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TEAM ZORICIC
INTERNATIONAL CHAMBER OF COMMERCE
ICC CASE BETWEEN:
REEDONIA PRETROEUM LLC
CLAIMANT
THE REPUBLIC OF SYLVANIA
RESPONDENT
MEMORIAL FOR RESPONDENT
2
SUMMARY
PART ONE – PROCEDURAL ISSUES
(A) THE TRIBUNAL HAS NO JURISDICTION TO RULE ON CLAIMANT‘S
SUBMISSIONS ............................................................................................................................ 11
I. Claimant is not an investor pursuant to the definition set forth in the Freedonia-Sylvania
BIT 11
II. Claimant is precluded to pursue arbitration pursuant to the ―Fork-in-the-Road‖ provision
in the Freedonia-Sylvania BIT .................................................................................................. 12
(B) RESPONDENT‘S COUNTERCLAIM IS ADMISSIBLE ............................................... 17
I. Respondent‘s counterclaims are admissible by the principles and rules applicable to the
dispute ....................................................................................................................................... 18
II. Since liability is a contractual obligation arising out of the same investment, this Tribunal
has the power to decide on Respondent‘s counterclaim ........................................................... 19
III. FPS and Claimant should be considered a single entity ................................................... 21
PART TWO – TRANSPARENCY ISSUES
(A) RESPONDENT IS NOT LIABLE FOR THE ALLEGED BREACH OF
CONFIDENTIALITY OBLIGATIONS ....................................................................................... 23
I. Respondent is not liable for the release of the Report to the Sylvanian press .................. 23
II. The information disclosure upon request by CSE to the Sylvanian Courts does not
constitute a breach of confidentiality. ....................................................................................... 24
(B) CSE‘S REQUEST SHOULD BE ADMITTED BY THIS TRIBUNAL ................................. 26
I. CSE‘s request is admissible under the rules applicable to the matter ............................... 27
II. The matter at dispute calls upon the participation of third parties directly involved ........ 28
III. CSE‘s participation does not compromise the equal treatment of the parties ................... 30
PART THREE – SUBSTANTIVE ISSUES
(A) NPCS‘ACTIONS ARE NOT ATTRIBUTABLE TO RESPONDENT ............................ 32
I. NPCS is not an organ of the Respondent .......................................................................... 32
II. NPCS was not exercising governmental authority............................................................ 34
III. NPCS was not acting under instructions and express authorization by the Respondent .. 36
3
(B) RESPONDENT DID NOT VIOLATE THE FREEDONIA-SYLVANIA BIT OR ANY
RULE OF INTERNATIONAL CUSTOMARY LAW ................................................................. 38
I. Claimant was always accorded with fair and equitable treatment .................................... 38
II. In case this Tribunal considers NPCS‘ actions attributable to Respondent, such actions
did not amount to illegal expropriation and are not subject to the requisites of BIT art.4 ....... 43
III. Respondent‘s alleged omission did not violate BIT ......................................................... 45
(C) RESPONDENT IS ENTITLED TO RELY ON ITS DOMESTIC LAW AND
INTERNATIONAL LEGAL NOTIONS OF NATIONAL SECURITY AND PUBLIC
INTEREST AS DEFENSES ......................................................................................................... 46
I. BIT Art.9 allows Respondent to rely on its domestic law to invoke State of Necessity .. 46
II. Respondent may rely on national security and public interest to invoke state of necessity
47
4
INDEX OF AUTORITIES
International Documents
International Law Comission, Draft Articles on the Responsibility of States for Internationally
Wrongful Acts, with commentaries (2001) U.N.Doc.A/56/10 in ILC Yearbook vol.II, Part Two.
[cited as: ILC Draft]
Vienna Convention on the Law of Treaties, 23 May 1969, 1155 U.N.T.S. 331
Rio Declaration on Environmental and Development, 13 June 1992, U.N.Doc. A/CONF.151/26
(vol.I), principle 2.
World Trade Organization, Sanitary and Phytosanitary Agreement
United Nations, Convention Biological Diversity, 29 December 1993
US Model BIT
Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce [cited as:
SCC Rules]
Rules of Procedure for Arbitration Proceedings of the International Centre for the Settlement of
Investment Disputes [cited as: ICSID Arbitration Rules]
1976 Arbitration Rules of the United Nations Commission on Trade Law [cited as: UNCITRAL
Rules]
Convention on the Settlement of Investment Disputes between States and Nationals of Other
States [cited as: ICSID Convention]
1998 Rules of Arbitration of the International Chamber of Commerce [cited as: ICC Rules]
Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning
the Settlement of Claims by the Government of the United States of America and the
Government of the Islamic Republic of Iran [cited as: Iran-US Claims]
Agreement Between the Hellenic Republic and the Arab Republic of Egypt for the Promotion
and Reciprocal Protection of Investments [cited as: Greece-Egypt BIT]
Agreement Between the Government of the Republic of France and the Government of the
Republic of Argentina on the Reciprocal Encouragement and Protection of Investments [cited as:
France-Argentina BIT]
5
Articles & Treatises
Robert T. Greig, Claudia Annacker & Roland Ziadé, ―How Bilateral Investment Treaties Can
Protect Foreign Investors in the Arab World or Arab Investors Abroad‖ (2008) 25:2 J.Int.Arb
[Cited as: Greig et al]
P. Craig and G. de Burca, EU Law: Text, Cases and Materials, 3rd
ed., (New York: Oxford
university Press, 2003) [Cited as: Craig & Burca]
Anthony Sinclair, Allen & Overy LLP, Fork-in-the-road provisions in investment treaties, 4
Nov. 2009, available at http://www.allenovery.com/AOWEB/Knowledge/Editorial.aspx
?contentTypeID=1&contentSubTypeID=7944&itemID=53649&prefLangID=410. [cited as:
Sinclair]
Luiz Olavo Baptista, Parallel Arbitrations - Waivers and Estoppel, Dossier of the ICC Institute
of World Business Law: Parallel State and Arbitral Procedures in International Arbitration
(2005) [cited as: Baptista]
Christoph Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses, and Forks
in the Road, 5/2 Journal of World Investment & Trade 231, 247 (2004) [cited as: Schreuer]
Yaraslau Kryvoi, Counterclaims in Investor-State Arbitration (August 5, 2011). LSE Legal
Studies Working Paper No. 8/2011. Available at SSRN: http://ssrn.com/abstract=1891935 [cited
as: Kryvoi]
Lee A. Steven; Nicole Thornton, Two Roads – Two Tribunals: Recent ―Fork-in-the-Road‖
Interpretations, Kluwer Arbitration Blog, available at: http://kluwerarbitrationblog.com/
blog/2009/12/16/tworoads-%E2%80%93-two-tribunals-recent-%E2%80%9Cfork-in-the-
road%E2%80%9D-interpretations/ [cited as: Steven]
James Crawford, ‗Treaty and Contract in Investment Arbitration‘ (22nd Freshfields Lecture on
International Arbitration, London, 29 November 2007). Available at
http://www.lcil.cam.ac.uk/Media/lectures/pdf/Freshfields%20Lecture%202007.pdf [cited as:
Crawford]
Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, (2003) 74 British
YB Intl L 152 [cited as: Douglas 2]
David W. Rivkin, The Impact of Parallel and Successive Proceedings on the Enforcement of
Arbitral Awards, Dossier of the ICC Institute of World Business Law: Parallel State and Arbitral
Procedures in International Arbitration (2005) [cited as: Rivkin]
Bernardo M. Cremades; Ignacio Madalena, Parallel Proceedings in International Arbitration,
Arbitration International, Vol.24, Nr.4 (2008), p.507-540 [cited as: Cremades&Madalena]
6
Fiona Marshall, Commentary: Pantechniki v. Albania decision offers pragmatic approach to
interpreting fork-in-the-road clauses, InvestmentTreatyNews 2009, available at :
http://www.iisd.org/itn/2009/09/02/commentary-pantechniki-v-albania-decision-offers-
pragmatic-approach-to-interpreting-fork-in-the-road-clauses/ [cited as: Marshall]
SASSE, Jan Peter. An Economic Analysis of Bilateral Investment Treaties. Published by Gabler
Verlag | Springer Fachmedien Wiesbaden GmbH, 201. [Cited as: Sasse]
OEDC Working Papers On International Investment Number 2005/1 - Transparency And Third
Party Participation In Investor-State Dispute Settlement Procedures Statement. OECD
Investment Committee, June 2005. [Cited as: OEDC Report]
BUYS, C. G. (2003). "The Tensions Between Confidentiality and Transparency in International
Arbitration." The American Review of International Arbitration 14(1):121-138. [Cited as: Buys]
SASSE, Jan Peter. An Economic Analysis of Bilateral Investment Treaties. Published by Gabler
Verlag | Springer Fachmedien Wiesbaden GmbH, 201. [Cited as: Sasse]
FRACASSI, Fulvio. (2001). "Confidentiality and NAFTA Chapter 11 Arbitrations." Chicago
Journal of International Law 2: 213-222. [Cited as: Fracassi]
MALANCZUK, Peter. Confidentiality and third-party participation in Arbitration. 1(2)
CONTEMP. ASIA ARB. J. 183. [Cited as: Malanczuk]
Books
Antônio Augusto Cançado Trindade, A Humanização do Direito Internacional (Del Rey, 2006).
