distributors; (c) third-party “consulting agreements” that include

only vaguely described services; (d) the third-party consultant is in a different line of

154 African Holdings Company of America Inc and Societe Africaine de Construction au Congo SARL v. Democratic Republic of the Congo, ¶ 52. 155 “Le Tribunal est disposé à considérer toute pratique de corruption comme une affaire très grave, mais exigerait une preuve irréfutable de cette pratique, telle que celles qui résulteraient de poursuites criminelles dans les pays où la corruption constitue une infraction pénale.” 156 Rompetrol Group N.V. v. Romania, ¶ 178. ICC Case No 6497 (1994); (1999) 24 YB Com Arb 71, 71. 157 Asian Agricultural Products Ltd (AAPL) v. Republic of Sri Lanka, ICSID Case No ARB/87/3, Award, 27 June 1990, ¶ 56; Metal-Tech, ¶ 237 (noticing that this type of burden of proof “is widely recognized and applied by international courts and tribunals”, and that “[t]he International Court of Justice as well as arbitral tribunals constituted under the ICSID Convention and under the NAFTA have characterized this rule as a general principle of law”). See also, UNCITRAL Arbitration Rules, Article 27(1) (“Each party shall have the burden of proving the facts relied on to support its claim or defense.”) 158 Metal Tech, ¶ 293.

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business than that for which it has been engaged; (e) the third party is related to or

closely associated with the foreign official.159

111. Here, there is no third party, no consulting agreement, no excessive commission, and no

trace of any money from Claimant’s books to the Oceania Ministry. If Respondent had

evidence, it would have produced it at this point. Thus, the red flags used in Metal Tech

when applied to this case indicate nothing that could lead to any suspicions that

corruption occurred.

***

112. Respondent claims under the clean hands must fail, because neither the Euroasia BIT nor

the ICC Rules supports for a finding in equity. Respondent cannot import such language

from other BITs when the Euroasia BIT does not foresee such importation of rights and

defenses. Even if the clean hands application was possible, which it is not, Claimant has

not committed any wrongdoing, and Respondent has neither met its standard of proof nor

its burden of proof.

159 Id. at ¶ 293.

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V. RESPONDENT INDIRECTLY EXPROPRIATED ROCKET BOMBS FOR AN ILLEGITIMATE

PUBLIC PURPOSE WITHOUT COMPENSATION AND THEREBY BREACHED ARTICLE 4(1)

OF THE EUROASIA BIT

113. Through various measures, Oceania expropriated RB without compensation and contrary

to international standards. Due to Oceania’s crippling sanctions regime, PE lost all

contractual relationships with his suppliers and was thus unable to manage or control his

investment, RB. As such, he was substantially deprived of utilizing his investment, which

constitutes an indirect expropriation. Even if the sanctions do not, by themselves,

constitute an expropriation, the delay and subsequent denial of licenses and subsidies—

coupled with the sanctions—by Oceania amount to a creeping expropriation.

A. PETER EXPLOSIVE WAS IN CONTROL OF ASSETS PROTECTED FROM ILLEGAL

EXPROPRIATIONS AND WAS PERMANENTLY DEPRIVED OF THOSE ASSETS

114. Under investment law, the Claimant must first “identify the assets allegedly

expropriated”.160 RB was, at the time immediately before Oceania issued its sanctions, a

flourishing business with numerous factories employing hundreds of Oceanian citizens.

RB’s supply chain relied on Oceanian suppliers to manufacture its products. However,

once Oceania prohibited Oceanian companies from contracting with RB, PE no longer

had a business because its contracts with suppliers suddenly were declared illegal.

115. Arbitral tribunals have confirmed that contractual rights, as opposed to tangible property,

are capable of being expropriated.161 Because Oceania replaced PE’s freedom to contract

with a pronouncement that any contract with RB was illegal and null and void, he lost all

economic enjoyment of RB, as it no longer had a viable supply chain. Therefore, the asset

immediately targeted by Oceania was the economic value of PE’s contracts. The

subsequent effect of PE losing his right to freely contract in Oceania rendered RB

valueless and was thus unable to produce RB’s products.

