IN THE PROCEEDING BETWEEN P E (CLAIMANT - … THE PROCEEDING BETWEEN PETER EXPLOSIVE (C ... MEMORIAL FOR RESPONDENT. Memorial for the Respondent Team Bhandari | 1 TABLE OF ... (Isle

Case No. 28000/AC

IN THE PROCEEDING BETWEEN

PETER EXPLOSIVE (CLAIMANT)

V.

REPUBLIC OF OCEANIA (RESPONDENT)

MEMORIAL FOR RESPONDENT

Memorial for the Respondent

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TABLE OF CONTENTS

INDEX OF AUTHORITIES ........................................................................................................ 4

LIST OF ABBREVIATIONS ...................................................................................................... 9

STIPULATION OF FACTS ...................................................................................................... 10

SUMMARY OF ARGUMENTS ................................................................................................ 14

ARGUMENTS ON JURISDICTION ....................................................................................... 15 I. CLAIMANT CAN NOT RELY ON THE EUROASIA BIT TO VEST JURISDICTION UPON THE TRIBUNAL ........................................................................................................ 15

A. The tribunal has no Jurisdictio Ratione Personae ........................................................ 15 1. The Claimant is an Eastasian national ............................................................................ 16 2. Fairyland remains a territory of Eastasia and the Claimant’s nationality is governed by the Eastasian national law. ................................................................................................. 18

a. There is no Customary International Law supporting the exercise of the right ...... 19 b. The Right of Secession is not Supported by or Embodied in any Treaty or Convention .................................................................................................................. 21 c. The Exercise of Secession is in Violation of State’s Sovereignty and Territorial Integrity ....................................................................................................................... 23 d. The Right of Self-Determination Cannot be used to Justify such an Act ............... 24

B. The tribunal has no Jurisdictio Rationae Materiae ....................................................... 25 1. The Claimant has not made a valid investment under Art. 1.1 of the Oceania-Eastasia BIT ...................................................................................................................................... 25

II. EVEN IF THE TRIBUNAL RULES THAT THE OCEANIA-EUROASIA BIT APPLIES, CLAIMANT FAILED TO COMPLY WITH THE PRE-ARBITRAL REQUIREMENTS PROVIDED UNDER ART. 9 ............................................................... 27

A. Compliance with the pre-arbitral requirements is mandatory .................................. 27 B. The mandatory pre-arbitral requirements under the Oceania-Eastasia BIT were also not complied with ......................................................................................................... 27

III. CLAIMANT CANNOT INVOKE THE MOST FAVORABLE NATION CLAUSE OF THE EUROASIA BIT TO RELY UPON THE DISPUTE RESOLUTION PROVISION OF THE EASTASIA BIT ............................................................................... 28

A. The MFN Clause does not apply to procedural matters. ............................................ 28


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1. The adoption of such conduct is deleterious to established general principles of international law. ................................................................................................................ 28 2. The extension of the MFN Clause to dispute settlement mechanism impairs the consent given by each contracting state .......................................................................................... 29

ARGUMENTS ON THE MERITS ........................................................................................... 31 IV. CLAIMANT DID NOT MAKE A PROTECTED INVESTMENT DUE TO HIS BREACH OF “CLEAN HANDS” DOCTRINE ................................................................... 31

A. The clean hands doctrine applies in this case ............................................................... 31 1. The clean hands doctrine is expressly recognized under Art. 1.1 of the Eastasia BIT .. 32

B. Even if the Tribunal accepts that the Oceania-Euroasia BIT applies, the Clean Hands doctrine is also implied therein ............................................................................... 33

1. The Clean Hands Doctrine is deemed embodied in the Euroasia BIT in applying the Provisions on Treaty Interpretation under the VCLT ........................................................ 33 2. The Clean Hands doctrine applies a general principle of international law and a matter of international public policy ............................................................................................. 36

C. Circumstantial evidence indicates Peter Exlosive’s unclean hands. .......................... 37 1. Peter Explosive violated the Environment Act of 1996 ................................................. 37 2. There is a heavy weight of evidence showing Claimant’s involvement in the crime of bribery ................................................................................................................................ 39

V. CLAIMANT’S INVESTMENTS WERE NOT EXPROPRIATED BY THE RESPONDENT ........................................................................................................................... 41

A. The EO was enacted to protect Oceania’s Essential Security Interest contemplated under both the Eastasia and the Euroasia BIT ................................................................. 41

1. The Essential Security Interest provision excludes the application of Exproriation provisions ........................................................................................................................... 41

a. The ESI provision under both the Euroasia and Eastasia BIT is a self-judging clause.......................................................................................................................................... 43 b. Application of the ESI provision has been performed in good faith. ......................... 44

i. The ESI provision has been applied in a reasonable way ....................................... 45 ii. The EO is issued in pursuance of Oceania’s obligation for the maintenance of international peace and security .................................................................................. 45

B. The EO was validly enacted and exercised pursuant to the Police Power fo the State................................................................................................................................................ 46

1. The EO was enacted in accordance with due process .................................................... 47 2. The EO is non-discriminatory ........................................................................................ 49 3. The EO is enacted for a public purpose ......................................................................... 50

C. Alternatively, the effects of measure did not amount to indirect expropriation ....... 50


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1. The effect of the measure does not amount to substantial deprivation ......................... 52 2. The measure does not violate the investor’s legitimate expectations ............................ 53 3. The measure does not have a permanent character ........................................................ 54

VI. CLAIMANT CONTRIBUTED TO THE DAMAGE SUFFERED BY HIS INVESTMENT. ....................................................................................................................... 56

A. The Claimant assumed the risk of the adverse consequences of his contract ........... 56 B. The Claimant made a contributory fault to the damages that he suffered ................ 57

1. There is a sufficient causal link between the claimant’s action and the damage that he suffered ............................................................................................................................... 58 2. The Claimant is Negligent .............................................................................................. 58 3. The Claimant’s Contributory Fault is material and significant ...................................... 59


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INDEX OF AUTHORITIES

Treatises

Vienna Convention on the Law of Treaties, 1153 U.N.T.S. 331 (1969) ...................................... 32

Books

BERTUS DE VILLIERS, SECESSION – THE LAST RESORT FOR MINORITY PROTECTION, (2012) ............................................................................................................. 22

BLACK’S LAW DICTIONARY, 268 (8TH ED. 2004) ................................................................ 30

CHRISTOPHER DUGAN, DON WALLACE JR, NOAH D. RUBINS, AND BORZU SABAHI, INVESTOR-STATE ARBITRATION (2008) .......................................................................... 15

DOLZER, R: “INDIRECT EXPROPRIATIONS: NEW DEVELOPMENT?”, (2002) ............... 50

G. ABI SAAB, THE APPELLATE BODY AND TREATY INTERPRATATION IN FITZMAURICE AND OTHERS (EDS) TREATY INTERPRETATION AND THE VIENNA CONVENTION ON THE LAW OF TREATIES; 30 YEARS ................................................. 32

GLEN ANDERSON, SECESSION IN INTERNATIONAL LAW AND RELATIONS: WHAT ARE WE TALKING ABOUT? (2013) ..................................................................................... 21

IAN BROWNLIE, “PUBLIC INTERNATIONAL LAW”, OXFORD UNIVERSITY PRESS, 6TH EDITION, 2003 ................................................................................................................ 50

JAMES CRAWFORD, THE CREATION OF STATES IN INTERNATIONAL LAW (2ND ED. 2006) .......................................................................................................................................... 22

JOOST PAUWELYN AND MANFRED ELSIG: THE POLITICS OF TREATY INTERPRETATION: VARIATIONS AND EXPLANATIONS ACROSS INTERNATIONAL TRIBUNALS ............................................................................................................................. 32

KENDLER, CORRUPTION IN INTERNATIONAL INVESTMENT ARBITRATION: JURISDICTION AND THE UNCLEAN HANDS DOCTRINE,” ........................................... 30

KENNETH A. REINERT, RAMKISHEN S. RAJAN, THE PRINCETON ENCYCLOPEDIA OF THE WORLD ECONOMY (TWO VOLUME SET) ......................................................... 22

LEE BUCHHEIT, SECESSION: THE LEGITIMACY OF SELF-DETERMINATION (1978) 20, 21


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MCLACHLAN CAMPBELL, LAURENCE SHORE AND MATTHEW WEINIGER, INTERNATIONAL INVESTMENT ARBITRATION: SUBSTANTIVE PRINCIPLES, OXFORD INTERNATIONAL ARBITRATION SERIES, OUP NEW YORK, 2008 ............ 49

N. RUBINS AND N.S. KINSELLA, INTERNATIONAL INVESTMENT, POLITICAL RISK AND DISPUTE RESOLUTION. A PRACTITIONER’S GUIDE (2005), .............................. 47

NEW YORK UNIVERSITY ENVIRONMENTAL LAW JOURNAL ....................................... 50

PR THULASIDHASS, MOST-FAVOURED-NATION TREATMENT IN INTERNATIONAL INVESTMENT LAW: ASCERTAINING THE LIMITS THROUGH INTERPRETATIVE PRINCIPLES (2015) ................................................................................................................. 28

REDIE BEREKETEAB, SELF-DETERMINATION AND SECESSION IN AFRICA: THE POST-COLONIAL STATE (2015) .......................................................................................... 23

RICHARD K. GARDINER, TREATY INTERPRETATION ..................................................... 32

STANIMIR A ALEXANDROV, JOSHUA M ROBBINS; PROXIMATE CAUSATION IN INTERNATIONAL INVESTMENT DISPUTES, OUP REFERENCE: IC-JA 047 (2009) .... 56

THEODORE CHRISTAKIS, SECESSION (2012) ..................................................................... 18

U. KRIEBAUM, “PRIVATIZING HUMAN RIGHTS”, IN A. REINISCH AND U. KRIEBAUM (EDS.) THE LAW OF INTERNATIONAL RELATIONS: LIBER AMICORUM HANSPETER NEUHOLD (UTRECHT ELEVEN INTERNATIONAL PUBLISHING, 2007) ................................................................................................................................................... 45

Journals

Carolyn B. Lamm, ICCA 2014: Pleading and Proof of Fraud and Comparable Forms of Abuse 36

Lawrence Eastwood Jr., Secession: State Practice and International Law after the Dissolution of the Soviet Union and Yugoslavia .................................................................................. 19, 20, 21

Manley Hudson, Working Paper, Article 24 of the Statute of the International Law Commission (1950) ........................................................................................................................................ 18

Robert Beckman and Dagmar Butte, Introduction to International Law ...................................... 22

Utku Cosar, ICCA 2014: Pleading and Proof of Fraud and Comparable Forms of Abuse .......... 36

Ved Nanda, Self-determination under International Law: Validity of Claims to Secede ............ 18


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Zuzana Žaludová, Concept of Remedial Secession under International Law .............................. 18

Arbitral Decisions

Andrew Newcombe, The Boundaries of Regulatory Expropriation, (2005) .......................... 40, 49

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 .................................................................................................................... 55

Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award ....................................................................................................................... 49