[Cited as: Cançado Trindade]
Andreas F. Lowenfeld, International Economic Law, 2nd
ed. (New York: Oxford University
Press, 2008) [Cited as: Lowenfeld]
Monique Sasson, Substantive Law in Investment treaty Arbitration – the unsettled relationship
between International Law and Municipal Law. (Kluwer Law International, 2010) [Cited as:
Sasson]
Rudolph Dolzer and Christoph Schreuer. Principles of International Investment Law. (Oxford
University Press, 2008) [Cited as: Dolzer & Schreuer]
August Reinisch, ―Expropriation‖ in: Muchlinski, Peter; Ortino, Federico; Schreuer, Christoph
(Eds.), The Oxford Handbook of International Investment Law. (Oxford University Press, 2008).
[Cited as: Reinisch in Handbook]
Alain Pellet; Mathias Forteau; Patrick Daillier, Droit International Public, 8th ed., (LGDJ, 2009)
[Cited as : Pellet et al]
7
Campbell McLachlan; Laurence Shore; Matthew Weineger; International Investment
Arbitration: Substantive Principles (Oxford University Press 2008) [cited as: McLachlan et al]
Christopher Dugan; Noah D. Rubins; Don Wallace; Borzu Sabahi; Investor-State Arbitration
(Oxford University Press 2008) [cited as: Dugan et al]
Zachary Douglas, The International Law of Investment Claims, Cambridge University Press; 1
edition (July 20, 2009) [cited as: Douglas]
Judicial Cases
Case of the S.S. ―Wimbledon‖ (United Kingdom v Germany), 1923 P.C.I.J. (ser.A) No.1 (June
28). [Cited as: Wimbledon]
Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), Judgment, I.C.J.
Reports 2009, p. 213 [Cited as: Navigational Rights]
Gabcíkovo-Nagymaros Project (Hungary/Slovakia), Judgment, I.C.J.Reports 1997, p.7 [Cited as:
Gabcikovo-Nagymaros]
Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory,
Advisory Opinion, I.C.J. Reports 2004. [Cited as: Palestine Wall]
Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. U.S.A.), Judgment,
I.C.J.Reports 1986 [cited as: Nicaragua]
Arbitral Decisions
Iran v. United States, Case A/15, Award No 63-A/15-FT, 2 Iran-US CTR 40, at 43. [Cited as
Iran v. United States]
Methanex Corp v United States of America (Decision of the Tribunal on Petitions from third
persons to intervene as "Amici Curiae" (January 15, 2001)) 44 ILM 1345, 1354
(NAFTA/UNCITRAL, 2005, Veeder P, Rowley & Reisman). [Cited as: Methanex]
Loewen Group Inc & anor v United States of America (Award) 7 ICSID Rep 421, 468–469
(NAFTA/ICSID (AF), 2003, Mason P, Mikva & Mustill). [Cited as: Loewen]
United Parcel Service of America Inc v Government of Canada (Award on Jurisdiction) 7 ICSID
Rep 285 (NAFTA/ UNCITRAL, 2002, Keith P, Cass & Fortier). [Cited as: UPS]
Aguas Argentinas SA, Suez Sociedad General de Aguas de Barcelona SA and Vivendi Universal
SA v Argentine Republic (Order in Response to a Petition for Transparency and Participation as
Amicus Curiae), ICSID Case No ARB/03/19. [Cited as: Suez-Vivendi]
8
Feldman v Mexico, Award, 16 December 2002, 18 ICSID Review-FILJ (2003) 388. [Cited as:
Feldman v Mexico]
PSEG Global Inc. v. Turkey (2007) ICSID Case No.ARB/02/5 (ICSID). [Cited as: PSEG Global]
ADF Group Inc. v U.S.A. (2003) ICSID Case No.ARB(AF)/00/1 (ICSID) [Cited as: ADF v
USA]
Maffezini v Spain, Decision on Jurisdiction, 25 January 2000, 5 ICSID Reports 296, 40 ILM
1129 (2001) [cited as: Maffezini]
MTD v Chile, Award, 25 May 2004, 12 ICSID Reports 6. [Cited as: MTD v Chile]
Salini v Morocco, Decision on Jurisdiction, 23 July 2001, 42 ILM (2003) 609 [cited as: Salini]
Noble Ventures v Romania, Award, 12 October 2005. [cited as: Noble Ventures]
Encana Corp. v Ecuador, Award, 3 February 2006. [cited as: Encana Corp]
Wena Hotels v Egypt, Award, 8 December 2000, 41 ILM (2002) 896. [cited as: Wena Hotels]
Elettronica Sicula S.P.A. (U.S.A. v. Italy), I.C.J.Reports 1989. [cited as: ELSI]
Técnicas Medioambientales TECMED S.A. v. Mexico (2003) ICSID Case No.ARB(AF)00/2
(ICSID). [cited as: Tecmed]
Amco Asia Corporation and Others v The Republic of Indonesia, Award, 20 November 1984, 1
ICSID Reports 413 [Cited as: Amco v Indonesia]
Eureko v Poland, Partial award, 19 august 2005, 12 ICSID Reports [Cited as: Euroke v Poland].
Telenor v Hungary, Award, 13 September 2006 [Cited as: Telenor v Hungary]
International Thunderbird Gaming Corp. v. Mexico (2006) 2006 WL 247692 (NAFTA) [cited
as: Thunderbird]
Loewen v USA, Award, 26 June 2003, 42 ILM (2003) 811 [Cited as: Loewen]
Occidental Exploration and Production Company v. Ecuador (2004) Case No.UN3467 (LCIA).
[Cited as: Occidental v Ecuador]
Metalclad Corp. v. Mexico (2000) ICSID Case No.ARB(AF)/97/1 (ICSID). [Cited as: Metalclad]
Saluka Investmetns BV v. Czech Republic (2006) UNCITRAL Case Partial Award of March 17,
2006 (UNCITRAL). [Cited as: Saluka]
9
LG&E v Argentina, ICSID Case no.ARB/02/1, Decision on Liability, Oct 3, 2006. [Cited as:
LG&E v Argentina].
CMS Gas Transmission Company v. Argentina, ICSID Case No.ARB/01/8, May 12, 2005. [Cited
as: CMS v Argentina]
Pope & Talbot v Canada, NAFTA/UNCITRAL Tribunal, Award on Damages, 31 May 2002
[Cited as: Pope&Talbot]
Waste Management Inc v. Mexico, Final Award, 30 April 2004, 43 ILM (2004) 967 [Cited as:
Waste Management]
Texaco Overseas Petroleum Company and California Asiatic Oil Company v Governement of
Lybian Arab Republic, Award on Merits, 19 January 1977, 53 ILR 389.