160 Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, ¶ 442. 161 Id.

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B. OCEANIA’S CONDUCT CONSTITUTES AN EXPROPRIATION WITHIN THE

MEANING OF ARTICLE 4(1) OF THE OCEANIA-EUROASIA BIT

116. The Euroasia BIT prohibits illegal expropriations in Article 4(1), which reads:

“Investments by investors of either Contracting Party may not directly or indirectly be

expropriated, nationalized or subject to any other measure the effects of which would be

tantamount to expropriation or nationalization in the territory of the other Contracting

Party except for the public purpose.”162

117. Article 4(1) clearly deals with nationalization and expropriation, as well as “any other

measure the effects of which would be tantamount to expropriation”.163 Measures

tantamount to expropriation include “covert or incidental interference with the use of

property which has the effect of depriving the owner…of the use reasonably-to-be-

expected economic benefit of property even if not necessarily to the obvious benefit of

the host State.”164

118. Thus, the Euroasia BIT covers not only direct takings by the host State, but also any

actions that have the effect of an expropriation. Investment law jurisprudence and

scholarship confirms this proposition.165 The sanctions cancelling all of PE’s contracts

rendered RB valueless and permanently deprived PE of his investment. Given the broad

language of the Treaty and prior decisions by investment Tribunals, indirect and creeping

expropriations are likewise prohibited under the treaty.

Oceania Indirectly Expropriated Rocket Bombs When the Executive 1.

Order Imposing Sanctions was Issued

119. Oceania’s sanctions on RB constitute an indirect expropriation because it neutralized

PE’s business without a physical taking. An indirect expropriation frequently occurs

when the investor’s title to the investment is “untouched but deprives him of the

162 CS, at 42, ¶ 4.1. 163 Id. 164 Metalclad Corp. v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, ¶ 103. 165 R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, 2012), p. 101; Metalclad Corp.

v. Mexico, ¶ 103.

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possibility of utilizing the investment in a meaningful way”.166 Indirect expropriations are

frequently found when a government attempts to hide its illegal taking with an official

act.167

120. Thus, the definition of such a taking is imprecise and any treaty provision including

indirect expropriations, like Article 4(1) of the Euroasia BIT, ought to be broadly

construed.168 For example, when interpreting a similar expropriation clause, the Tribunal

in Bayindir v. Pakistan stated that the treaty “adopts a broad concept of

expropriation…applicable not only to tangible property but also to contractual and other

rights”.169

121. Article 4(1) of the Euroasia BIT does not define the term “expropriation” and does not

establish which measures, actions or conduct would constitute “indirect” expropriations.

Reading nearly identical clauses, Tribunals have found however that substantial

deprivation of the benefit of the investor’s investment constitutes an indirect

expropriation.170

122. The Tribunal in Antoine Goetz v. Burundi stated that a mere “diminution in value of the

investment” is enough to show an indirect expropriation. Applying the standard from

Antoine Goetz v. Burundi, it is enough for PE to show that his investment has been

impaired as a result of government action. Here, PE held 100% of the shares in RB. Once

RB was targeted under Oceania’s unjustified sanctions, the shares of RB fell to zero and

all of its contracts were canceled. Thus, PE had lost the entire economic benefit as the

sole shareholder in RB, which exceeds the “diminution in value” standard under Antoine

Goetz v. Burundi.

123. Oceania may argue that PE’s investment was not expropriated because he still retains the

title to RB. However, this argument deviates from the rationale applied to indirect

166 R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, 2012), p. 101. 167 Id. 168 Id. 169 Bayindir v. Pakistan, ¶¶ 440-441. 170 Pope & Talbot v. Canada.