Consortium R.F.C.C. v. Kingdom of Morocco (ARB/00/6), award of December 22, 2003, ICSID Rev.-FILJ, vol. 20, 2005 ............................................................................................................ 50

Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7 ......................... 55

Gami Investments, Inc. v. The Government of the United Mexican States, UNCITRAL .............. 52

Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9 ................................................ 51

Gustav F W Hamester GmbH & Co KG v. Republic of Ghana ICSID Case No. ARB/07/24 Award ................................................................................................................................................... 35

Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26 ................... 31

International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL .... 52

Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL ................................ 36

LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID Case No. ARB/02/1 ......................................................................................................... 50

Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/ 8 ................. 36

Metal-Tech Ltd v. The Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013) .......................................................................................................................................... 36

Methanex Corporation v. United States of America, UNCITRAL Arbitration (NAFTA), Final Award of 3 August 2005. ......................................................................................................... 45

Mihaly v. Sri Lanka, ICSID Case No. ARB/00/2 (Award of Mar. 15, 2002) ................................ 15

MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile ICSID Case No. ARB/01/7 ........................... 55


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Olguín v. Paraguay Eudoro Armando Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5 ................................................................................................................................... 56

Phoenix Action, Lid. v. Czech Republic, ICSID Case No. ARB/06/5, Award, 91101 (Apr. 15, 2009) .......................................................................................................................................... 35

Ronald S. Lauder v. Czech Republic, UNCITRAL ...................................................................... 43

S.D. Myers v Canada, UNCITRAL .............................................................................................. 52

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

Saluka Investments B.V. v. The Czech Republic, UNCITRAL ................................................ 45, 52

Sempra Energy Int’l v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award .............................................. 40

Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16 .............. 51

Starrett Housing Corporation, Starrett Systems, Inc., Starrett Housing International, Inc., v. The Government of the Islamic Republic of Iran, Bank Omran, Bank Mellat (Case No. 24) , Iran-US Claims Tribunal Cases ........................................................................................................ 49

Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2 ................................................................................................................................... 50

The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3 ........................................... 36

Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3 ................................................................................................................................................... 52

Waste Management, Inc. v. United Mexican States (Number 2), ICSID Case No. ARB(AF)/00/3 ................................................................................................................................................... 45

World Duty Free Company v Republic of Kenya, ICSID Case No. Arb/00/7. Award .................. 39

Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL, PCA, Case No. AA227 ........................................................................................................................................ 31

Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA227 ....................................................................................................................................... 57


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International Court of Justice Cases

Case Concerning Military and Parailitary Activities in and Against Nicaragua (Nicaragua v. United States of America), Merits, International Court of Justice (ICJ), 27 June 1986 ........... 30

Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), Judgment, 25 September 1997 .............. 43

Military and Parailitary Activities in and Against Nicaragua (Nicaragua v. United States of America) .................................................................................................................................... 30

The Diversion of Water from the Meuse ...................................................................................... 30

Permanent Court of Justice Cases

Diversion of Water from the Meuse, Netherlands v Belgium, Judgment, PCIJ Series A/B No 70, ICGJ 321 (PCIJ 1937), 28th June 1937 ..................................................................................... 30

UN Documents

S.C. Res., U.N. SCOR, 15th Sess., 873d mtg., Supp. for July-Sept. 1960, at 16, U.N. Doc. S/4387 (1960) ............................................................................................................................ 19

Secretary-General's Press Conferences, UN Monthly Chronicles, (1970) ................................... 21

United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI ........................ 22

United Nations, General Assembly. 2625 (XXV). Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations A/RES/25/2625 (24 October 1970) ....................................................... 23

Miscellaneous

O.A.U. Resolution on Situation in Nigeria, AHG/Res.51 (IV) (1967), reprinted in 6 LL.M. at 1243 (1967) ............................................................................................................................... 19

ILC Commentaries on Draft Articles on Most-Favoured-Nation Clause, adopted by the International Law ...................................................................................................................... 27


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LIST OF ABBREVIATIONS

¶ / ¶¶ Paragraph (s)

Answer Answer to Request for Arbitration

Art(s). Articles(s)

BIT Bilateral Investment Treaty

EO Executive Order

Facts Uncontested Statement of Facts

FDI Foreign Direct Investment

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

ILC International Law Commission

NEA National Environmental Authority

p. / pp. Page / Pages

PCIJ Permanent Court of International Justice

PO Procedural Order

R Record

RA Request for Arbitration

UNCITRAL United National Commission on International Trade Law

WTO World Trade Organization


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STIPULATION OF FACTS

1. The Republic of Oceania (“Oceania” or “Respondent”), through The Environment Act of

1996, requires companies to obtain a license from the National Environment Authority of

Oceania containing an environmental approval for the commencement of arms production.

Requisite to the issuance of the license is the adjustment to a more environment-friendly

technology for the production line of factories.1 The Environment Act 1996, through the

Ministry of Environment of Oceania, provided for the possibility for subsidizing such

requirement.2

2. Rocket Bombs Ltd. (“Rocket Bombs”), located in Oceania, operated in the arms industry and

specialised in arms production. 3 Rocket Bomb’s loss of its (environment) license in

November 1997 – as required by The Environment Act of 1996 – effecting [therefore] the

suspension of arms production, led to the deteriorating situation of the company [that] led to

the mass redundancies and to the decline of the town itself.4

3. In February 1998, Peter Explosive, a resident of Fairyland, who at the time was undisputedly

a national of Eastasia, acquired shares in Rocket Bombs which at that time is already a

decrepit company. He became its 100% shareholder. In March 1998, he also became a

president and sole member of the board of directors of the company.5

4. Peter Explosive’s lack of financial resources to finance the adjustment of Rocket Bombs’

production line, sustains the non-acquisition of license and thus, the inability of Rocket

Bombs to resume arms production.6

5. Pending the result of the request for subsidy, Peter Explosive decided to try to expedite the

decision of the Ministry of Environment regarding the subsidy and to secure the resumption

1 See, Facts, ¶ 4, p.32. 2 See., Id., ¶ 4, p. 32 - ¶ 1, p. 33. 3 Id., ¶. 2, p. 32. 4 See, Id. 5 Id., ¶. 2, p. 32. 6 Id., ¶ 4, p. 32.


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of arms production in the factories of Rocket Bombs.7 Thus, in July 1998, Peter Explosive

managed to have a private meeting with the President of the National Environment Authority

of Oceania. Only a few days after the private meeting, the National Environment Authority

issued an environmental license approving the commencement of arms production by Rocket

Bombs. This notwithstanding the denial for the request of subsidy on August 8, 1998 which

meant that Rocket Bombs lacked the resources to resume production.8

6. Despite the acquisition of the license, it was only after receiving the first advance (February 1,

1999) of the payment brought out of the contract concluded by Peter Explosive with the

Ministry of National Defence of Euroasia – who was Peter Explosive’s friend, John

Defenceless, as the minister – last January 1, 1999 that he [Peter Explosive] managed to

resume the arms production.9 The said contract was promised by the latter after being

approached by his long time friend, Peter Explosive, last September 1998.10

7. The arms production commenced and the business became increasingly profitable, Peter

Explosive started to modernise the production line and to adjust it to the requirements set

forth in the Environment Act 1996 requisite to the granting of license. The production line

fully complied with the legal requirements only in 1 January 2014, approximately 16 years

from Peter Explosive’s acquisition of the license for arms production.11

8. In August 2013, the authorities of Fairyland decided to hold a referendum on the secession of

Fairyland from Eastasia and its reunification with Euroasia. On 1 November 2013, the

referendum was held and the majority decided in favour of secession. The national

government of Eastasia declared that the referendum was unlawful and had no effect on the

shape of the Eastasian territory. In this situation, the authorities of Fairyland wrote an official

letter to the Minister of Foreign Affairs of Euroasia, asking for an intervention. After a long

debate, the government of Euroasia decided to intervene and annex Fairyland to Euroasia. 12

7 Id., ¶ 2, p. 33. 8 Id., ¶ 2 - 3, p. 33. 9 See, Id., ¶ 1 - 3, p. 34. 10 See, Id., ¶ 5, p. 33. 11 Id., ¶ 5, p. 34. See also, Id., ¶ 2, p. 33. 12 Id., ¶ 6, p. 34 – ¶ 1, p. 35.


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9. On January 1, 2014, the contract between Rocket Bombs and Euroasia had expired.13 Thus,

Peter Explosive, on behalf of Rocket Bombs, amidst the on-going debate in Euroasia whether

to incorporate Fairyland to its territory,14 started negotiations with John Defenceless, still the

Minister of the National Defence, for the conclusion a new contract for arms production,

aiming at completing the modernisation process of the equipment for the Euroasian armed

forces. On 28 February 2014, they concluded a contract, effective of 1 April 2014, for a

period of another six years.15

10. A day after the conclusion of the new contract, 1 March 2014, the armed forces of Euroasia

entered the territory of Fairyland.16 On 23 March 2014, Euroasia officially declared Fairyland

a part of the Euroasian territory. A few days later, on 28 March 2014, Eastasia declared the

annexation to be illegal and in the light of the public international law, on 1 April 2014, it sent

a notification to Euroasia, breaking off diplomatic relations between the two countries.

11. Oceania declared that the annexation was unlawful under public international law. Thus, on

1 May 2014 the President of the Republic of Oceania, obliged under the principles of public

international law not to recognize the effects of unlawful actions, issued an Executive Order

on Blocking Property of Persons Contributing to the Situation in the Republic of Eastasia. The

Executive Order introduced a system of sanctions.17 The sanctions were introduced against

the persons engaged in certain sectors of the Euroasian economy, including those producing

arms for Euroasia.

12. Throughout 2013, the General Prosecutor’s Office of Oceania was conducting an

investigation caused by an anonymous denunciation alleging that the officials of the National

Environment Authority suggested to the author of the denunciation that it would be possible

to expedite the issuance of an environmental license if they received a pecuniary gratification.

On 21 November 2013, the investigation resulted in a formal initiation of criminal

13 See, Id., ¶ 1, p. 34. 14 See, Id., ¶ 6, p. 34 – ¶ 1, p. 35. 15 Id., ¶ 2, p. 35. 16 Id., ¶ 1, p. 35. 17 See, Facts, ¶ 3, p. 35.


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proceedings against those officials, including the President of the National Environment

Authority of Oceania.

13. On 1 February 2015, the President of the National Environment Authority, along with the

other officials, was convicted of accepting bribes. Numerous investigations by the General

Prosecutor’s Office was commenced. The convicted President of the National Environment

Authority named a number of persons, including Peter Explosive, from whom he allegedly

received bribes and against whom he is willing to testify.18 On 5 May 2015, Peter Explosive

was informed that he was under investigation with regard to the environmental license

obtained on 23 July 1998 for Rocket Bombs. And on 23 June 2015, the General Prosecutor’s

Office officially initiated criminal proceedings against Peter Explosive.19

18 P.O. No. 2, ¶5, p. 56 19 Id., ¶ 3, p. 36.


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SUMMARY OF ARGUMENTS

JURISDICTION. The Oceania-Eastasia BIT (“Eastasia BIT”) applies over the dispute. The

claimant remained an Eastasian citizen since the secession of Fairyland from Eastasia was never

valid. Hence, the MFN clause of the Oceania-Euroasia BIT (“Euroasia BIT”) can not be invoked.