[Cited as: Texaco v Lybia]
Klöckner v. Cameroon, Award of 21 October 1983: ICSID Reports, vol. 2 [cited as: Klöckner]
Middle East Cement v. Egypt, Award, 12 April 2002, 7 ICSID Reports 178, paras. 71, 72 [cited
as: MEC]
Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6
[cited as: SGS]
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID
Case No. ARB/97/3, (first Annulment), Decision on Annulment, July 3, 2002 [cited as: Vivendi
Annulment]
Genin v. Estonia, Award, 25 June 2001, 6 ICSID Reports 241 [cited as: Genin]
CMS v. Argentina, Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494 [cited as: CMS]
Azurix v. Argentina, Decision on Jurisdiction, 8 December 2003, 10 ICSID Reports 416 [cited
as: Azurix]
Ronald S. Lauder v. The Czech Republic, Final Award, 3 September 2001, 9 ICSID Reports
[cited as: Lauder]
Saluka Inves. B.V. v. Czech Republic (UNCITRAL Arbitration, Decision on Jurisdiction over the
Czech Republic‘s Counterclaim, May 7, 2004) [cited as: Saluka]
WTO Cases
Rapport de l‘Organe d‘appel CE – Mesures concernant les viandes et les produits carnés (Hormones)
(WT/DS26/AB/R et WT/DS48/AB/R), 16 January 1998. [Cited as : Hormones]
10
Rapport de l‘Organe d‘appel Australie – Mesures visant les importations de saumon (WT/DS18/AB/R), 20
October 1998. [Cited as : Saumon]
Rapport de l‘Organe d‘appel Communautés européennes – Désignation commerciale des sardines
(WT/DS18/AB/R), 26 Septembre 2002. [Cited as : Sardines]
Rapport de l‘Organe d‘appel Etats-Unis – Mesures de sauvegarde à l’importation de viande d’agneau
fraîche, réfrigérée ou congelée en provenance de Nouvelle-Zélande et d’Australie (WT/DS178/AB/R), 1
May 2001. [Cited as: Viande d‘agneau]
Rapport de l‘Organe d‘appel États-Unis — Mesures de sauvegarde définitives à l’importation de tubes et
tuyaux de qualité carbone soudés, de section circulaire, en provenance de Corée, 15 February 2002.
[Cited as : Tuyaux]
11
PART ONE
PROCEDURAL ISSUES
(A) THE TRIBUNAL HAS NO JURISDICTION TO RULE ON CLAIMANT’S
SUBMISSIONS
1. Claimant submits that it has standing to pursue arbitration before the ICC despite FPS‘ filing of a
claim with the Sylvanian Ministry of Energy and that the ICC is a proper forum for an
investment dispute between an investor and a host State1.
2. However, Respondent will demonstrate that the Tribunal has no jurisdiction to rule on
Claimant‘s submission, since Claimant is not an investor pursuant to the definition set forth in
the Freedonia-Sylvania BIT (I.). Moreover, Respondent will show that Claimant is precluded to
pursue arbitration pursuant to Art. 11 (3) of the Freedonia-Sylvania BIT (II.). As a conclusion,
Respondent respectfully submits that this tribunal declines its jurisdiction to decide the dispute.
3.
I. Claimant is not an investor pursuant to the definition set forth in the Freedonia-
Sylvania BIT
4.
5. Respondent submits that Claimant does not fit the definition of ―investor‖ provided by BIT
art.1(3), which is requires that the natural and legal persons do not pursue sovereign activities
and are not funded by the other contracting person.
6. Professor Pinto affirms that whenever a shareholder or group acting together own 51% or more
of the voting shares of a corporation, it means de jure control of most decisions, including the
selection of the directors,2 which means that any shareholder or group of shareholders with a
participation higher than 51% controls the company‘s activities.
1 Terms of Reference, §(c)(i), p.7
2 Pinto & Branson, p.229
12
7. Moreover, since Claimant is a closed capital company, the possibilities of its corporate funding
are more restricted, limited by the contracting of or by the investment performed by the owners
of its shares.
8. In this matter Profs. Franco Modigliani and Merton H. Miller state that in order to provide the
capital necessary to conduct its business the stakeholders must invest funds, what in a closed
capital company creates equity to be subscribed and paid by the same existing stakeholders,
contrariwise to publicly traded companies in which the funding possibilities are more complex
and accompanied by the issuing of shares or other titles.3
9. In terms of investment arbitration, the main issue is whether state owned entities, funded and
controlled by sovereigns may be regarded as investors as to enjoy the benefits of BITs signed
between its state shareholder and other states.
10. In this regards, Professor Nolan clarifies that since the issue of state-owned entities is still rather
controversial in investment arbitration, when drafting BITs, states may reflect their specific
intentions in their negotiated definition of the term ―investor‖.4
11. In the case at hands, BIT art.1(3) is quite clear when requiring that ―natural and legal persons do
not pursue sovereign activities and are not funded by the other Contracting Party.‖
12. Since, based on notions of corporate law, Claimant is funded and controlled by the state of
Freedonia, one of the contracting parties, this Tribunal should find that Claimant does not fit the
definition of investor described in BIT art.1(3) and, therefore, it is precluded from pursuing
arbitration pursuant to BIT art.11.
13.
II. Claimant is precluded to pursue arbitration pursuant to the “Fork-in-the-Road”
provision in the Freedonia-Sylvania BIT
14. Respondent submits, in opposition to Claimant‘s allegations of having standing before this
Arbitral Tribunal, that the latter‘s resort to the Sylvanian Ministry of Energy (―SME‖) and to
3 Modigliani & Miller, p.263
4 So far, at least two ICSID cases have been commenced by SCEs. East Kalimantan and Tanzania Electric.
13
Sylvanian courts triggered the ―fork-in-the-road‖ provision enshrined in Art.11(3) of the
Freedonia-Sylvania BIT, preventing it from pursuing arbitration.
15. ―Fork-in-the-road‖ provisions determine that, before a claim is actually brought up, the investor
may elect the most adequate venue. In the words of Prof. Schreuer, ―[o]nce the investor chooses
to settle the dispute in the host State‘s courts and submits the dispute to those courts, it loses the
option to resort to arbitration‖,5 i.e. once made, the choice is final.
6
16. The purpose of this provision is to avoid a situation where the same investment dispute is
brought by the same claimant against the same respondent for the resolution before different
arbitral tribunals and/or state courts.7
17. The choice which such clauses offer to the investor must be construed as being between real
alternatives.8 Considering it refers to a choice of forum for treaty claims only,
9 some Tribunals
have held ―fork-in-the-road‖ clauses not to have been triggered, which had led some
commentators to query whether the threshold set was too high as it appeared to leave such
clauses without practical effect.10
This would run counter to a basic principle of the law of
treaties, according to which treaties must be interpreted, so far as possible, to give an effective
meaning to all their provisions.11
18. Therefore, Respondent shall demonstrate that Claimant is precluded from pursuing arbitration
since the ―fork-in-the-road‖ provision of the Freedonia-Sylvania BIT encompasses both
contractual and treaty claims arising out of the investment (1.) and that the claims pursued by
Claimant share the same fundamental basis (2.).
(1) The Freedonia-Sylvania BIT definition of “investment dispute” encompasses both
contractual and treaty claims
19. It is impossible to generalize on whether a fork-in-the-road clause forces an investor to elect
5 Schreuer, p.240
6 Baptista, p.140; Cremades&Madalena, p.23
7 Lauder
8 McLachlan et al, p.106
9 Cremades&Madalena, p.23
10 McLachlan et al, p.106
11 Marshall
14
between treaty claims and contract claims, because it would seem to depend on the exact
wording of the treaty.12
20. In this sense, in SGS v. Philippines, the Arbitral Tribunal have suggested that specific
circumstances, such as the wording of the relevant clause, may often not warrant dismissal of the
fork-in-the-road objection on the sole basis of the difference in causes of action,13
because
―drawing technical distinctions between causes of action arising under the BIT and those arising
under the investment agreement is capable of giving rise to overlapping proceedings and
jurisdictional uncertainty‖.14
21. Sharing this view, the Annulment Committee in Vivendi v. Argentina observed that the specific
language of the ―fork-in-the-road‖ clause in the France-Argentina BIT would allow it to have
been triggered by a domestic court claim ―if that claim was coextensive with a dispute relating to
investments made under the BIT‖.15
22. In that case, the Committee found that the applicable BIT did not require Claimant to allege a
breach of the BIT for the recognition of the jurisdiction of the arbitral Tribunal:16
it would be
sufficient that the dispute was related to an investment made under the BIT.