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expropriation cases. One can still be deprived of conducting everyday business affairs

and have their business be rendered worthless as a result of host State legislation, which

is precisely PE’s circumstances under Oceania’s sanctions

124. Moreover, the Tribunals in Tecmed v. Mexico,171 CMS v. Argentina,172 and Telenor v.

Hungary 173 all concurred in the proposition that an expropriation might occur even if the

title to the property is not affected, depending on the level of deprivation of the owner.174

According to the Tecmed Tribunal:

It is understood that the measures adopted by a State, whether regulatory or not, are an

indirect de facto if they are irreversible and permanent and if the assets or rights subject

to such measure have been affected in such a way that ‘…any form of exploitation

thereof…’ has disappeared[.]175

125. Even under this more stringent standard of indirect expropriation, the circumstances of

the instant case still constitute an irreversible and permanent harm to PE, vis-à-vis RB.

Oceania has yet to lift the sanctions and the Executive Order states that the sanctions will

be imposed indefinitely. Even if Oceania lifts the sanctions, PE has already lost all

goodwill with both his suppliers and purchasers. Therefore, a permanent and irreversible

harm has been affected to PE’s investment.

Alternatively, the Cumulative Acts by Oceania Constitute a 2.

“Creeping” Expropriation

126. Even if the Tribunal finds that the sanctions alone do not constitute a de facto indirect

expropriation, a so-called “creeping” expropriation nonetheless occurred. Oceania’s

denial of RB’s subsidy request and lengthy delay in environmental approval—coupled

with the subsequent sanctions—resulted in cumulative acts tantamount to expropriation.

171 Tecmed v. Mexico, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, ¶ 116. 172 CMS v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, ¶¶ 260-264. 173 Telenor v. Republic of Hungary, ICSID Case No. ARB/04/15, Award, 13 September 2006. 174 See Starrett Housing Corp. v. The Government of the Islamic Republic of Iran, Interlocutory Award, 19

December 1983, 4 Iran-US CTR 122; see also Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting Engineers of Iran, Award, 22 June 1984, 6 Iran-US CTR 219.

175 Tecmed v. Mexico, ¶ 116.

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127. A “creeping” expropriation:

…is a form of indirect expropriation with a distinctive temporal quality in the sense that

it encapsulates the situation whereby a series of acts attributable to the State over a

period of time culminate in the expropriatory taking of such property176

128. The scope of Article 4(1) of the Euroasia-BIT covers creeping expropriations because it,

as previously mentioned, covers indirect expropriations. In Siemens v. Argentina, the host

State took a series of measures adverse to the investor’s economic use of its investment

and found a creeping expropriation occurred.177 These acts included postponements and

suspensions of the investor’s profitable activities, fruitless renegotiations, and ultimately

cancellation of the project.178

129. Akin to the actions by Argentina, Oceania frustrated PE’s economic enjoyment of RB

through a series of acts. The first was Oceania’s unwillingness to enter into conversation

with PE about bringing RB into compliance with the Environment Act. RB was not

producing when PE acquired the company because of the onerous requirements of the

law. Despite the efforts of PE to obtain a subsidy and proper licensing under the

Environment Law, Oceania delayed the approval process and eventually denied the

subsidy application.

130. PE obtained the proper licensing and funds in order to comply with the Environment

Law, but Oceania later imposed sanctions, which has suspended RB’s business activities

yet again. Therefore, due to the lengthy administrative proceedings, subsidy application

denial, delay in licensing, and subsequent sanctions, Oceania’s cumulative acts constitute

a creeping expropriation.

C. THE EXPROPRIATION BY OCEANIA WAS ILLEGAL

131. Under customary international law, an expropriation of private property is lawful only if

four conditions are met: (1) the expropriation is undertaken for the public purpose; (2) the

176 Generation Ukraine v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, ¶¶ 20.22, 20.26. 177 Siemens v. Argentina, ICSID Case No. ARB/02/8, Award, 6 February 2007, ¶ 273. 178 Id. at ¶¶ 263-273.