Even assuming that the Euroasia BIT applies, the claimant never complied with the pre-arbitral

steps provided in Article 9 thereof. The Tribunal has no jurisdictio rationae materiae, jurisdictio

rationae personae and jurisdictio temporis et voluntatis.

MERITS. The investments made by Peter Explosive are not protected investments and no

liability from the State arises. Peter Explosive disrespected both the Euroasia and the Eastasia

BIT. He breached the clean hands doctrine contemplated by both the BITs by commencing and

operating his investments in violation of the Oceaninan domestic laws. Further, the enactment of

the Executive Order dated May 1, 2014 is nothing but a fufilment of Oceania’s obligation under

the essential security interest provisions of both the Euroasia and Eastasia BIT. Assuming that

the tribunal rules that there is some damage, Peter Explosive contributed to the damage that he

suffered by virtue of his continued supply of weapons to Euroasia


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ARGUMENTS ON JURISDICTION

The Respondent submits that the Tribunal does not have jurisdiction over the claims brought

before it by the Claimant because of three reasons. First, the Claimant can not rely on the

Oceania-Euroasia (Euroasia BIT). Second, even if the tribunal rules that the Euroasia BIT

applies, claimant failed to comply with the pre-arbitral requirements provided under Art. 9

therein. Lastly, the claimant cannot invoke Art. 3 of the Euroasia BIT to rely upon the dispute

resolution provision of the Eastasia BIT.

I. CLAIMANT CAN NOT RELY ON THE EUROASIA BIT TO VEST JURISDICTION UPON THE TRIBUNAL

21. The Claimant cannot rely on the Euroasia BIT as he has no standing to rely on the same.

Instead, the applicable BIT is the Oceania-Eastasia BIT because the Claimant is a national of

Eastasia. Euroasia’s annexation of Fairyland was unlawful, and therefore no rules on succession

of states in treaty law are applicable in this case.20

A. The tribunal has no Jurisdictio Ratione Personae

22. The Respondent respectfully submits that the Tribunal has no Jurisdiction Rationae Personae

because (1) the claimant is an Eastasian national and (2) Fairyland remains a territory of Eastasia

and the Claimant’s nationality is governed by the Eastasian national law.

20 RA, p.15


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1. The Claimant is an Eastasian national

23. Investment treaties and laws provide protection to juridical or natural persons who qualify as

an investor of appropriate nationality, within the definitions of these instruments.21 Determining

whether a foreign investor satisfies the nationality requirements of an investment protection

instrument can be a complex exercise. Helpfully, many investment treaties do provide that the

nationality of a person shall be determined in accordance with the national law of the investor’s

purported home state.22

24. As in this case, Article 1.2 of the Eastasian BIT provides that an investor shall mean any

natural or legal person of one Contracting Party who invests in the territory of the other party.

The BIT further defines a natural person to mean any natural person having the nationality of

either the Contracting Party in accordance with its laws.23 Therefore, the question of nationality

should be answered by reference to the domestic laws of the state party to the treaty.

25. The provisions of the Eastasian Citizenship Law allow Eastasian citizens to renounce their

citizenship following the required procedure. An Eastasian citizen, wishing to renounce his or

her citizenship, must submit a renunciation on the legally prescribed form. The renunciation

becomes effective upon the acknowledgement of the President of the Republic of Eastasia.24

21 Mihaly v. Sri Lanka, ICSID Case No. ARB/00/2 (Award of Mar. 15, 2002) 22 Christopher Dugan, Don Wallace Jr, Noah D. Rubins, and Borzu Sabahi, Investor-State Arbitration (2008) 23 Exhibit R1: Agreement between the Republic of Oceania and the Republic of Eastasia for the Promotion and Reciprocal Protection of Investments (hereafter Eastasia BIT), p. 45 24ProceduralOrderNo.3


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26. On 2 March 2014, Peter Explosive sent an electronic e-mail to the President of the Republic

of Eastasia in which he declared the renunciation of his Eastasian citizenship; however, it did not

comply with the described formal requirements of the Eastasian Citizenship Law.25

27. Nationality a legal status embracing a set of mutual rights and obligations towards a political

entity fulfilling certain requirements necessary for the existence of a sovereign state.26 Being a

legal status, the same can only be altered or changed by following the procedure prescribed by

the State which vested it since States have the sovereign power to regulate nationality.27

Provided the process or procedure does not violate fundamental human rights28, the same must

be followed in order to effectively change or renounce nationality. Hence, there being no

compliance with the procedure specifically laid down in the Eastasian Citizenship Law, Peter

Explosive remained as an Eastasian Citizen.

28. Moreover, even applying general principles of international law regarding citizenship, Peter

Explosive undeniably is an Eastasian Citizen. Domestic laws of the world generally adopt one or

both of two fundamentally different rules on nationality: jus sanguinis and jus soli.29 Jus

sanguinis refers to the acquisition of citizenship by birth to parents of a particular nationality;

and jus soli refers to the acquisition of citizenship by birth in the territory of a state.30

25Ibid.26 Kay Hailbronner, Nationality in International Law and European Law (2006) 27 Ernst Hirsch Ballin, Citizens’ Rights and the Right to be a Citizen (2014) 28 Ibid. 29 Ian Brownlie, Principles of Public International Law (6th ed. 2003) 30 Id at p. 378–379


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29. Applying either of the two parameters, the Claimant squarely qualifies as an Eastasian

Citizen. Tracing down the roots of the claimants and the history of his genealogy, by the

Principle of Jus Sanguinis, the Claimant himself is considered an Eastasian. His grandparents

although of Euroasian descent validly relinquished their Euroasian Nationality in the year 1918

when the Province of Fairyland became part of Eastasia.31 Furthermore, his parents were born at

Fairyland at the time the said province is already a territory of Eastasia and as a matter of fact,

his parents remained as Eastasian until the time of their death.32

30. Furthermore, it is undeniable that the Claimant himself, was born within the metes and

bounds of Eastasia. Peter explosive, was undisputedly, a resident of Fairyland, one of the

provinces of Eastasia.33

2. Fairyland remains a territory of Eastasia and the Claimant’s nationality is governed by the Eastasian national law.

31. The Respondent submits that the secession of Fairyland is not in conformity with the

principles of international law. Hence, Fairyland remains a territory of Eastasia and the

Claimant’s nationality is governed by the Eastasian national law because a.) There is no

Customary International Law supporting the exercise of the right, b.) The Right of Secession is

not Supported by or Embodied in any Treaty or Convention, c.) The Exercise of Secession is in

Violation of State’s Sovereignty and Territorial Integrity and d.) The Right of Self-

Determination Cannot be used to Justify such an Act

31 P.O. No. 2, ¶ 4, p.56 32 Ibid 33 Facts, ¶ 4, p. 32


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a. There is no Customary International Law supporting the exercise of the right

32. Secession under international law designates the unilateral withdrawal from a state of part of

its territory and population with the will to create a new state.34 The unilateral character is the

main attribute. The secessionist entity usually has the intention to separate and create another

state.35 The consequence of secession from a practical view point is that one state is splitting

into two states and consequently, the secessionist body becomes a new independent state.36

33. Presently, the legal doctrines’ opinions are oriented to the disfavoring of Secession as a legal

institution since there is neither international convention nor customary international law that

clearly embodies the same.37

34. Under Customary International Law, in order for a right of secession to exist, several criteria

related to state practice must be satisfied. First, a right of secession must be recognized by a

number of states through continuous or repetitious, concordant practice over a considerable

period of time. Second, there must be general acquiescence or consent to this practice by other

states."38

35. In order to determine whether such a customary right of secession exists, it is necessary to

examine the international response to secession efforts, as well as the resolutions and

documents of multinational organizations. With this regard, the response of the international

34 Theodore Christakis, Secession (2012)35 Ibid. 36 Zuzana Žaludová, Concept of Remedial Secession under International Law 37 Ved Nanda, Self-determination under International Law: Validity of Claims to Secede 38 Manley Hudson, Working Paper, Article 24 of the Statute of the International Law Commission (1950)


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community, individual states and multinational and international organizations alike, in the

cases of failed attempt to secede in the provinces of Katanga in the Republic of Congo and

Biafra in the Federal Republic of Nigeria is of great value. Taking into consideration these

landmark cases, evidence reveals that this right of secession has not been established as an

international legal principle based upon customary state practice.39

36. During the attempted secession of Katanga from the newly independent Congo in the early

1960s, aside from the general disapproval of various states such as the United States, Russia,

France, China, United Kingdom, and others, the United Nations Security Council further

elevated the condemnation of the act by adopting a resolution on July 14, 1960, calling for the

withdrawal of separatist troops and authorizing the United Nations Secretary-General to

provide the Congolese government with the military assistance, necessary to bring the

situation under control.40

37. Such attitude of the international community disapproving the right is unwavering as further

showcased in the case of the unsuccessful secession of Biafra from Nigeria. In this case, aside

from most members of the international community, even the Organization of African Unity

opposed the secession in a resolution, recognizing the situation as an "internal affair" and

"reiterating their condemnation of secession in any Member States."41

39 Lawrence Eastwood Jr., Secession: State Practice and International Law after the Dissolution of the Soviet Union and Yugoslavia 40 S.C. Res., U.N. SCOR, 15th Sess., 873d mtg., Supp. for July-Sept. 1960, at 16, U.N. Doc. S/4387 (1960) 41 O.A.U. Resolution on Situation in Nigeria, AHG/Res.51 (IV) (1967), reprinted in 6 LL.M. at 1243 (1967)


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38. This response to both the Katangan and Biafran secessions shows that there is no clear state

practice that recognizes the right of secession in the international scene. On the contrary, the

aforementioned cases demonstrate that the necessary conditions that the practice either be

repeated over a considerable time period or be sufficiently widespread to create customary

international law are not fulfilled in the secession context.42

b. The Right of Secession is not Supported by or Embodied in any Treaty or Convention

39. In addition to the absence of state practice establishing the existence of a secession right

under international law, it does not appear that there is sufficient evidence of a right of

secession under existing international agreements or declarations of multinational

organizations. There are no international conventions or treaties that attempt to establish

acceptance of a general right of secession among their signatories.43

40. On the contrary, the resolutions and declarations of international organizations indicate

that they do not support the existence of a right of secession. As early as the 1920s, the Right

of Secession has been disdained by international organizations. This disapproval of the right

is clearly embodied in an advisory opinion laid down by International Commission of Jurists

which provides that “positive International Law does not recognize the right of national

groups, as such, to separate themselves from the State of which they form a part by the simple

42 Lawrence Eastwood Jr., Secession: State Practice and International Law after the Dissolution of the Soviet Union and Yugoslavia 43 Lee Buchheit, Secession: The Legitimacy of Self-Determination (1978)


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expression of a wish.”44 This statement of the Commission of Jurists provides some evidence

that a right of secession has not been historically recognized under international law and was

not recognized by the League of Nations.45

41. Presently, even the pronouncements and resolutions of the United Nations show that such

disapproval of the said right has not changed over the years. Take for example, the resolutions

issued by the United Nations Security Council and the Organization of African Unity in the

cases of Katanga in Congo and Biafra in Nigeria as previously discussed. In fact, there are no

United Nations documents that expressly recognize a general right of secession stemming

from any right, much less the concept of self-determination.46 The concept remains undefined

by treaty law and United Nations (UN) declaratory General Assembly resolutions. It is

conspicuously absent from virtually all international legal instruments. 47 Moreover, a

statement made by United Nations Secretary-General U Thant in 1970 provides a clear picture

of such disapproval by asserting that the United Nations has never accepted the principle of

secession.48

42. Given the absence of more recent declarations by multinational organizations, such as the

United Nations, which expressly endorse a right of secession as a general principle of

international law, the same remains to be a figment of imagination.