23. Consequently, if a claim brought before a national court concerned a ―dispute relating to an
investment made under this Agreement‖17
within the wide definition of ―the dispute‖ provided
by the BIT,18
then the fork-in-the-road clause would be triggered,19
foreclosing any recourse to
an investment treaty tribunal, even if based on a different cause of action.20
As Professor
Crawford puts it: ―[f]actually there was one dispute not two, whatever causes of action might be
invoked‖.21
24. Following this reasoning, the Tribunal in Middle East Cement v. Egypt22
analyzed the specific
12
Baptista, p.139 13
Rivkin, p.289-290 14
SGS, para.132 15
Vivendi Annulment, para.55 16
Schreuer, p.243 17
France-Argentina BIT Art.8 18
Schreuer, p.243 19
Vivendi Annulment, para.60 20
Douglas 2, §G 21
Crawford, p.13 22
MEC
15
wording of the Greece-Egypt BIT and noted that disputes within the meaning of the ―fork-in-the-
road‖ provision were those disputes ―between an investor of a Contracting Party and the Other
Contracting Party concerning an obligation of the latter under this Agreement‖.23
Therefore, in
that case, although it has decided that the ―fork-in-the-road‖ provision had not been triggered, the
Tribunal only deemed the provision inapplicable because the definition of ―investment disputes‖
was not broad enough to encompass also contract claims such as in Vivendi v. Argentina.
25. In the present case, the ―fork-in-the-road‖ provision contained in art.11(3) of the BIT applies to
―Investment Disputes‖ as defined in BIT art.11(1), which also includes ―a dispute involving (a)
the interpretation or application of an Investment agreement between a Contracting Party and an
Investor of the other Contracting Party‖, not only treaty disputes as in Middle East Cement v.
Egypt, rendering useless the distinction made by some arbitral tribunals between contract and
treaty claims.24
26. Therefore, since Claimant‘s resort to the SME and to Sylvanian Courts regarded the application
of the MLA and its precedence over the OPA, i.e. a dispute involving ―an Investment agreement
between a Contracting Party and an Investor of the other Contracting Party‖, the ―fork-in-the-
road‖ provision contained in BIT art.11(3)(b) was triggered, precluding Claimant from pursuing
the same dispute before this Arbitral Tribunal.
(2) The claims pursued by Claimant share the same fundamental basis
27. Notwithstanding the above, it is submitted that, since the present arbitral proceedings share the
same fundamental basis of the claims pursued by Claimant in the SME and in Sylvanian Courts,
Claimant has triggered the ―fork-in-the-road‖ provision of the BIT and is prevented from
pursuing claims before this Tribunal.
28. Respondent argues that, in the absence as yet of direct authority, the Tribunal should consider the
―fork-in-the-road‖ to have been triggered if the investor chose to pursue ―a claim equivalent in
substance to that created by the BIT against the host State‖ (emphasis in the original).25
23
Greece-Egypt BIT Art.10 24
Genin, paras.47,58,321,333; CMS, paras.77-82; Azurix, paras.37-41,86-92; 25
McLachlan et al, p.106
16
29. Supporting this argument, the recent decision by the Tribunal in Pantechniki v. Albania lent
practical effect to the ―fork-in-the-road‖ provision contained in the Greece-Albania BIT, by
adopting a qualitative test that looks at the ―subject-matter of the claims‖ instead of simply
identifying their ―legal character‖ as either contract or treaty claims.26
30. The award rendered in Pantechniki holds that instead of focusing strictly on whether the causes
of action brought to the local courts and the arbitration are identical, one must assess whether the
claims share the same ―fundamental basis‖ or if the basis of the claim brought before the arbitral
tribunal is autonomous of claims to be heard elsewhere. 27
31. By applying this test to the case, the Arbitral Tribunal found that the dispute arose out of the
same purported entitlement to payment for contractual losses that the investor had brought before
the Albanian courts. As such, because the investor had already elected to bring such claims in the
local courts, it could not pursue its claim for the same payment trough arbitration.28
32. In the present case, through its wholly owned-subsidiary, Claimant sought declaratory relief from
the Sylvanian courts to the effect that the terms of the MLA took precedence over the
amendments to the OPA.29
Notwithstanding such claim, Claimant filed a request for arbitration
against Respondent before the ICC arguing violation of the fair and equitable treatment and
subversion of its legitimate expectations.30
33. Therefore, both claims, the one pursued in the present proceedings and that pursued in the SME
and in Sylvanian courts, are based on Claimant‘s legitimate expectations pursuant to the contract.
As in Pantechniki, in the present case, the claims pursued by Claimant in the different fora share
the same fundamental basis.
34. As a conclusion, since the Freedonia-Sylvania BIT definition of ―investment dispute‖ expressly
encompasses both contract and treaty claims and since the claims pursued by Claimant
domestically and internationally share the same fundamental basis, Claimant‘s resort to
Sylvanian courts and the SME has triggered the ―fork-in-the-road‖ provision contained in BIT
art.11(3), preventing Claimant from pursuing this arbitration.
26
Sinclair, Steven 27
Marshall, Sinclair, Steven 28
Steven 29
Uncontested Facts, para.16, p.4 30
Ibid, para.26, p.5
17
(B) RESPONDENT’S COUNTERCLAIM IS ADMISSIBLE
35. Respondent further submits, by way of counterclaim, that it is entitled to request the Tribunal to
find that the actions of Claimant and its wholly-owned subsidiary FPS caused devastating harm
to Respondent, and to seek damages accordingly.31
However, Claimant contests the jurisdiction
of this Arbitral Tribunal to hear counterclaims, stating that any claims against it for liability
arising out of the facts of this case must be pursued in accordance with the contractual
agreements in place.32
36. Although BITs are typically concluded in the interests of investors, they usually provide for
broad jurisdiction over disputes and do not restrict the parties‘ obligations to those contained in
the BITs.33
In any event, it has been generally recognized that host States can assert
counterclaims against investors under all major arbitration rules.34
37. As a consequence, Tribunals have asserted their jurisdiction over counterclaims even in the
absence of express provisions on the BIT, basing their decisions on the agreed set of procedural
rules and the applicable law.35
Hence, jurisdiction over counterclaims in such cases depends on
the text of the arbitration rules that govern the proceedings, and on whether the counterclaim
arises out of a contract or a treaty.36
38. In light of the above, Respondent submits that its counterclaim are admissible by the principles
and rules applicable (I.). Moreover, since liability is a contractual obligation arising out of the
same investment, this Tribunal has the power to decide on Respondent‘s counterclaim (II.).
Finally, Respondent will demonstrate that FPS and Claimant should be considered a single entity
(III.).