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expropriation is non-discriminatory; (3) the expropriation complies with principles of due

process of law; and (4) compensation is paid to the foreign investor.179 Oceania’s actions

fit none of the mandatory criteria, and the expropriation is therefore unlawful. Even if the

Tribunal deems that Oceania’s actions fit in one of the criteria, the expropriation is still

unlawful.

The expropriation discriminatorily targeted Rocket Bombs 1.

132. RB was a direct target of Oceania’s unjustified sanctions. The Executive Order states that

“persons operating in” the defense sector, and, “in particular arms production services”

will have their property and all interests in property blocked indefinitely.180

133. RB was the only arms production corporation operating in Oceania. The clear and

unequivocal language of the Executive Order thus intends to single out RB. This

language also highlights the retaliatory nature of the sanctions. Oceania was outspokenly

against the lawful annexation of Fairyland by Euroasia and used these sanctions to

arbitrarily dismantle any legitimate business it determined to have a relationship with this

occurrence. Other sectors of the economy may have been affected by the sanctions, but

the directness of the Executive Order coupled with RB’s status as the only arms producer

shows that Oceania intended to particularly single out RB and PE.

The expropriation was executed without due process of law 2.

134. In order to comply with the due process requirement, the expropriation must not be

arbitrary and must be based on the application of duly adopted laws.181 The Tribunal in

ADC v. Hungary further explained that whatever the legal mechanism or procedure put in

to place, it “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.”182

179 Tecmed v. Mexico, ¶ 115; Metalclad v. Mexico, p. 33; see also UNCTAD, “Expropriation”, Series on

International Investment Agreements II (2012), at 27-40. 180 Executive Order of 1 May 2014, Section 1(a)(1). 181 AIG v. Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003, ¶ 10.5.1. 182 ADC v. Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006, ¶ 435.

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135. Here, the government action was arbitrary and contrary to the notion of due process. The

Executive Order explicitly provides that the order “does not [] create any right or benefit,

substantive or procedural, enforceable at law by any party against the Republic of

Oceania”.183 Although there is an opportunity for reconsideration proceedings, such a

request must be submitted to the President of Oceania.184 This reduces PE’s procedural

rights to a letter to the President.

136. Regardless of the reconsideration proceedings, it still remains true that PE does not have

a forum in which he may be represented in order to present his case in order to revoke the

sanctions. Oceania courts do not adjudicate disputes related to executive acts.185 In any

event, PE was not notified of the sanctions until they were issued. PE was foreclosed

from ever enforcing his rights as a foreign investor in Oceania. PE was immediately

deprived of his investment when the sanctions were unilaterally issued. Thus, Oceania’s

expropriation was entirely devoid of due process according to international standards.

The expropriation was undertaken without a legitimate public 3.

purpose

137. States indeed have the ability to regulate for the public purpose. However, this power is

not absolute and has its limits. Under investment law, States arguing that the taking was

for a public purpose does not automatically immunize the measure from being

expropriatory.186 The Tribunal in Santa Elena v. Costa Rica correctly pointed out that the

purpose for which the property was taken “does not alter the legal character of the taking

for which adequate compensation must be paid.”187

138. The government of Oceania could not have directly imposed sanctions on RB for a

legitimate public purpose. RB was engaged with various Oceanian businesses when

sanctions were passed, and it would therefore be incorrect to say that Oceania’s economy

183 Executive Order of 1 May 2014, Section 9. 184 CS, at 59. 185 Id. 186 Vivendi v. Argentina (Vivendi II), ICSID Case No. ARB/97/3, Award, 20 August 2007, ¶ 7.5.21. 187 Compañía del Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February

2000, ¶ 71.