44 Id at pp.70-71. The Commission of Jurists was entrusted by the League of Nations to issue an advisory opinion on the legal implications of the request by the Aland Islands for separation from Finland and annexation by Sweden.45 Lawrence Eastwood Jr., Secession: State Practice and International Law after the Dissolution of the Soviet Union and Yugoslavia 46 Lee Buchheit, Secession: The Legitimacy of Self-Determination (1978) 47 Glen Anderson, Secession in International Law and Relations: What are we talking about? (2013) 48 Secretary-General's Press Conferences, UN Monthly Chronicles, (1970)


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43. Sovereignty under International Law, is the term for ‘the totality of international rights

and duties recognized by international law’ as residing in an independent territorial unit—the

State.49 In relation to a state’s territory, sovereignty is defined as the exclusive right of a state

to exercise supreme political authority over a defined territory (land, airspace and certain

maritime areas such as the territorial sea) and the people within that territory. No other State

can have formal political authority within that State.50 As one of the adjuncts of state’s

sovereignty, the principle of territorial integrity is defined as the inviolability of the territory

of the State, including territory under the effective control and possession of a State. It is an

important part of the international legal order and is enshrined in the Charter of the United

Nations, in particular in Article 2, paragraph 451, as well as in other important texts, including

those on self-determination.52

c. The Exercise of Secession is in Violation of State’s Sovereignty and Territorial Integrity

44. These two most fundamental principles, so precious and enshrined under International

Law, are the main reason why the Right of Secession is generally disfavored and disallowed

since the latter posts a challenge to these two legal paradigms, which constitute the very core

of every state.53 Secession, then, is viewed negatively since it is more often than not,

associated with chaos, schism, fragmentation, and instability.54

49 James Crawford, The Creation of States in International Law (2nd ed. 2006) 50 Robert Beckman and Dagmar Butte, Introduction to International Law 51 United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI, Article 2(4). All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations. 52 Kenneth A. Reinert, Ramkishen S. Rajan, The Princeton Encyclopedia of the World Economy (Two volume set) 53 Glen Anderson supra note 49, Secession in International Law and Relations: What are we talking about?, (2013) 54 Bertus de Villiers, Secession – The Last Resort for Minority Protection, (2012)


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45. The province of fairyland, attempting to separate from the Republic of Eastasia without

viable reason clearly violates these two sacred 55 legal institutions safeguarded under

International Law. As a matter of fact, even the national government of Eastasia already

declared that the referendum to be unlawful and that it had no effect on the country’s

territory.56 Other countries, the Republic of Oceania included, also declared the act to be

unlawful.57 Oceania even went to a greater extent, when it issued an Executive Order blocking

property of persons contributing to the aggravation of the situation in Estasia.58 This invalidity

is further aggravated by the act of Euroasia intruding and occupying the territory of Fairyland

illicitly annexing Fairyland.59

d. The Right of Self-Determination Cannot be used to Justify such an Act

46. The Right of Self-Determination is a right that protects a group as a group entity in regard

to their political participation, as well as their control over their economic, social, and cultural

activity as a group.60 The Friendly Relations Declaration proclaims that by virtue of the

principle of equal rights and self-determination of peoples enshrined in the UN Charter, all

peoples have the right freely to determine, without external interference, their political status

and to pursue their economic, social and cultural development, and every State has the duty to

respect this right in accordance with the provisions of the Charter.61 First, the secession must

55 Redie Bereketeab, Self-Determination and Secession in Africa: The Post-Colonial State (2015) 56 Facts, ¶ 14, p. 35 57 Facts, ¶ 16, p. 36 58 Ibid 59 Facts, ¶ 14, p. 35 60 Redie Bereketeab, Self-Determination and Secession in Africa: The Post-Colonial State (2015) 61 United Nations, General Assembly. 2625 (XXV). Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations (heraefter Friendly Relations Declaration) A/RES/25/2625 (24 October 1970)


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occur without military aid from foreign states. Second, the population of the seceding territory

must democratically approve of the secession. And third, secession must respect the principle

of uti possidetis.

B. The tribunal has no Jurisdictio Rationae Materiae

1. The Claimant has not made a valid investment under Art. 1.1 of the Oceania-Eastasia BIT

47. Article 8 of the BIT provides that in instances when disputes arise, an investor may

submit the dispute to any of the dispute settlement mechanism provided in the BIT.62 The

contracting States give its consent to such arbitration but only if the claimant complies with

the conditions provided for in the investment treaty. Among others, the treaty requires that an

investment to be a protected investment must be made in accordance with the Rules and

Regulations of the Oceanian Government as expressly embodied in the express text of Article

1.1 of the Eastasian BIT.63 One of the protections that the Easasian BIT provides is the right

of the investor to bring a dispute to international arbitration if amicable settlement fails,

however, the moment an investor violated certain rules and regulations of the contracting

state, it is stripped off of the protection which the said BIT sanctions.

48. This “in accordance with the law clause” is a legal concept which has for its objective the

goal of preventing Bilateral Treaties from protecting investments that are in violation of the

laws and regulations of the contracting states, precisely because it would be unreasonable to

62 Oceania BIT, p. 48 63 Oceania BIT. p. 45


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allow these investments and consequently the investors who are in violation of the laws to

benefit from their own wrongdoing.64

49. However, in this case, the act which gave life to the investment was in clear violation of

the Clean Hands Doctrine as evidenced by the acts of Peter Explosive unscrupulously

obtaining a license from the National Environment Authority of Oceania to commence arms

production without first complying with the requirement provided by the Environment Act of

1996 to adjust its production line to make it environmental-friendly.65

50. To reiterate, Peter Explosive lacking “financial resources to finance the adjustment of

Rockets Bomb’s production line” and wanting “to secure the resumption of arms production

in the factories of Rocket Bombs he managed to have a private meeting with the President of

the National Environment Authority (NEA) of Oceania” which subsequently resulted to the

release a license approving the commencement of arms production. All these happened

without properly following the proper procedure laid down by Oceanian laws.66

51. In fact, for such blatant disregard of the law and corruption, “the President of NEA, along

with other officials, was convicted of bribery” and even Peter Explosive himself, is now under

investigation for the crime of bribery with regard to the environmental license earlier obtained

by him.67

64InceysaVallisoletanaS.L.v.RepublicofElSalvador,ICSIDCaseNo.ARB/03/26(herefterInceysavs.ElSalvador)65 Facts, ¶¶ 6-8, pp. 33-3466 Ibid. 67 Facts, ¶ 19, p.37


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II. EVEN IF THE TRIBUNAL RULES THAT THE OCEANIA-EUROASIA BIT

APPLIES, CLAIMANT FAILED TO COMPLY WITH THE PRE-ARBITRAL

REQUIREMENTS PROVIDED UNDER ART. 9

A. Compliance with the pre-arbitral requirements is mandatory

52. Article 8 of the Eastasia BIT requires that before arbitration may be had, the dispute must

first be settled amicably between the parties and it is only after six months when the dispute

was not settled can international tribunals may be sought for arbitration.68 In this case, the

Claimant after sending only one letter to the Oceanian officials, immediately brought the

dispute to this tribunal without allowing the Oceanian Government the opportunity to settle it

amicably.69

B. The mandatory pre-arbitral requirements under the Oceania-Eastasia BIT were also

not complied with

53. Article 9 of the Euroasia BIT provides that if any dispute arises, this dispute must first be

settled through amicable consultations and if the same is not settled amicably, it must be

submitted first to the competent judicial or administrative courts. It is only after 24 months

can a claimant raise the said case to international arbitration.70 However, as previously shown,

68 Eastasia BIT, Article 8, ¶ 2 p. 48, which states: “If a dispute cannot thus be settled within six months, it shall upon the request of either Contracting Party be submitted to arbitration in accordance with the provisions of this Article.” 69 RA, p.4 70 Euroasia BIT, ¶¶ 1&2, p. 48 which states: 1. Any dispute regarding an investment between an investor of one of the Contracting Parties and the other Party, arising out of or relating to this Agreement, shall, to the extent possible, be settled in an amicable consultations between the parties to the dispute.


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the Claimant after sending only one letter to the Oceanian officials, immediately brought the

dispute to this tribunal without allowing the Oceanian Government the opportunity to settle it

amicably.71

III. CLAIMANT CANNOT INVOKE THE MOST FAVORABLE NATION CLAUSE OF

THE EUROASIA BIT TO RELY UPON THE DISPUTE RESOLUTION PROVISION

OF THE EASTASIA BIT

A. The MFN Clause does not apply to procedural matters.

54. The respondent submits that the MFN Clause does not apply to procedural matters

because 1. The adoption of such conduct is deleterious to established general principles of

international law and 2. The extension of the MFN Clause to dispute settlement mechanism

impairs the consent given by each contracting state

1. The adoption of such conduct is deleterious to established general principles of international law.

55. Article 4 of the ILC Draft Articles on MFN clause states that, “[a] most-favoured-nation

clause is a treaty provision whereby a State undertakes an obligation towards another State to

accord most-favoured-nation treatment in agreed sphere of relations.”72 The purpose of MFN

clause in a treaty is to guarantee ‘treatment’ that an investor finds more favourable in the host 2. If the dispute cannot be settled amicably, it may be submitted to the competent judicial or administrative courts of the Contracting Party in whose territory the investment is made. 71 RA, p.4 72 ILC Commentaries on Draft Articles on Most-Favoured-Nation Clause, adopted by the International Law Commission at its Thirtieth Session 1978, A/CN.4/SER.A/1978/Add.1, Part 2 (hereafter Draft Articles on Most Favored-Nation Clause), p. 18.