31
Terms of Reference, §(c)(ii), p.8 32
Ibid, §(c)(i), p.8 33
Kryvoi, p.3 34
Ibid, p.5; e.g. UNCITRAL Rules art.19.3, ICSID Convention arts.25(1) and 46, SCC Rules art.5(1)(iii), Iran-US
Claims art.II(1) 35
Ibid, p.10 36
Dugan et al, p.154
18
I. Respondent’s counterclaims are admissible by the principles and rules applicable to the
dispute
39. If a general principle can be discerned, it is that the jurisdiction ratione materiae of an
international tribunal extends to counterclaims unless expressly excluded by the constitutive
instrument.37
40. In fact, based on the decision in Saluka v. Czech Republic38
, it is submitted that where the
consent of the contracting state parties to investor/state arbitration in an investment treaty is
couched in broad terms, there is nothing in principle to exclude a tribunal‘s ratione materiae
jurisdiction over counterclaims by the host state.39
41. To ascertain jurisdiction, the Tribunals must than analyze if the relevant BIT dispute provision is
not limited to obligations specifically provided by the BIT,40
since host states would have
difficulty in claiming breaches of the BIT on part of investors, which are not parties to BITs. The
state may then assert counterclaims under a sufficiently broad BIT clause if the investor breached
its obligations under the investment contract concluded with the State.41
42. In the present case, as previously demonstrated42
, BIT art.11(1) determines that an investment
dispute within the context of the BIT is ―a dispute involving (a) the interpretation or application
of an Investment agreement between a Contracting Party and an Investor of the other Contracting
Party […]‖, which includes contract claims within the jurisdiction of this Tribunal.
43. Provided that these counterclaims are within the scope of the parties‘ arbitration agreement,43
the
great majority of arbitral rules provide that counterclaims may be filed in the response to a
request for arbitration or statement of defense.44
In fact, the right to counterclaim is a procedural
right expressly provided also by the rules applicable to these proceedings, as provided by ICC
art.5(5), which allows respondents to make counterclaims when filing their Answers to the
37
Douglas, para.488, p.256 38
Saluka 39
Douglas, para.488, p.256 40
Kryvoi, p.11 41
Ibid, p.30 42
See supra §(A)(II)(a) 43
Dugan et al, p.153. See, e.g., ICC Rules art.5(5); ICSID Arbitration Rules art.40; ICSID Convention art.46; SCC
Rules art.10(3); UNCITRAL Rules art.19. 44
Idem
19
Request for Arbitration.
44. As a conclusion, since the consent of the state parties to the Freedonia-Sylvania BIT expressly
includes contract claims within the meaning of investment disputes that may be submitted to this
Arbitral Tribunal and since ICC art.5(5) allows Respondent to file a counterclaim with its
Answer to the Request for Arbitration, what was done in 29 Arpil 2011,45
Respondent‘s
counterclaims are admissible by the principles and rules applicable to the dispute.
II. Since liability is a contractual obligation arising out of the same investment, this
Tribunal has the power to decide on Respondent’s counterclaim
45.
46. Although all major arbitration rules require that counterclaims relate to the substance of the
already initiated dispute,46
requiring that e.g. the counterclaim must arise out of the ―same
contract‖ [UNCITRAL Rules art.19.3], or must arise ―directly out of an investment‖ and
―directly out of the subject-matter of the dispute‖ [ICSID arts.25(1) and 46], or must arise ―out of
the same contract, transaction or occurrence that constitutes the subject matter of [the primary]
claims‖ [Iran-US Claims art.II(1)]47
, this is not the case of the ICC Rules, which are applicable to
the case at hands. ICC art.5(5) merely requires ―a) a description of the nature and circumstances
of the dispute giving rise to the counterclaim(s); and b) a statement of the relief sought‖.
47. Notwithstanding this omission by the applicable rules, case law and authors, such as Professor
Crawford, affirm that where the host state has a counterclaim arising from the investment
contract, which falls within the description of a dispute concerning an investment according to
the terms of the relevant BIT, such a counterclaim may be admissible depending on the actual
connection with the primary claim.48
48. Following such understanding, for an investment treaty tribunal to exercise jurisdiction ratione
materiae over a counterclaim, it must be formulated in respect of matters directly relating to the
45
Uncontested Facts, para.27, p.5 46
Kryvoi, p.11 47
Saluka, para.76, p.17 48
Crawford, p.17
20
investment.49
49. Thus, the requirement established by the Saluka Tribunal that there must be ―interdependence
and essential unity of the instruments on which the original claim and counterclaim [are]
based‖50
cannot be endorsed. It would have the effect of excluding the tribunal‘s jurisdiction over
counterclaims whenever the investor‘s claim is based upon an investment treaty obligation
because the host state‘s counterclaim cannot by definition be based upon the same instrument.51
50. A more reasonable test seems to have been applied in Amco v. Indonesia, in which the Tribunal
rejected the counterclaims because the subject-matter ―was not specially contracted for in the
investment agreement and does not arise directly out of the investment (emphasis added)‖.52
Claims and counterclaims meeting this test, while remaining legally distinct causes of action,
may have the same subject-matter.53
51. In the present case, since the MLA included a ―requirement to take all appropriate measures to
prevent discharges of oil on navigable water; and, in the event of a discharge, to ensure an
immediate and effective removal of oil on navigable waters‖54
, Respondent‘s counterclaim for
Claimant‘s liability for the oil spill in the Libertad Gulf not only arise directly out of the
investment object of the claims put forward by Claimant, since it involves the Claimant‘s oil
exploration in the coast of Sylvania, but also concerns obligations contracted for in the
investment agreement.
52. The contractual nature of the counterclaim is even recognized by Claimant in the Terms of
Reference, in which Claimant stated that ―any claims against it for liability arising out of this
case must be pursued in accordance with the contractual agreements in place‖.55
53. In fact, the counterclaim concerns the same facts and the same dispute and should not be
dismissed by this Tribunal because of its contractual nature. As well addressed by Professor
Crawford,
49
Douglas, para.496, p.260 50
Saluka, para.70 51
Douglas, para.496, p.260 52
Amco, paras.543,565 53
Crawford, p.17 54
Uncontested Facts, para.5, p.1 55
Terms of Reference, §(c)(i), p.7
21
54. ―This conclusion seems desirable as a matter of policy as well as law. Despite the inherently
asymmetrical character of a BIT, BIT tribunals should be able to hear closely connected
investment counterclaims arising under the investment contract. Otherwise the maxim pacta sunt
servanda operates in only one direction‖.56
III. FPS and Claimant should be considered a single entity
55. Since the MLA was concluded between Respondent and FPS and since the actions that led to the
devastating harm caused to Respondent were attributable to FPS, Claimant might argue that the
counterclaim regards a company which is not a party to the proceedings, i.e. FPS. However, such
argument cannot be supported since FPS is a wholly-owned subsidiary controlled by Claimant57
,
which was created with the sole purpose of allowing the participation of Claimant in the bidding
process.58
56. Some tribunals were faced with a similar argument by claimants wishing do dismiss
counterclaims, even though in such cases the non-signatory parties were not wholly-owned
subsidiaries as is FPS in the present case. The respondents requested that the tribunals pierce the
corporate veil.
57. Although the Saluka tribunal refrained from ruling on the issue of piercing the corporate veil, it
proceeded on the assumption that ―the relationship between [the companies was] sufficiently
close to enable the Tribunal‘s jurisdiction‖59
to extend the claims against the non signatory. The
Tribunal in Klöckner,60
on its turn, concluded that the contracts entered into by a local subsidiary
establish the jurisdiction of the tribunal with respect to the counterclaim because of the direct
connection between the contracts and the parties‘ claims.61
58. Therefore, Respondent submits that Claimant and FPS should be considered a single entity.
Alternatively, this Tribunal should consider that the counterclaim is directly connected to FPS‘
parent company, Claimant in these proceedings, since the dispute is directly related to its
56
Crawford, p.17 57
Uncontested Facts, para.3, p.1 58
Ibid, para.2, p.2 59
Saluka, para.81 60
Klöckner 61
Kryvoi, p.14
22
investment.
23
PART TWO
TRANSPARENCY ISSUES
(A) RESPONDENT IS NOT LIABLE FOR THE ALLEGED BREACH OF
CONFIDENTIALITY OBLIGATIONS
59. In investor-state arbitration, the presence of States and State entities as well as issues of a public
nature mean that transparency and accountability are beginning to outweigh privacy and
confidentiality in importance.62
Therefore, issues that involve public interest should not be
decided without minimum standards of transparency that will ensure that individuals who are
potentially affected but such issues are aware of their outcome.