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benefitted from canceling the contracts. RB also employed many citizens of Valhalla and

contributed to the economic development in that municipality. Moreover, the sanctions

were purely retaliatory to the peaceful annexation of Fairyland by Euroasia. No public

purpose was achieved by dismantling RB, as there was no security threat caused by PE’s

legal and legitimate business.

139. The Respondent will argue that RB contributed to, what it considers, an unlawful

annexation of Fairyland by Euroasia. However, PE was engaged in a legitimate business

engaged in numerous contractual relationships with businesses in not only Euroasia but

other jurisdictions as well. PE is not liable for the manner in which his products are used

after they are sold. It is also not RB’s responsibility to keep track of its products after

they are sold. Moreover, RB’s products were not used in connection with any unlawful

activity undertaken by the government of Euroasia. The annexation was peaceful and

democratically executed, and the Tribunal is obligated to proceed under this presumption,

as there has been no adjudication of an internationally unlawful act.

D. IN ANY EVENT, PETER EXPLOSIVE WAS NOT COMPENSATED BY OCEANIA

140. PE was not compensated after Oceania deprived him of the entire value of his profitable

investment. Oceania wrongly argues that the illegal expropriation here was necessary and

reasonable under the circumstances, and, therefore, the Claimant shall not be

compensated for the government’s illegal act. Claimant does not dispute that a State has

the right to regulate, but it has the duty to compensate for an expropriation. Rather, the

measure adopted must be proportional to the circumstances and the concomitant effects

must not deprive the investor of its property.188

141. Indeed, the State’s intent is not absolute in determining whether a non-compensable

regulation has occurred. As stated by the Tribunal in Vivendi v. Argentina II, “while

intent will weigh in favour of showing a measure to be expropriatory, it is not a

requirement, because the effect of the measure on the investor, not the state’s intent, is

188 See TECO v. Guatemala, ICSID Case No. ARB/10/23, Award, 19 December 2013, ¶¶ 492-493 (citing Methanex)

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the critical factor.”189 The effect of Oceania’s discriminatory and deliberate sanctions on

RB was expropriatory in nature because PE’s shares were rendered valueless.

VI. CLAIMANT IS ENTITLED TO DAMAGES AMOUNTING TO THE FAIR MARKET VALUE OF

ROCKET BOMBS

142. As Claimant has established, by imposing sanctions on RB, Oceania’s actions indirectly

expropriated of PE’s investment because the sanctions rendered RB worthless. PE is

entitled to full compensation for the damages resulting from the sanctions. Accordingly,

PE is entitled to the fair market value of the expropriated investment immediately before

the sanctions were imposed and future profits.

A. PETER EXPLOSIVE SUFFERED DAMAGES WHEN RESPONDENT ILLEGALLY

EXPROPRIATED ROCKET BOMBS

143. Despite Oceania’s repeated infringements on PE’s economic utility of his investment, RB

was a prosperous business. Even though Oceania instituted barriers for conducting

business—through the Environment Act—and subsequently denied PE a subsidy under

the Environment Act, PE grew RB into a profitable operation with multiple contractual

engagements.

144. When the sanctions were imposed, RB was enjoying its height of profitability. Because

the sanctions effectively neutralized RB, its shares were valueless. As such, PE requests

damages amounting to the fair market value of RB immediately preceding the sanctions,

which shall be no less than USD$120,000,000.

B. PETER EXPLOSIVE IS ENTITLED TO COMPENSATORY DAMAGES FOR THE FAIR

MARKET VALUE OF ROCKET BOMBS

145. According to the Treaty, in the instance of an expropriation, the investor shall be

accorded “prompt, adequate, and effective compensation…equivalent to the value of the

189 Vivendi v. Argentina (Vivendi II), ¶ 7.5.20.

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expropriated investment immediately before the date on which the actual or threatened

expropriation, nationalization, or other measure became publicly known”.190 PE has not

been compensated in accordance with the Euroasia BIT.