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state. Presently, the issue of whether an MFN clause in the basic treaty attracts, from a third-

party treaty, only the substantial rights like national treatment, fair and equitable treatment,

right against expropriation, etc. or also the procedural remedies like dispute settlement clause

is yet to be answered with certainty and clarity.73

56. However, in the case of Plama v. Bulgaria, the tribunal expressly held that the clause

does not relate to the import of dispute resolution provisions of another treaty into the basic

treaty.74 Recognising the application of MFN clause to dispute settlement provisions may

lead to greater anomaly against the established principles of general international law. The

anomalies may include, ignoring or rejecting the courts and tribunals of the host states as not

reliable institutions for settlement of disputes;25 replacing the jurisdiction of one tribunal with

that of the other or replacing the intended applicable rules; or constituting an international

tribunal in the absence of any such mechanism provided under the basic treaty. In brief, the

consent of the contracting parties will be replaced at the instance of the interests of private

commercial investors.75

2. The extension of the MFN Clause to dispute settlement mechanism impairs the consent given by each contracting state

57. It is an established principle in international law that consent to jurisdiction of both

parties to the dispute is a prerequisite for any court or tribunal to intervene in disputes

73 PR Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law: Ascertaining the Limits through Interpretative Principles (2015) 74 Plama v. Bulgaria, supra note 33, ¶ 215 75 PR Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law: Ascertaining the Limits through Interpretative Principles (2015)


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between the parties.76 In Plama v. Bulgaria the ICSID Tribunal followed such an approach

and declared that:

Nowadays, arbitration is the generally accepted avenue for resolving disputes between investors

and states. Yet, that phenomenon does not take away the basic prerequisite for arbitration: an

agreement of the parties to arbitrate. It is well established principle, both in domestic and

international law, that such an agreement should be clear and unambiguous. In the framework

of a BIT, the agreement to arbitrate is arrived at by the consent to arbitration that a state gives

in advance in respect of investment disputes falling under the BIT, and the acceptance thereof

by an investor if the later so desires. Doubts as to the parties’ clear and unambiguous intention

can arise if the agreement to arbitrate is to be reached by incorporation by reference through

MFN clause.77 Dispute resolution provisions in a specific treaty have been negotiated with a

view to resolving disputes under that treaty. Contracting States cannot be presumed to have

agreed that those provisions can be enlarged by incorporating dispute resolution provisions

from other treaties negotiated in an entirely different context.78

76 Ibid. 77 Plama v. Bulgaria, supra note 33, paras. 198-99 78 Id. at ¶ 207


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ARGUMENTS ON THE MERITS

IV. CLAIMANT DID NOT MAKE A PROTECTED INVESTMENT DUE TO HIS

BREACH OF “CLEAN HANDS” DOCTRINE

58. The Respondent submits that the Claimant’s investments are not protected due to his breach

of the clean hands doctrine for three reason: A. The clean hands doctrine applies in this case

as it is expressly provided under the Oceania-Eastasia, B. Even if the Tribunal accepts that

the Oceania-Euroasia BIT applies, the Clean Hands doctrine is also implied therein, and C.

Circumstantial evidence indicates Peter Explosive’s unclean hands.

A. The clean hands doctrine applies in this case

59. The “clean hands doctrine” is defined as the “principle that a party can not seek equitable

relief if that party has violated an equitable principle.”79 It is described by many, including

Judges Schwebel80 and Anzilotti81, as a general principle of law. As such, the clean hands

doctrine is a source of law that can be applied by international tribunals in accordance with

Article 38(1) (c) of the ICJ Statute.82 The Tribunal, in resolving this case, may therefore refer

to the doctrine in the context of investor-state arbitration.

79 Black’s Law Dictionary, 268 (8th Ed. 2004) 80 Case Concerning Military and Parailitary Activities in and Against Nicaragua (Nicaragua v. United States of America), Merits, International Court of Justice (ICJ), 27 June 1986, dissenting opinion of Judge Schewebel, p.269 81Diversion of Water from the Meuse, Netherlands v Belgium, Judgment, PCIJ Series A/B No 70, ICGJ 321 (PCIJ 1937), 28th June 1937, Permanent Court of International Justice (historical) [PCIJ], dissenting opinion of Judge Anzilotti, p. 50. 82 Kendler, Corruption in International Investment Arbitration: Jurisdiction and the Unclean Hands Doctrine,” p. 318


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1. The clean hands doctrine is expressly recognized under Art. 1.1 of the Eastasia BIT

60. The “clean hands doctrine” is recognized and embodied in the express text of Article 1.1

of the Eastasia BIT which provides that investments must be made “in accordance with the laws

and regulations” of the host state.83

61. The clause “in accordance with host state’s law” seeks to prevent the Bilateral Treaty

from protecting investments that should not be protected, particularly because they would be

illegal.84 It is hinged from the fact that the lawfulness of an investment is a necessary condition

for the international protection of an investment.85

62. In order to qualify as a protected ‘investment’, the claimant must satisfy the “clean

hands” doctrine set forth in Article 1.1 to be protected under Eastasia BIT. As held in Incesya v.

El Salvador,86 the existence of the phrase “in accordance with law” in Article III of the El

Salvador-Spain BIT was a clear manifestation of an international public policy to exclude from

protection, investments made in violation of the internal laws of the Contracting States.87 It

further stated that “no legal system based on rational grounds allows the party that committed a

chain of clearly illegal acts to benefit from them”.

83Eastasia BIT, p. 45 84Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, (hereafter Salini v. Morocco) ¶ 46 85 In Yukos Universal Limited (Isle of Man) v. Russian Federation, UNCITRAL, PCA, Case No. AA227 ¶ 1352, the tribunal held that “an investor who has obtained an investment in the host State only by acting in bad faith or in violation of the laws of the host state [...] should not be allowed to benefit from the Treaty.” 86 Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26 (hereafter Inceysa vs. El Salvador) 87 Ibid.


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63. In the present case, Peter Explosive violated Oceania’s domestic law, specifically the

Environmental Act of 1996 by not complying with the mandatory requirement of adjusting his

company’s production line to the environmental standards set forth in the law. More importantly,

there is a heavy weight of evidence showing Peter Explosive’s involvement in the crime of

bribery.

B. Even if the Tribunal accepts that the Oceania-Euroasia BIT applies, the Clean Hands

doctrine is also implied therein

1. The Clean Hands Doctrine is deemed embodied in the Euroasia BIT in applying

the Provisions on Treaty Interpretation under the VCLT

64. Articles 31 to 33 of the VCLT88 states that treaties must be interpreted in “good faith,” in

accordance with the “ordinary meaning” of the “terms” or text of the treaty, in their “context,”

and in light of the treaty’s “object and purpose.” This summing up of text, context, and purpose

is described as a holistic, nonhierarchical exercise, albeit one that starts with the text of the

treaty.89

65. Although the Euroasia BIT as compared to the Eastasia BIT does not include the phrase

“in accordance with the laws and regulations of the host state” in its definition of investment

88 Vienna Convention on the Law of Treaties, 1153 U.N.T.S. 331 (1969). 89 Joost Pauwelyn and Manfred Elsig: The Politics of Treaty Interpretation: Variations and Explanations across International Tribunals p.448 see also: Richard K. Gardiner, Treaty Interpretation p.462, G. Abi Saab, The Appellate Body and Treaty Interpratation in Fitzmaurice and others (eds) Treaty Interpretation and the Vienna Convention on the Law of Treaties; 30 years, p.99-109


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under Article 190 thereof, the lack of such a provision does not necessarily suggest that the

treaty’s protections would apply to all kinds of investments, including those contrary to

domestic or international law.

66. It is noted that Article 1.1 of the Euroasia and the Eeastasia BIT differs in its definition of

an investment, as the Euroasia BIT does not include the phrase “in accordance with the laws and

regulations of the host state which is present in the Eastasia BIT. However, other portions of the

Euroasia BIT are essentially worded such as to give the implication that the investments must be

made and maintained in accordance with the host state’s law.91

67. In Inceysa v. El Salvador, the tribunal ruled that despite the absence of the “in accordance

with law” in the provision that defines investment, as in the case in the Euroasia BIT, one may

still deduce from other parts of the treaty that the parties are not only cognizant of this principle

but, more importantly, that they intended to include the same in the operation of the treaty.92

90Euroasia BIT, Article 1., pp.40-41, which states: Article 1. Definitions For the purposes of this Agreement: 1. The term “investment” comprises every kind of asset directly or indirectly invested by an investor of one Contracting Party in the territory of the other Contracting Party and shall include, in particular:

(a) movable and immovable property as well as any other property rights, such as mortgages, liens or pledges; (b) shares of companies or any other form of participation in a company; (c) claims to money or to any performance under contract having a financial value associated with an investment; (d) intellectual property rights, such as trademarks, patents, industrial designs, technical processes, know-how, trade secrets, trade names and goodwill associated with an investment; (e) any right conferred by laws or under contract and any licenses and permits pursuant to laws, including concession to search for, extract, cultivate or exploit natural resources; any alteration of the form in which assets are invested shall not affect their classification as investment.

91Article2,¶ 1 of the Euroasia BIT, p.41, whih states: “Each Contracting Party shall in its territory promote as far as possible investments by investors of the other Contracting Party and admit such investments in accordance with its legislation.” 92 Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26 (herefter Inceysa vs. El Salvador), ¶ 189. As the tribunal adopts the argument of the respondent in the case: “First, many investment treaties incorporate limitations into their definition of investment […] Alternatively or in addition, State Parties sometimes


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68. In the instant case, similar with the El Salvador-Spain BIT, Article 2 (1) of the Euroasia

BIT provides that “Each Contracting Party shall … admit such investments in accordance with

its legislation.” Further, Article 9 (7) states that “The arbitral tribunal shall decide the dispute in

accordance with the laws of the Contracting Party involved in the dispute..” These provisions, in

consonance with the ratiocinations in the Inceysa tribunal, cannot but indicate that the “clean

hands” doctrine exists and is operative in the Euroasia BIT.

69. Moreover, The Euroasia BIT, upon its adoption, as any other treaty, was designed to be

applied and interpreted in line with “generally recognized rules and principles of observance,

application and interpretation of treaties.”93

70. In Plama vs. Bulgaria, where the ECT does not include a provision calling for the

investment’s conformity with a given law, the tribunal ruled that the lack of an “in accordance

with the law” provision does not preclude the tribunal from analyzing the legality of the

investment in assessing the admissibility of the claimant’s claims in relation to that investment.

Rather, the tribunal concluded that the protections of the treaty cannot apply to investments that

are made contrary to law.94

incorporate a requirement of compliance with the host State’s laws into provisions addressing the applicability of the treaty […] A common variation in applicability provisions of investment treaties is to specify the prerequisite of the investment legality for the extension of treaty protections to investment made prior to the date the treaty entered into force […] Third, State Parties frequently incorporate “in accordance with law” limitations into treaty provisions requiring the Host States to admit or accept foreign investments […] Finally, State Parties frequently incorporate “accordance with law” requirements in the provision pledging protection and non-impairment of qualifying investments, which is usually the first substantive obligation section of the investment treaties.” 93 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24 (hereafter Plama v. Bulgaria) ¶ 138 94 Id. at ¶ 139


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2. The Clean Hands doctrine applies a general principle of international law and a matter of international public policy

71. In the absence of a legality requirement in the text of the relevant BIT, the clean hands

doctrine is applicable as a general principle of international law.95 These general principles exist

independently of specific language to this effect in the Treaty.96 Even if the Ocenania BIT does

not contain a provision requiring the conformity of the investment with the host State law,

granting the treaty’s protections to Claimant’s investment would be contrary to the principle

nemo auditur propriam turpidunem allegans as well as the basic notions of international public

policy.”97

72. As ruled in the case of Phoenix Action, Ltd. v. Czech Republic98, investments made in

contravention of the laws of the host state cannot be protected by a BIT. The requirement of

conformity with host state law is implicit even when not stated in the relevant BIT.99

73. By failing to go through the legitimate licensing procedure in accordance with the

Oceanian domestic laws and being involved in corrupt actions, the Claimant’s conduct is deemed

contrary to the principle of good faith, an element of both Oceanian and international law. As

such, the claimant could not be granted the substantive protections under the treaty.