60. In the present case, two transparency issues are at stake: the release of the Confidential Report
and the participation of a NGO organization as amicus curiae in these arbitral proceedings.
Hence, Respondent shall demonstrate below that it is not liable for the release of the report to the
Sylvanian press (I.) and that the information disclosure upon request by CSE to the Sylvanian
Courts does not constitute a breach of confidentiality (II.)
I. Respondent is not liable for the release of the Report to the Sylvanian press
61.
62. On 29 September 2009, the leading Sylvanian newspaper (―La Reforma‖) posted information
regarding the incident in the Medanos Field which was allegedly part of a report produced jointly
by the SME and FPS.
63. Based on such fact, Claimant now alleges that Respondent committed a breach of confidentiality,
once the information contained in the report were classified as ‗confidential‘ by the Sylvanian
government and, therefore, is liable for damages arising from such breach.
64. However, nothing on the record asserts either the occurrence of a breach of confidentiality or
Respondent‘s liability towards it.
62
McLachlan et al, p.57
24
65. Firstly, it is still controversial that the information divulged by the newspaper actually came as a
result of the release of the report itself. Amongst the many other possible sources of the
published information, there are both the SME and FPS‘ own personnel63
, who might have
provided the newspaper the information. As a matter of fact, claims of breach cannot be founded
on sparse indications and rumors64
.
66. Secondly, even if it became clear that the information dubbed as confidential was leaked by an
employee of the SME or a servant of the Sylvanian government, the latter cannot be held liable
for these individual‘s actions. In accordance to the principle of attribution, a State may only
be held responsible for the acts of its own organs and not for those of its nationals65.
67. The rules of attribution derive from both the fact that the state is an abstract entity that
necessarily acts through authorized entities, officials and representatives, and the fact that a state
is not responsible for the private acts of its nationals. A State is not responsible for the private
acts of its nationals, even when such conduct causes injury to a foreign national
68. As a result, under such loosely based allegations and inconclusive evidence, Respondent cannot
be considered to have violated any confidentiality duties assumed with regards to information
concerning the incident in the Medanos Field.
II. The information disclosure upon request by CSE to the Sylvanian Courts does not
constitute a breach of confidentiality.
69.
70. Claimant further sustains that Respondent violated its duty of confidentiality towards information
concerning the proceedings when, on 29 September 2011, the Sylvanian Court ordered the
release of the written pleadings concerning the arbitration proceedings to CSE following a
request submitted by the latter to the Sylvanian Court of Administrative Matters. Freedonia
Petroleum objected to CSEs Request, while the Republic of Sylvania contended that the
information requested should be released66
.
63
Clarification 43 64
Clarification 64 65
Moore, p.2082; 66
Uncontested Facts, paras.31-33, p.6
25
71. Upon release, the Sylvanian Court noted it released the information ―in public interest, especially
having regard to the extraordinary impact the subject-matter of the proceedings had on the
citizens of Sylvania‖.
72. In order to demonstrate that no confidentiality breach was due to the narrated event, two facts
must be highlighted. Firstly, the release of information granted by the Sylvanian Courts was
performed in strict observance to the national legislation of Sylvania, namely the ―Freedom of
Information Law‖. Secondly, the release of information meets the objective of wide publicity of
matters which bear a direct relation to the public interest and which decision poses a direct
impact to the population.
73. According to the Sylvanian Freedom of Information Law, amended on 21 November 2009,
―third-party‖ access to information concerning cases before international tribunals involving the
Republic of Sylvania was limited. Prior to the amendment, the FoI Law stipulated that all
information in cases involving the Republic of Sylvania remained public, except for information
related to commercial and professional secrets, criminal cases and covert operations. Following
the amendment, any third party not directly involved in an international case must apply to a
Sylvanian court for the release of details about the case67
.
74. CSE‘s request was submitted to the Sylvanian Court of Administrative Matters, fulfilling hence
the strict parameters set forth by the Freedom of Information Law. Further, the Court not only
notified the parties of CSE‘s request, but also invited them to submit their comments to it,
thereby respecting all the guaranties set forth by the BIT and the fair treatment of the investor.
75. In Methanex Corporation v. United States of America, the tribunal stresses the importance of the
public interest in investment arbitrations in general, which goes beyond regular commercial
arbitrations. Noteworthy, the tribunal emphasized that the public interest is not based on the fact
that one party of the arbitration is a state. The tribunal notes: "There is an undoubtedly public
interest in this arbitration. […]The public interest in this arbitration arises from its subject-matter
[…]. This is not merely because one of the Disputing Parties is a State: there are of course
disputes involving States which are of no greater general public importance than a dispute
67
Uncontested Facts, para.10, p.2
26
between private persons68
.
76. In Loewen69
, the arbitral tribunal was required to consider the United States obligation under its
domestic law to release documents related to the arbitration proceedings. Indeed, the US
Freedom of Information Act (FOIA) provides that any person has a right of access to federal
agency records subject only to some specific exemptions, much like the case at hands70
.
77. The Tribunal considered the United States request to release the documents and decided that
there was no implied or general obligation of the rules applicable. In addition, based on the
Loewen Group‘s request for clarification of this decision, the tribunal noted that neither of its
decisions was intended to affect any statutory obligation of disclosure by which any party might
be bound.
78. The tribunal also argued that especially arbitrations involving a state party should not be
confidential as this would deprive the public of knowledge and information concerning
government and public affairs71
. Following these decisions, the United States, complying with
the FOIA, gradually released documents related to the case.
79. As a result, in accordance with the applicable rules, leading doctrine and case law, it cannot be
argued by Claimant that the release of information pursuant to a National Court determination
amounts to a breach of confidentiality, once the release was made pursuant the rules applicable
to the matter and once the release was necessary given the matters of public interest involved in
the case at hands.
(B) CSE’S REQUEST SHOULD BE ADMITTED BY THIS TRIBUNAL
80. On 10 September 2011, CSE filed with the Arbitral Tribunal a request to be present at the
hearings, to submit documents and to be heard as a non-disputing party in the ICC proceedings
between Freedonia Petroleum and The Republic of Sylvania regarding ―the Libertad Gulf
environmental and economic disaster caused by the oil spill, which was aggravated by FPS‘
abject failure and incompetence to remedy it.‖
68
Methanex, para .49; Sasse, p.179 69
Loewen 70
OECD Report, p.6 71
Sasse, p.179; Buys, p.132; OECD Report, p.6.; Fracassi, p.218
27
81. Respondent submits that CSE request to the this Tribunal should be admitted, since (i) the
submission that this Tribunal shall not admit CSE‘s request, since (I.) CSE‘s request is
admissible under the rules applicable to the matter, since (II.) the matter at dispute call upon the
participation of third parties directly involved and (III.) once CSE‘s participation does not
compromise the equal treatment of the parties.
I. CSE’s request is admissible under the rules applicable to the matter
82.
83. In international commercial arbitration, only parties to a dispute may participate in the arbitral
proceedings. A third party may not do so without the arbitrating parties' consent. In investment
dispute arbitration, however, the presence of States and State entities as well as issues of a public
nature mean that transparency and accountability often outweigh privacy and confidentiality in
importance.72
84. Where the public interest is compelling and the arbitration is public enough in nature, amicus
brief have been admitted by arbitration tribunals, provided that such request found basis in the
rules applicable to the matter.
85. Many tribunals constituted under the UNCITRAL Rules have applied art.15(1) in order to
legitimate the acceptance by the tribunal of amicus curiae requests submitted by third-parties.
The said article provides that the arbitral tribunal may conduct the arbitration in such manner as
it considers appropriate, provided that the parties are treated with equality and that at any stage of
the proceedings each party is given a full opportunity of presenting his case.
86. Concerning that matter, the tribunal in Methanex determined that this must be resolved within
the agreement of the parties; although art.15(1) confers wide procedural powers on the tribunal,
the tribunal has no power to add third parties to the proceedings without party consent. However,
an amicus petition is not adding a third party; it merely allows receipt of submissions by non-
participating parties and hence leaves the parties‘ procedural and substantive rights unaltered73
.