146. Under customary international law, damages should wipe out all consequences of the

illegal act.191 In order to wipe out all of the consequences of the illegal state action,

Tribunals have held in the instance of expropriations, that the investor shall be awarded

the fair market value of the investment.192

147. The standard for calculating PE’s loss is the fair market value of RB, which is essentially

“what a willing buyer would have paid for [the] business under ‘normal’ conditions”.193

C. THE TRIBUNAL SHOULD APPLY THE DISCOUNTED CASH FLOW METHOD IN

ASSESSING DAMAGES

148. The Treaty does not provide specific guidelines for the methodology of undertaking the

calculation as it relates to the value of the expropriated business. However, Tribunals

have traditionally applied the discounted cash flow (“DCF”) method in the context of

expropriated businesses because it accounts for all financially assessable damages

suffered by the investor.194

149. The World Bank has defined the DCF method as:

…the cash receipts realistically expected from the enterprise in each future years of its

economic life as reasonably projected minus that year’s expected cash expenditure, after

discounting this net cash flow for each year by a factor which reflects the time value of

190 CS, at 42, ¶ 4.1. 191 ILC Articles, Art. 36; Factory at Chorzow; see Houben v. Burundi, ICSID Case No. ARB/13/7, Award, 12

January 2016, ¶ 220 (stating that where the treaty is silent on the method for calculating the amount of compensation for unlawful expropriation, customary international law shall apply, and in particular the Chorzow standard).

192 R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford, 2012), p. 103. 193 EDF International S.A. v. Argentina, ICSID Case No. ARB/03/23, Award 11 June 2012, ¶ 1232. 194 CMS v. Argentina; Factory at Chorzow.

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money, expected inflation, and the risk associated with such cash flow under realistic

circumstances.195

150. The DCF method is an income-based approach of valuing a business, real property,

intangible asset, or a contractual right, for example to exploit a natural resource.196 It is

one of the most widely accepted methods used for business valuations.197 One of the

main advantages of the DCF method is its focus on cash flows. The focus on cash flows

has the advantage of “not depending on accounting conventions that vary from country to

country and that leave a margin of appreciation to the owner. Cash flows are thus better

comparable.”198

151. Thus, the DCF method maintains a wide following in assessing an investment’s value

because it conforms to the principle under international law that damages cannot be

awarded for losses that are speculative or uncertain.199 With this principle in mind, PE is

still entitled to future profits, which make up a critical part of the cash-flow-based DCF

method. According to the ILC Articles, compensation must take into account “all

financially assessable damage including loss of profits”.200 As such, PE is entitled to the

value of RB immediately before the sanctions were passed, in addition to any future

profits expected from its existing contract with the Ministry of Defense of Eastasia,

among other contracts.

152. Tribunals frequently award investors future expected profits, as part of the fair market

value assessment, when the business is a “going concern” at the time of the breach.201 In

CME v. Czech Republic, the Tribunal used the DCF method for calculating the fair

market value of Claimant’s investment, which was rendered worthless by a series of

195 Legal Framework for the Treatment of Foreign Investments: Volume II: Guidelines (Washington, D.C.: The

International Bank for Reconstruction and Development/The World Bank)(1992). 196 M. Kantor, Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence 95

(2008), pp. 131. 197 Id. 198 Thomas W. Wälde & Borzu Sabahi, Compensation, Damages And Valuation In International Investment Law, 4. 199 See e.g., I. Marboe, Calculation of Compensation and Damages in International Investment Law 115 (2009). 200 ILC Articles, Art. 36; Siemens v. Argentina, ¶¶ 349-352. 201 “Going concern” is a term used by investment tribunals to mean several years of profitability of an investment

project under consideration; see Kantor, at 94.