95 Plama. v. Bulgaria, supra note 33 ¶ 140. 96 Gustav F W Hamester GmbH & Co KG v. Republic of Ghana ICSID Case No. ARB/07/24 Award (hereafter Hamester v. Ghana) ¶ 124 97 Plama. v. Bulgaria, supra note 33 ¶ 143. 98 Phoenix Action, Lid. v. Czech Republic, ICSID Case No. ARB/06/5, Award, 91101 (Apr. 15, 2009) (hereafter Phoenix v. Czech Republic) 99 Id. at ¶ 101


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C. Circumstantial evidence indicates Peter Exlosive’s unclean hands.

74. In the case of Rompetrol vs. Romania100, as well as in several cases including Jan

Oostergetel v. Slovak Republic 101 and Libananco v. Turkey, 102 the tribunal ruled that in

establishing bribery, if possible at all, it should be based predominantly on circumstantial

evidence. There is no strict standard to prove corruption or fraud. A heightened standard is

‘neither needed nor appropriate’ in a system that lacks the power to compel the production of

evidence.103

75. Corruption is by essence ‘difficult to establish’ and generally it can be shown through

circumstantial evidence.104 The Respondent also wants to underscore the tribunal’s powers to

investigate and inquire propio motu105 about issues of corruption, and to draw adverse inferences

according to the circumstances.

1. Peter Explosive violated the Environment Act of 1996

76. In order to obtain a license, Rocket Bombs was obliged under the Oceaninan law to

adjust its production line to the environmental requirements contained in the Environment Act of

1996.106

100The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3 101Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL, ¶ 303, the tribunal found that although it is generally difficult to bring positive proof of corruption,” it could be “proven by circumstantial evidence.” 102Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/ 8103 Carolyn B. Lamm, ICCA 2014: Pleading and Proof of Fraud and Comparable Forms of Abuse 104 Metal-Tech Ltd v. The Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award (4 October 2013); (hereafter Metaltech v. Uzbekistan) 105 Utku Cosar, ICCA 2014: Pleading and Proof of Fraud and Comparable Forms of Abuse 106Facts, ¶ 4, pp.32-33


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77. In the present case, Peter Explosive by-passed the environmental requirements of the

State in securing the requisite environmental license through his private meeting with the

President of the National Environment Authority of Oceania who, along with the other officials,

was later on convicted of accepting bribes.107

78. In order to comply with the requirements of the Environmental Act of 1996, there are two

steps that must be complied with. First, there must be a showing of evidence by the investor of

such compliance. Second, if the Environmental Authority is satisfied with such evidence, it will

visit the site and verify the same. 108

79. In this case, the Claimant have not complied with any of these mandatory steps.

Interestingly, he obtained the license only a few days after his private meeting with the President.

In fact it was only after sixteen years when he finally complied with the pre-requisite

adjustments.

80. The Claimant breached Oceanian domestic laws. Hence, the the Claimant’s investment

may not enjoy protection even if the Tribunal accepts that the MFN clause of the Euroasia BIT

may be invoked to access the dispute resolution provision of the Eastasia BIT.

107 Facts, ¶ 19, p.37108 P.O. No. 2, ¶1, p. 55.


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2. There is a heavy weight of evidence showing Claimant’s involvement in the crime of bribery

81. The following pieces of evidence when draw an apparent bad faith on the part of the

Claimant: (1) His deliberate investment in a decrepit company (2) His entering into business

without sufficient financial resource knowing that he will be required to spend for the adjustment

of his production lines (3) His shady private meetings with the President of the NEA (4) His act

of not waiting for the decision of the Ministry of Environment regarding his subsidy (5) The

Questionable obtaining of license only a few days after his private meeting and without

compliance with the mandatory requirements set forth by the law. (6) The subsequent conviction

for the crime of bribery of the president of NEA with whom he transacted with (7) The

willingness of the President of NEA to testify against the Claimant for the same charges.

82. In July 1998, Peter Explosive circumvented the environmental requirements and was

issued an environmental licence approving the commencement of arms production by Rocket

Bombs through a shady private meeting with the President of the National Environment

Authority of Oceania.

83. Although already armed with a licence, Rocket Bombs still lacked the resources to

resume the arms production. He then approached his long time close friend, John Defenceless,

who was now Minister of National Defence in the Republic of Euroasia (“Euroasia”) who

promised that a new contract for the arms production will be concluded with Rocket Bombs.109

109 Facts, ¶ 8, pp.33-34


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84. Under the contract, Rocket Bombs was obliged to deliver the ordered weapons in five

instalments. An instalment was to be delivered every three years. Most importantly, the contract

of 1 January 1999 guaranteed to Rocket Bombs advances payable on 1 February 1999. As soon

as Rocket Bombs received the advance, its arms production was commenced.110

85. Bribery is contrary to international public policy of most, if not all, States. 111 The rights

of the investor could not be protected because the investment was contaminated by an illegal

activity such as corruption.112 In such situation the investor is deprived of protection and,

consequently, the host State avoids any potential liability.113

86. In the cases of World Duty Free v. Kenya114 and Metal-Tech Limited v. The Republic of

Uzbekistan115, the tribunals have found that the clean hands doctrine should be applied – without

a doubt –in cases under which the investor has been involved in acts of corruption. Thus, in the

present, the actions of Peter Explosive if taken together shows a chain of clearly illegal events

which divests him of any protection from the treaty.

110 Facts, ¶¶10-11, p.34 111 World Duty Free Company v Republic of Kenya, ICSID Case No. Arb/00/7. Award, (hereafter World Duty Free v. Kenya), ¶ 136, although the decision focuses on the investment contract rather than the BIT, we discuss the decision because the same claims could have been raised under a BIT. 112 Metaltech v. Uzbekistan, supra note 103, ¶422 113 Ibid. 114 World Duty Free v. Kenya, supra note 107, 115 Metal-Tech Ltd v. The Republic of Uzbekistan, ¶136


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V. CLAIMANT’S INVESTMENTS WERE NOT EXPROPRIATED BY THE

RESPONDENT

A. The EO was enacted to protect Oceania’s Essential Security Interest contemplated

under both the Eastasia and the Euroasia BIT

87. Both the Euroasia and the Eastasia BIT uniformly provide for an Essential Security

Interest (ESI) provision worded in the exact manner which states “Nothing in this Agreement

shall be construed to prevent either Contracting Party from taking measures to fulfill its

obligations with respect to the maintenance of international peace or security.”116

88. The Respondent submits that the enactment of the EO which introduced sanctions against

investors from Euroasia is a fulfilment of its obligations under the ESI provision of the treaty.

The Respondent, merely exercised its sovereign powers with the view of maintaining

international peace and security as a part of an international response to condemn an illegal act of

annexation of Fairyland by Euroasia.

1. The Essential Security Interest provision excludes the application of Exproriation provisions

89. The Respondent invites this Tribunal to adopt the CMS Annulment117 and Sempra

Annulment118 approach in determining the application of the essential security clauses as

116 Article 9 of Eastasia BIT p.50; Article 10 of the Euroasia BIT p.45 117 CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Ad Hoc Committee on the Application for Annulment of the Argentine Republic, (hereinafter CMS annulment decision)¶¶ 158-59


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defences against the alleged treaty breach. The Respondent submits that the ESI clause works as

an exception which excludes the respondent from its treaty obligations when it should perform

its duty for the maintenance of international peace and security.

90. The invocation of the ESI provision under the BITs in the present case is different from

the customary defense of necessity under Article 25 of the Articles of State Responsibility

Against Internationally Wrongful Acts (ARSIWA). As the wording of the ESI provision

suggests, “Nothing in this Agreement shall be construed to prevent…”, the contracting parties

have consented that the essential security interest provision precludes the application of the

expropriation provision of the BIT.

91. There is a significant difference in the language adopted in both provisions: The essential

security interest provision under the BIT refers to “measures in order to fulfill its obligations”

that applies when “international peace and security” is at stake while Article 25 of the ARSIWA

refers to a “state of necessity” that only applies where “certain conditions are met.” In the words

of the CMS tribunal:

“Article XI is a threshold requirement: if it applies, the substantive obligations

under the [U.S.–Argentina BIT] do not apply. By contrast, Article 25 is an excuse

which is only relevant once it has been decided that there has otherwise been a

breach of those substantive obligations.”119

118 Sempra Energy Int’l v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award, (hereinafter Sempra annulment decision) ¶¶222-23119 CMS Annulment, supra note 117, ¶ 129


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92. Thus the ESI provision bars the application of other provisions of both of the BITs in the

present case, suggesting that there can be no breach of the BIT when the ESI clause has been

successfully invoked. an NPM Exception therefore operates differently than a CIL Defense,

which is only available after provisions of the BIT have been breached. Thus, there is no

possibility for the Respondent to breach any of its obligations in the present case.

93. To determine the scope of applying the ESI clause, attention is to be drawn to the (a) self-

judging nature of this exception clause (b) and the good faith obligation provided in Art. 26 of

the VCLT.

a. The ESI provision under both the Euroasia and Eastasia BIT is a self-judging clause.

94. The Respondent hereby submits that the scope of the application of the ESI provision, i.e.

to what extent it applies, is to be reviewed by the Respondent alone. Art. 31(3)(c) of the VCLT

requires any relevant rules of international law to be taken into account when interpreting treaty

provisions. This echoes Art. 38 of the ICJ Statute, which also requires awards to be rendered in

accordance with sources of international law.

95. When compared to the wording of Art. XXI of GATT, which is also subjected to

interpretation under the VCLT, the Respondent submits that the breadth of the self-judging

nature of the ESI provision in the present case is apparent. Art. XXI of GATT is a self-judging

clause but provides an exhaustive list on what is to be defined as “essential security interests”.

Without an exhaustive list in the ESI provision in the present case to define particular “essential


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security interests”, a wide variety of interests, including the enactment of laws sanctioning

investors, is acknowledged under customary international law.

96. Together with the conflict created by the internationally proscribed actions by Euroasia

and the illegal secession of Fairyland from Eastasia, the Respondent considers the enactment of

the Executive Order necessary to protect its essential security interests and to maintain

international peace and security as acknowledged. Therefore, in light of the self-judging nature

of either Art. 9 of the Eastasia BIT or Art. 10 of the Euroasia BIT, the Respondent submits that it

is entitled to rely on the same and to be exempted from the alleged treaty breaches.

b. Application of the ESI provision has been performed in good faith.