87. Accordingly, the tribunal decided that the admissibility of an amicus petition fell within the
72
McLachlan, para.3.40 73
Methanex, para.28; Mistellis, p.219
28
procedural powers of the tribunal. The tribunal determined that art.15(1) provided for such broad
powers, finding support in the Notes to the Iran-United States Claims Tribunal74
and the World
Trade Organization, whose rules, while restricting the tribunal‘s powers, allow them to accept
amicus briefs.
88. In a later case, the Tribunal constituted under the same UNCITRAL Rules declared that it ―ha[d]
the power to accept written amicus briefs from the Petitioners. It will consider receiving them at
the merits stage of the arbitration following consultation with the parties, exercising its discretion
in the way indicated in this decision and in accordance with relevant judicial practice‖75
.
89. Under the ICC Rules applicable to the case at hands, several articles grant the tribunal the
discretionary powers needed to accepted the request brought by CSE. Under article 15(1), the
tribunal may settle on the rules governing the proceedings, provided that the Arbitration Rules
and the parties remain silent in this regard. Under article, the tribunal has broad powers to
appoint one or more experts, define their terms of reference and receive their reports. It may also
decide to hear witnesses, experts appointed by the parties or any other person, in the presence of
the parties, or in their absence provided they have been duly summoned.
90. It subsists undisputed, henceforth, that the powers granted to the Tribunal by the parties
themselves allow it to accept the request to be present at the hearings, to submit documents and
to be heard as a non-participating party.
91.
II. The matter at dispute calls upon the participation of third parties directly involved
92.
93. There is a general understanding that additional transparency, in particular in relation to the
publication of investment arbitration awards, subject to necessary safeguards for the protection of
confidential business and governmental information, is desirable to enhance effectiveness and
public acceptance of international investment arbitration, as well as contributing to the further
development of a public body of jurisprudence. Especially insofar as proceedings raise important
74
Iran v. United States 75
UPS; Malanczuk, p.197
29
issues of public interest, it may also be desirable to allow third party participation, subject
however to clear and specific guidelines76
.
94. The increased public visibility and the emerging ‗transparency‘ in investment disputes are not
only justified by the participation of states, but they are also expected by the public. The subject
matter of many investment disputes affects the daily life of citizens, many, for example, have a
bearing on the provision and cost of ‗public‘ services such as water, waste management,
electricity, gas, etc.77
95. In the case at hands, the subject-matter is one of grave relevance to the population of Sylvania,
once, to many of them, survival is at stake, since the environmental outcome of the incident in
the Medanos Field is of great immediate concern to the thousands of citizens who have suffered
economic and personal losses.
96. In such circumstances, the participation of third-parties is not only permitted but demanded, once
acting as experts on the matter. The Tribunal in Vivendi Universal v Argentine Republic set out
two basic objective criteria for determining whether to exercise the power to admit such
submissions: the appropriateness of the subject–matter of the case (i) and the suitability of a
given non–party to play a role in the case (ii)78
.
97. Regarding the first criterion, the Tribunal noted that State courts have traditionally accepted so–
called amicus curiae submissions from suitable non–parties in cases featuring matters of public
interest of an appropriate nature. Nonetheless, the Tribunal considered that the aspect of public
interest, on its own, was insufficient to satisfy the requirements. There must be something
more—a ‗particular public interest‘. The particular public interest in the Vivendi case arose
because the dispute revolved around the water distribution and sewerage systems of the City of
Buenos Aires and surrounding municipalities. The outcome of the case could affect the operation
of these systems, thus providing a legitimate public interest in the subject–matter before the
Tribunal.
98. Such particular public interest can also be verified in the case at hands. Hundreds of businesses
in Sylvania were adversely affected by the oil spill. Thousands of citizens lost their jobs. Key
76
McLachlan, paras.3.41 77
Mistellis, p.224 78
Suez-Vivendi
30
Sylvanian businesses, including agriculture, seafood, tourism and related industries, are facing a
bleak future. Our environment has been degraded and indeed devastated79
.
99. On suitability to make a non–disputing party submission, the Tribunal stated that it would ‗only
accept amicus submissions from persons who establish to [its] satisfaction that they have the
expertise, experience, and independence to be of assistance in this case‘.
100. On the case at bar, such requirements are all met by CSE background, once it is funded by
Sylvanian citizens and the domestic agricultural and seafood industry, the ones most affected by
the incident. It also organizes and administers programs and initiatives to educate both private
and public citizens about environmental awareness and protection, engaging in environmental
advocacy in fora at international and national levels. In addition it monitors environmental health
and reports on the state of natural resources in Sylvania and across the region.
101. Thereby, being CSE an expert, experienced and independent party, given the circumstances and
gravity of the subject matter and the impact it poses to the parties involved, CSE‘s request to act
as non-disputing party to the proceedings shall be accepted by the Tribunal.
III. CSE’s participation does not compromise the equal treatment of the parties
102.
103. Finally, Respondent submits that the acceptance of the amicus curiae submission by this Tribunal
does not constitute a violation of the equal treatment of the parties to this arbitration.
104. In accordance with article 15(2) of the ICC Arbitration Rules, ―[i]n all cases, the Arbitral
Tribunal shall act fairly and impartially and ensure that each party has a reasonable opportunity
to present its case‖.
105. However, this provision cannot be construed in order to prevent the participation of third-parties
to the proceedings, once the possibility of admitting non-parties is enshrined in the rules
themselves. Even though there might be an addition burden upon one of the parties, especially
given the larger amount of documents produced, such burden does not prevent a party from
present its case, nor disavows the Tribunal as an impartial and fair entity towards the parties and
79
CSE Submission, p.23
31
the proceedings. Additionally, the Tribunal is empowered to prevent the occurrence of an
additional burden, offering whatever procedural protection might be necessary.
106. The Tribunal in Methanex80
, relying on the rationale that no substantive rights are acquired by
the third party, determined that the argument of additional burden being placed on the parties –
because of the need to respond to the amicus brief – is not substantiated and should have no
bearing on the discussion about the admissibility of submissions by third persons.
107. Further, the ICC Rules grant the Tribunals constituted under them wide evidentiary powers under
Articles 20(1) and following, being able to allocate the weight given to such brief accordingly.
Moreover, because of the wide evidentiary latitude, the tribunal could limit the amicus
submission in such a way as to prevent witness presentation, expert determinations and similar
situations that may involve additional burden81
.
108. Following such understanding the Methanex Tribunal declared itself aware of the slight risk for
additional burden and, within its wide discretion, would seek to be mindful of any such
occurrence but would not prevent the amicus submission under this argument82
.
109. As a result, once there are no impediments to the acceptance, by the Tribunal, of the submission
brought forth by CSE, and given the destructive impact of the event on Sylvania‘s environment,
the undeniable public interest to the matter and CSE‘s expertise on the latter, this Tribunal
should enable CSE‘s participation as an amicus curiae in the present proceedings.
80
Methanex, para.49 81
Mistellis, p.219 82
Methanex, para.49; UPS
32
PART THREE
SUBSTANTIVE ISSUES
(A) NPCS’ACTIONS ARE NOT ATTRIBUTABLE TO RESPONDENT
110. According to the principle of attribution, a State may only be held responsible for the acts of its
own organs and not for those of its nationals.83
Contrariwise to what was alleged by Claimant,
respondent is not responsible for the actions of NPCS since NPCS is not an organ of the
Respondent (I.); NPCS was not exercising governmental authority (II.); and NPCS was not
acting under instructions and express authorization by the Respondent (III.).