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measures adopted by a State instrumentality.202 The Tribunal held that the investor could

only be made whole with a DCF valuation that took into account the expected future

profits of the corporation owned by the investor.203

153. Here, like the corporation in CME, RB had outstanding contracts with multiple

purchasers. Due to the sanctions, RB was unable to secure those profits and ought to be

awarded future profits in addition to the value of the business immediately before the

breach. The profits expected by RB are not too distant or speculative, as there are clear

terms provided in each contract for a definite term.

154. In BG v. Argentina, the Respondent passed a series of measures purportedly to curb the

effects of the Argentinian economic crisis. BG Group owned shares in a gas distribution

corporation. Due certain measures unilaterally passed by the Argentine executive branch,

the corporation was rendered valueless. Argentina argued that the economic crisis gave

rise to a state of necessity to pass a new tariff regime and should therefore not be

obligated to compensate Claimants for the expropriation. The Tribunal disagreed with the

necessity defense and awarded Claimants damages based on a DCF valuation.204

155. Here, Oceania asserts that it is not obligated to compensate PE because of the geopolitical

situation with Fairyland. The annexation of Fairlyand was undertaken using democratic

means and carried out peacefully. This situation nonetheless has no connection with RB’s

legitimate and legal business. In BG, one could reasonably see that an identifiable crisis

had occurred, unlike the situation with Fairyland. Therefore, Oceania cannot claim that

its police powers should override its obligation to provide PE full compensation. As long

as Oceania’s sanctions are in place, PE is entitled to the fair market value of his

investment calculated on a DCF basis starting from 1 May 2014.

202 CME v. Czech Republic, UNCITRAL, Award, 14 March 2003, ¶¶ 100, 140-155, 514-562. 203 Id. at ¶¶ 563-604. 204 BG v. Argentina, ¶¶ 427-428, 443, 447.

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D. CIRCUMSTANCES DO NOT EXIST THAT MERIT DIMINISHING THE AMOUNT OF

CLAIMANT’S DAMAGES AWARD

156. There is no legality requirement under the Eastasia BIT. Respondent alleges that

Claimant engaged in illegal activities within Oceania. This is a fruitless attempt by

Oceania to shroud its own wrongdoing under baseless allegations in an attempt to distract

the Tribunal. For the avoidance of any doubt, criminal proceedings have yet to conclude

in connection with these alleged activities. Therefore, this Tribunal ought not to sit in

place of those criminal proceedings, which are unfounded, and must proceed on the

presumption of innocence.

157. Regardless of any alleged crime, there is no legality requirement under the Euroasia BIT.

The Euroasia BIT reads in relevant part that an investment “comprises every kind of asset

directly or indirectly invested by an investor of one Contracting Party in the territory of

the other”.205 Noticeably absent is an underlying legality requirement.

158. Moreover, Article 1.1 of the Treaty does not provide for an ongoing legality requirement.

Without express language to the contrary, PE’s investment is still a protected investment

regardless of Respondent’s assertions. For the avoidance of any doubt, RB was a

legitimate and prosperous business conducting legal operations within Oceania.

Oceania’s assertions are mere pretext for retaliatory measures intended to distract the

Tribunal.

***

159. Therefore, damages shall not be diminished and PE is entitled to full compensation,

including future profits—amounting to no less than USD$120,000,000.

205 CS, at 40, ¶ 1.1.

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REQUEST FOR RELIEF

In light of the above arguments, Claimant hereby requests that this Tribunal find:

1. This Tribunal has jurisdiction ratione personae because Claimant is an investor under the

Oceania-Euroasia BIT;

2. Claimant complied with all pre-arbitral steps under the Oceania-Euroasia BIT;

3. Alternatively, Claimant may invoke the more favorable dispute resolution clause

contained in Article 8 of the Oceania-Eastasia BIT;

4. Respondent is barred from asserting the equitable defense of unclean hands doctrine;

5. Respondent unlawfully expropriated Claimant’s investment in Rocket Bombs; and

6. Claimant is entitled to damages amounting to no less than USD$120,00,000.

Respectfully submitted on 19 September 2016

HIGGINS