97. The only criterion for the Tribunal to review a self-judging provision is whether it is being

performed in good faith. This in accordance with Art. 26 of the VCLT that gives effect to the

interpretation of the ESI provisions of the Treaties in the present case. The ICJ noted in

Gabčíkovo-Nagymaros Project that the performance of good faith obliges the parties to apply it

(i) in a reasonable way and (ii) in such a manner that its purpose can be realised.120

98. The Respondent submits that in conformity with these two requirements, 1. The ESI

provision has been applied in a reasonable way and 2. The EO is issued in pursuance of

Oceania’s obligation for the maintenance of international peace and security.

120 Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), Judgment, 25 September 1997 ¶142


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i. The ESI provision has been applied in a reasonable way

99. The Respondent submits that the ESI provision has been applied in a reasonable way and

with intent to realise the purpose of the treaty. It was not “founded on prejudice or preference”121

The Executive Order was enacted on the basis of the International Emergency Economic Powers

Act, and was applicable not just to Peter Explosive alone but also to all investors who would

contribute to the circumstances happening in the secession of Fairyland from Eastasia. It was

transparently made, because the media reported on the preparation of the Executive Order before

it was actually published and entered into force.

100. Hence, the EO has been applied reasonably because the enactment of the EO is made

non-arbitrarily, non-discriminatorily, transparently and in accordance with due process.

ii. The EO is issued in pursuance of Oceania’s obligation for the maintenance of international peace and security

101. The EO was enacted in order to address the illegal actions made by Euroasia which is

tantamount to a violation of international peace and security. Euroasia illegally entered the

territory of Eastasia by sending its military troops and land forces to the territory of Fairyland

without the consent of the Eastasian state.

102. The illegal action by Euroasia is considered as a qualified aggression which is proscribed

under Art.2 par 1 of the UN Charter which prohibits the threat or use of force against the

sovereignty and territorial integrity of any state.

121 Lauder v. Czech Republic, ¶221


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103. In the case at bench, The Respondent was obliged under the principles of public

international law not to recognize the effects of unlawful actions, and to take active steps to wipe

out the consequences of such unlawful behaviour.

B. The EO was validly enacted and exercised pursuant to the Police Power fo the State

104. The Executive Order is a valid regulatory measure enacted and exercised pursuant to the

inherent police power of Oceania. Such measure may considerably affect foreign interests but it

does not rise to the level of expropriation.

105. In Saluka Investments v. Czech Republic, the tribunal stated that “States are not liable to

pay compensation to a foreign investor when, in the normal exercise of their regulatory powers,

they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general

welfare.”122

106. Further, in Methanex v. USA123, the ICSID tribunal acknowledged that “As a matter of

general international law, a non-discriminatory regulation for a public purpose, which is enacted

in accordance with due process and, which affects, inter alios, a foreign investor or investment is

not deemed expropriatory and compensable unless specific commitments had been given by the

122 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, See e.g. U. Kriebaum, “Privatizing Human Rights”, in A. Reinisch and U. Kriebaum (eds.) The Law of International Relations: Liber Amicorum Hanspeter Neuhold (Utrecht Eleven International Publishing, 2007), pp.178-179, 182 (quoting Brownlie and the Saluka decisions). This would be the result if such bona fide regulations do not violate the substantive provisions of BITs, irrespective of the view one takes of whether compensation remains due under Article XI of the United States-Argentina BIT. It would also mean that the State’s ability to engage in such regulation would remain unaffected, even if the BIT does not include an explicit essential security clause. 123 Methanex Corporation v. United States of America (hereafter Methanex v. USA). UNCITRAL Arbitration (NAFTA). Final Award of 3 August 2005.


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regulating government to the then putative foreign investor contemplating investment that the

government would refrain from such regulation.”

107. The tribunals in Methanex vs. USA124 and Waste Management vs. Mexico125 are uniform

in upholding that a valid regulatory action of a State exercised through its inherent police power

is non-expropriatory and hence, non-compensable. The tribunals use three requisites in order to

determine the non-expropriatory nature of a regulation: 1. The measure must be enacted in

accordance with due process, 2. The measure is non-discriminatory and 3. The measure is

enacted for a public purpose.

108. The Respondent submits that the EO is a valid regulatory measure made in accordance

with the police power of the Oceanian State in compliance with these three requirements: 1. The

Executive Order is enacted in Accordance with Due Process, 2. The Executive Order is non-

discriminatory and 3. That the Executive Order is Enacted for a pubic purpose.

1. The EO was enacted in accordance with due process

109. The Executive Order was legally and validly enacted on the basis of the International

Emergency Economic Powers Act of 1992 which authorises the President to introduce the

Executive Order upon the existence of an unusual and extraordinary threat to national or

international security which in whole or substantial part originates outside the Republic of

Oceania. By virtue of this power, the President may block transactions and freeze assets to cope

124Ibid.125Waste Management, Inc. v. United Mexican States (Number 2), ICSID Case No. ARB(AF)/00/3 (hereafter Waste Management v. Mexico.


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with the threat. After its preparation and publication, the enactment of the Executive Order was

properly televised and broadcasted.126

110. In this case, the Executive Order was issued on May 1, 2014. A period of 2 years had

passed from that time up to now, the Claimant had all the opportunity to question the validity of

the Executive Order. The Oceanian Code of Administrative Procedure provides that any

administrative decision, such as a decision on the imposition of sanctions, may be subject to

reconsideration proceedings. In case of reconsiderations in the imposition of sanctions

reconsideration sought by an aggrieved party may be submitted to the President of the Republic

of Oceania.127

111. Our laws provide ample remedies to Peter Explosive, our Chief of State was open to hear

the claimant’s contentions, however, the claimant failed to out forward his charges. He can not

then, contend before this tribunal that he was deprived of the right to due process and judicial

review because in the first place he did not make any actions to raise his claims.

112. At this point, it must be noted that the sanctions does not have an automatic application.

It only affects the investor if the investor continues to engage in the making of any contribution

of funds, goods or services to the Euroasian economy which are operating in “sectors such as

financial, services, energy, metals and mining, engineering and defense, in particular arms

production services, and related materiel”128.

126 P.O. No. 2 ¶7, pp.56-57 127P.O. No. 3, ¶10, p.61 128 Exhibit C2, Excerpt from Executive Order Of May 1, 2014 On Blocking Property Of Persons Contributing To The Situation In The Republic Of Eastasia, (hereafter EO) Section 1., p.52


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2. The EO is non-discriminatory

113. Discriminatory taking is one that singles out a particular person or investor without a

reasonable basis.129 The Respondent shares the ADC Affiliate tribunal view when it stated that

“in order for discrimination to exist there must be different treatments to parties in the

same circumstances.”

114. The provisions under the Executive Order do not discriminate against the Claimant. The

sanctions imposed by the Executive Order were applicable against all companies engaged in all

the enterprises listed under Executive Order130, all investors, whether Euroasian, EASTASIAN

or even OCEANIAN are affected by the sanctions and not only the Claimant’s company as the

claimant would have the Tribunal believe. Oceania also imposed sanctions on companies

operating in sectors other than the arms production sector.131 In fact, the sanctions were imposed

on other sectors including finance, energy, mining, metal and defense were also affected.132 If

the measure had indeed been discriminatory, they would have affected only the Investor and

perhaps only the arms and production industry.

115. Simply put, there is nothing in this record to show that the Respondent proceeded to treat

more vigorously Peter Explosive’s company in comparison with other companies that were

clearly falling under the definition of the EO. There is clearly no discrimination –Peter Explosive

129 N. Rubins and N.S. Kinsella, International Investment, Political Risk and Dispute Resolution. A Practitioner’s Guide (2005), p.177. 130 P.O. No.2. ¶ 6 p.56 131 Exhibit C2, Sec. 1 (i), p.52 132 P.O. No.3 ¶ 10, p.61


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was not singled out nor was he treated differently from all other parties who were doing business

enterprises.

3. The EO is enacted for a public purpose

116. The EO was enacted because of Euroasia’s aggressive stance in the annexation of

Fairyland to Euroasia undermines the peace, safety, security, sovereignty and territorial integrity

of Eastasia. In effect, it constituted an imminent threat to our State’s national security and

foreign policy.

C. Alternatively, the effects of measure did not amount to indirect expropriation

117. Peter Explosive argues that the enactment of the Executive Order dated May 1, 2014

effected an expropriation upon his investments. Both the Eastasia and the Euroasia BIT are

uniform in their provisions on expropriation which states that:

“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”

118. Expropriation has been defined as the taking or deprivation of the property of foreign

Investors by a Host State.133 It may be direct or indirect. Direct expropriation occurs when a

133McLachlan Campbell, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles, Oxford International Arbitration Series, OUP New York, 2008., pp. 290-298.


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state takes concrete action, resulting in an investors loss of control of its property.134 And transfer

of its legal title to the government or a third party.135 In this case, Peter Explosive has not lost his

title over his investments. As the legal title has not been transferred to the government or a third

party. He can not contend that the enactment of the Executive Order constitutes direct

expropriation.

119. On the other hand, an “Indirect expropriation” exists where an action or series of actions

by a party has an effect equivalent to direct expropriation without formal transfer of title or

outright seizure136 or when the government takes measures tantamount to an expropriation with

respect to tangible or intangible property without affecting the investor’s legal title to the

property.137

120. In the present case, the Oceania humbly submits that the enactment of the Executive

Order imposing sanctions upon investors contributing to the situation of the secession of

Fairyland does not amout to an indirect expropriation. In order to substantiate a claim that an

indirect expropriaiton has occurred, Peter Explosive must establish that the alleged interference

was so restrictive that the property was “taken”, thereby resulting in an expropriation.

134 Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1, Award, ¶76 135, Starrett Housing Corporation, Starrett Systems, Inc., Starrett Housing International, Inc., v. The Government of the Islamic Republic of Iran, Bank Omran, Bank Mellat (Case No. 24) , Iran-US Claims Tribunal Cases ¶154;J. Romesh Weeramantry, Treaty Interpretation in Investment Arbitraiton (2012) , ¶309 ; Andrew Newcombe, The Boundaries of Regulatory Expropriation, (2005), p.8. 136 Ian Brownlie, “Public International Law”, Oxford University Press, 6th Edition, 2003 at p. 509 137 Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2 (hereafter Tecmed vs. Mexico) ¶ 96


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121. An indirect expropriation has taken place when the governmental measure amounts to a

substantial deprivation of the investor’s property rights,138 it violates the investor’s legitimate

expectations139, the measure is of permanent character140, and when it is not proportional to the

objective of public purpose sought to be achieved.141

122. The respondent submits that even if the expropriatory character is put into issue and

determined merely on its effects alone, the EO remains non-expropriatory for four reasons, First,

the effects of the measure does not amount to substantial deprivation, second, measure does not

violate the investor’s legitimate expectations and lastly, the measure does not have a permanent

character.

1. The effect of the measure does not amount to substantial deprivation

123. A governmental measure may amount to an expropriation when the alleged measure has

substantially interfered with the investor’s control, use and benefits of its investments rendering

the investment totally useless. The respondent argues that the Executive Order does not

constitute substantial interference as the effect is not serious and irreversible.

124. In establishing whether the enactment of the Executive Order amounts to an indirect

expropriation, the Tribunal must assess whether Peter Explosive’s control over his alleged

investments has been extremely diminished. 138Metalclad Corporation v. The United Mexican States, supra note 118, ¶ 103 139 Id. 140 Consortium R.F.C.C. v. Kingdom of Morocco (ARB/00/6), award of December 22, 2003, ICSID Rev.-FILJ, vol. 20, 2005, pp. 391 et seq, ¶ 68 141LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc .v. Argentine Republic, ICSID Case No. ARB/02/1 (hereafter LG&E v. Argentina) ¶ 35; Metalclad v Mexico supra note 118, ¶103; Dolzer, R: “Indirect Expropriations: New Development?”, (2002) New York University Environmental Law Journal at pp. 65-93


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125. The measure did not irreparably deprive the Claimant of use, ownership, or control of his

investment, nor did it almost completely annihilate the value of business as required in Sempra

Energy International v. The Argentine Republic142 and Generation Ukraine v. Ukraine143 among

others.

2. The measure does not violate the investor’s legitimate expectations

126. The investor’s subjective considerations cannot be the sole basis of determining his

protection under a a Bilateral Investment Treaty. In order to be protected, the tribunal must

examine whether the investor’s expectations are legitimate and reasonable in the

circumstances.144 An investor’s legitimate expectation can only be assessed by taking into

consideration the host state’s legitimate right to regulate domestic matters within its own borders

and the public interest of that state.145

127. In the present case, Peter Explosive who is a resident of Fairyland146 is very well in the

position to know that Euroasia and Eastasia were at war for over a hundred years.147 Had he

been a prudent investor, he should have also known at the time of his investment on March 142 Sempra Energy International v. The Argentine Republic, ICSID Case No. ARB/02/16 ¶285143 Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9 ¶20.32144 Saluka Investments B.V. v. The Czech Republic, UNCITRAL, ¶304. 145 Gami Investments, Inc. v. The Government of the United Mexican States, UNCITRAL, ¶93; See also: International Thunderbird Gaming Corporation v. The United Mexican States, UNCITRAL ¶394; S.D. Myers v Canada, UNCITRAL, ¶¶261, 263; Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3 ¶94, Saluka vs. Czech Republic, UNCITRAL, ¶ 305 146 Facts, ¶2, p.32 147 RA, p.5


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1998148 of the existence of the International Emergency Powers Economic Act of 1992 which

authorises the president to declare existence of an unusual and extraordinary threat to, among

others, national and/ or international security which in whole or substantial part originates

outside the Republic of Oceania. After the declaration, the President may block transactions and

freeze assets to cope with the threat.149 Further, there was no specific commitment made by

Oceania that it will not change its laws for the benefit of its investors. In order to violate an

investor’s legitimate expectation, a specific commitment must have been made by the state.

128. In light of these circumstances, Peter Explosive could not have legitimately expected

that Oceania would not issue or enact any measure that will address national or international

emergencies. Accordingly, the enactment of the Executive Order is not a violation of Peter

Explosive’s legitimate expectation.

3. The measure does not have a permanent character

129. In assessing the existence of substantial interference towards an investor’s use and benefit

of its investment, duration of a governmental measure also plays a significant role. The Iran-

United States Claims Tribunal stated that to constitute an expropriation, the duration must not be

“merely ephemeral”. The notion of ‘ephemeral’ is clarified by the European Court of Justice

decision that a regulation, affecting an investor’s property, which lasted for three years, does not

constitute an expropriation.

148 Facts, ¶2, p.32 149 P.O. No. 2, ¶7, pp.56-57


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130. A temporary measure must have substantial consequences equivalent to a permanent

loss. The recovery of the property right or access to it does not replace ownership in its initial

situation. investment, in other words, their irreversible nature. Consequently, it is not a matter of

how long the measure itself lasts but of how long the adverse effects endure on the investment, in

other words, their irreversible nature.150

131. The Executive Order is provisional as it only applies while the situation of the secession

of Fairyland from Eastasia has not subsided. The effects of the same and its implementation will

be lifted with the dwindling of the conflict of Eastasia and Euroasia. This is verily apparent in the

purpose of the enactment of Executive Order. The Executive Order was issued because Euroasia

“continue to undermine democratic processes and institutions in the Republic of Eastasia;

threaten its peace, security, stability, sovereignty, and territorial integrity; and contribute to the

misappropriation of its assets, and thereby constitute an unusual and extraordinary threat to the

national security and foreign policy of the Republic of Oceania.”151

132. The international Emergency Economic Powers also limits the powers of the President of

Oceania for purposes only of “coping with the threat”.152 The deprivation is temporary and

reversible and thus, cannot constitute expropriation.153

150RFCC v. Morocco, supra note 120, pp. 391 et seq, ¶68. 151 Exhibit C2, p.52 152 P.O. No.2, ¶7, pp.56-57 153 LG&E v. Argentina, supra note 121, ¶151.


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VI. CLAIMANT CONTRIBUTED TO THE DAMAGE SUFFERED BY HIS

INVESTMENT.

133. The Respondent submits that in the unlikely event that the tribunal rules that there is

some damage, it should find that the Claimant contributed the damages that he suffered because

of two reasons. First, because Peter Explosive assumed the risk of the adverse consequences of

his contract and Second, because Peter Explosive made a contributory fault to the damages that

he suffered.

A. The Claimant assumed the risk of the adverse consequences of his contract

134. As famously expressed by the tribunal in Maffezini v. Spain154 and recited in a litany of

later awards155, “[b]ilateral investment treaties are not insurance policies against bad business

judgments.” The statement encapsulates the principle that an investor must undertake a certain

degree of risk, and may suffer losses for reasons not attributable to the host state’s conduct.

154 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7 ¶64 155 MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile ICSID Case No. ARB/01/7 at ¶177, The tribunal stated that it is the responsibility of the investor to assure itself that it is properly advised, particularly when investing abroad in an unfair environment. The Tribunal found that MTD incurred costs as a result of bad business judgment irrespective of the breach of fair and equitable treatment. In particular they did not obtain appropriate legal protection for a land purchase, the price of which was based on the assumption that all applicable permits would be obtained. (ibid at ¶242) Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 (formerly Compañía de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic (hereafter Vivendi v. Argentina)


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135. In the determination of reparation, account shall be taken of the contribution to the injury

by wilful or negligent action or omission of the injured State or any person or entity in relation to

whom reparation is sought.156 Thus, a damages award against a state may be reduced to the

extent that the injured party itself is an “intervening” or “joint” cause of the harm.157

136. In the present case, Peter Explosive willingly entered into the second contract on

February 28, 2014158, knowing fully well that six months prior thereto, on November 2013, the

Euroasian government after long debates have decided to military intervene in the secession of

Fairyland from Euroasia although the actual military intervention only happened on March 1,

2014.159 He knew that

137. What is evident is that the Claimant, an experienced businessman, was not unaware of the

situation in Fairyland hailing from Fairyland himself. He had his reasons for investing in

Euroasia, but it is not reasonable for him to seek compensation for the losses he suffered on

making a speculative, or at best, a not very prudent, investment.160

138. The Clamant have failed to account for or mitigate risk, or even augmented such risk.

Hence, his claim must be rejected or limited under the doctrine of contributory fault.

B. The Claimant made a contributory fault to the damages that he suffered

156 Article 39, ILC Articles on State Responsibility 157 Id. at ¶ 2. 158 Facts, ¶15, pp.35-36 159 Facts, ¶14, p.35 160 Olguín v. Paraguay Eudoro Armando Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5


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139. The Respondent shall prove that the Claimant contributed to the fault that he suffered in

three points: First, there is a sufficient causal link between his actions and the sanctions that was

imposed upon him, second, the Claimant lacked due diligence in transacting his business and

lastly, his contributory fault is material and significant.

1. There is a sufficient causal link between the claimant’s action and the damage that he suffered

140. In determining the sufficient causal link, analysis of whether an investor could or should

reasonably anticipate that his/her action will lead to a particular type of harm.161

141. The Respondent submits that the Claimant contributed to the damage suffered by his

investment by virtue of his own conduct. The Claimant’s behaviour, in particular, its continued

supply of weapons to Euroasia even after Peter Explosive should have known of Euroasia’s

intention to incorporate Fairyland into its territory by direct military intervention if necessary, led

to the imposition of sanctions upon Rocket Bombs Ltd, which resulted in the deterioration in the

company’s financial situation.

2. The Claimant is Negligent

142. Taking into consideration that: (1) The arms production industry is a crucial enterprise,

(2) That the Claimant is the sole producer of arms and weaponry to Euroasia’s Ministry of

Defense (3) That the main purpose of the contract is to modernise the Euroasia’s land forces and

161 Stanimir A Alexandrov, Joshua M Robbins; Proximate Causation in International Investment Disputes, OUP reference: IC-JA 047 (2009)


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(4) Euroasia’s aggressive decision to military intervene in the secession of Fairyland from

Eastasia, the Claimant should have suspended his second contract with Euroasia.

3. The Claimant’s Contributory Fault is material and significant

143. The Respondent invites the Tribunal to determine the materiality and significance of the

Claimant’s contributory fault in comparison with the case of Yukos v. Russia162 where the

tribunal found that the claimants’ abuse of the low-tax regions and their misuse of the Cyprus-

Russia tax treaty materially contributed to the prejudice they suffered. In the present case, the

actions committed by the Claimant is even graver than that of Yukos. In fact the Claimant

entered into the second contract while being fully aware of the consequences of his actions.

144. The claimant clearly has contributed to the injury it suffered with its own negligence.

Such negligence or misconduct is a direct, foreseeable and proximate cause of the injury. Thus, it

relieves the Oceanian state entirely from liability.

162Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA227


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PRAYER FOR RELIEF

For the aforementioned reasons, the Respondent respectfully asks the tribunal to find that:

1. The Tribunal has no jurisdiction over the case at hand under the Euroasia BIT.

2. The Mandatroy Pre-arbitral steps were not complied with

3. The claimant can not invoke the Art. 3 of the Euroasia BIT to rely upon the dispute resolution

provision of the Eastasia BIT.

Even if the Arbitral Tribunal finds that it has jurisdiction over the case, the Respondent asks the

Tribunal to conclude that:

4. The Claimant’s investment is not protected under the BIT, since the Claimant breached the

‘clean hands’ doctrine in connection with its investment;

5. The Claimant’s investment was not expropriated by the Respondent; and

6. The Claimant contributed to the damage suffered by its investment.

Respectfully submitted on September 26, 2016 by

BHANDARI

On behalf of Respondent

THE FEDERAL REPUBLIC OF OCEANIA


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