I. NPCS is not an organ of the Respondent
111. Article 4 of ILC Draft provides the basic rule of state responsibility which is that any conduct of
a state organ is an act of the state, i.e., it is attributable to the state. Such rule reflects the basic
notion that the state is an abstract concept, it can only act through individuals or entities. i.e.
through an ―organ‖. In a sense the rule says nothing beyond the observation that when a State
acts, it is a State conduct.84
112. In this matter, it is important to highlight the definition of what constitutes a state organ. Abby
Cohen Smutny defines state organ as a person or entity that exercises public authority, ―that is a
person or entity through which the state acts or that acts for the state‖, e. g. government
ministries, agencies and natural or legal person that holds an office, comission or body that
exercises public authority.
113. In this sense ―the rules of attribution derive from both the fact that the state is an abstract entity
that necessarily acts through authorized entities, officials and representatives, and the fact that a
state is not responsible for the private acts of its nationals. A State is not responsible responsible
83
Moore, International Arbitration. P.2082. Pogglioli Case(1903) in J.H Ralston. The Law procedure of
International Tribunals(1926) p.847. Borehard Diplomatic Protection, p. 217. 84
State Responsibility and Attribution: When Is a State Responsible for the Acts of State Enterprises?," International
Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary
International Law, Cameron May, 2005
33
for the private acts of its nationals. A state is not responsible for the conduct of its nationals, even
when such conduct causes injury to a foreign national.‖
114. The example given by Prof. Shaw clarifies any doubts ― If an Englishman were to attack and
injure a Frenchman on holiday in London, the UK would not be held liable for the injury caused,
unless the offender were, for example, a policeman or a soldier‖.85
Moreover, several rules
regarding attribution are aimed to distinct public from private conduct.86
115. NPCS is a company fully owned by the Government of Sylvania.87
That means that although it is
a state owned entity it still has nature of a private institution, whose objective is the exploration
of Petroleum, therefore of economic feature.88
116. As demonstrated, the NPCS is a legal private person with capacity distinguished from the state,
therefore it could be held responsible. ―That is, the state is not in any way ―indirectly‖
responsible for the misconduct of private person that is directly responsible. Only a failure on its
part to perform duties incumbent upon it either prior or subsequent to the commission of such
acts will render it answerable to the other State.‖89
117. Moreover as asserted by ―The rules of attribution merely indicate whether the act is a state act, as
opposed to the act of a private individual or company. Attribution indentifies what acts belong to
the state and what acts do not. Not all ―state action‖ however, is a treaty violation. When an act is
inconsistent with any relevant obligation of the state, such as those that may be found in an
applicable investment treaty. When the conduct at issue is not attributable to the state, recourse
must lay, if at all, against the person or entity in the private sector that caused the injury.‖
118. Since the Maffezini case, the jurisprudence has decided that to be considered a state entity it must
be part of the structure of the government, its actions must be state-oriented and there must be
actions of sovereignty.90
119. It must be noted that the ILC draft on state responsibility was influenced by the decision referred
85
Malcon N. Shaw.International Law. 548, 4th edition. 86
Gordon A. Christenson, The doctrine of attribution in state responsibility for injuries to aliens 87
Problem, page.4 para.19 88
Luis Martín Rebollo, ―Estudio Preliminar y Esquema de la Organización de la AdministraciónGeneral del Estado
y de la Estructura Orgánica Básica de los diferentes Ministerios, p.639-640 89
Alwyn Freeman, International Responsibility of states for denial of Justice 19-20(1938) 90
Emilio A. AMaffeizini V. Kingdom of Spain, ICSID Case no. ARB/97/7 award of November 13.2000; Janes
case, Tellini case, Salvador Commercial Company case
34
above, what can be easily perceived by the commentaries to Art. 4 of the ILC Draft:
120. ―The case of purely private conduct should not be confused with that of an organ functioning as
such but acting ultra vires or in breach of the rules governing its operation. In this latter case, the
organ is nevertheless acting in the name of the State: this principle is affirmed in article 7.‖
121. In the present case, there is nothing from the records that indicate that NPCS is part of the
structure of the government, its actions are state-oriented or that it practiced actions on behalf of
the Government of Sylvania. As the Iran-United States Claims Tribunal has affirmed, ―in order
to attribute an act to the State, it is necessary to identify with reasonable certainty the actors and
their association with the State‖. Therefore it is clear that NPCS is not a State organ.
II. NPCS was not exercising governmental authority
122. In addition to the fact that NPCS is not a State Organ, in the present case it was not exercising
governmental authority in accordance to ILC art. 5, which provides that:
―The conduct of a person or entity which is not an organ of the State under article
4 but which is empowered by the law of that State to exercise elements of the
governmental authority shall be considered an act of the State under international
law, provided the person or entity is acting in that capacity in the particular
instance.‖
123. To understand the entire complexity of such disposition the commentaries to the ILC Articles is
of a great importance:
―Article 5 deals with the attribution to the State of conduct of bodies which are not
State organs in the sense of article 4, but which are nonetheless authorized to
exercise governmental authority. The article is intended to take account of the
increasingly common phenomenon of parastatal entities, which exercise elements
of governmental authority in place of State organs, as well as situations where
former State corporations have been privatized but retain certain public or
regulatory functions.‖
124. In the present case the situation is quite the opposite, as by means of the Executive Order N.
35
2010-1023 the government of Sylvania authorized NPCS to assist the Sylvanian Government to
control the oil spill temporally until Freedonia Petroleum has duly complied with the
requirements of the order.91
As a consequence it is clear that NPCS actions of expropriating part
of Freedonia Petroleum oil wells surpassed its prerogatives, in accordance to the order provided
directly by the state.
125. Abby Cohen Smutny asserts that:
―some entities that are not structurally or overall functionally classified as State
organs nevertheless may be officially empowered by the state to exercise
governmental authority in certain respects. That is the Law recognizes that an
autonomous or private person or entity may exercise delegated public or
governmental authority. When such a person or entity exercises such authority, its
conduct in that regard is attributable to the State.‖
126. However,
―conduct of such entities that falls outside of the delegated governmental authority
is not attributable o the State. That is, when the conduct is private conduct it is not
attributable, when is public conduct.‖
127. In this matter the ILC commentaries clarifies that
―The justification for attributing to the State under international law the conduct
of ―parastatal‖ entities lies in the fact that the internal law of the State has
conferred on the entity in question the exercise of certain elements of the
governmental authority. If it is to be regarded as an act of the State for purposes of
international responsibility, the conduct of an entity must accordingly concern
governmental‖
128. As a consequence in order to the actions performed by an entity to be attributable to the state,
they must be conduct within the strict delegation granted by the state. Otherwise the State can not
91
Problem, p.19-20
36
be held liable.92
129. Since the actions of NPCS of overtaking part of Freedonian Petroleum oil wells surpassed the
delegation granted by the State, it is clear that NPCS was not exercising governmental authority,
and therefore could not be held liable.
III. NPCS was not acting under instructions and express authorization by the Respondent
130. In November 29th, 2010, the Government of the State of Sylvania issued executive order no.
2010-1023 concerning the emergency authorization regarding the Medanos oil Field providing
that:
―NPCS is hereby authorized to assist Sylvanian Government by securing control
of the relevant oil wells and coordinating the ongoing oil spill response, removal
assessment, and other cleanup efforts at the Medanos Field, and taking any action
necessary in furtherance thereof, until such time as Freedonia Petroleum S.A has
complied with the requirements of section 1 hereof.
131. As demonstrated the government of Sylvania merely authorized NPSC to assist the government
in securing the oil spill until Freedonia Petroleum is comply with all the requirements. Therefore,
the actions of NPCS other than those referred above were not in accordance to instructions or
express authorization by Respondent.
132. In that sense it is important to highlight the principle ensured by the ILC report held in the
GAOR 51ST
Session 1996
―The conduct of a person or a group of persons not acting on behalf of the State
shall not be considered an act of the State under international law.‖93
133. Art 8. of the ILC Draft on State Responsibility later confirmed this assertion as it provides:
―The conduct of a person or group of persons shall be considered an act of a State
92
State Responsibility and Attribution: When Is a State Responsible for the Acts of State Enterprises?, International
Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary
International Law, Cameron May, 2005; ILC Art.4 Cmt. 6,7; Tradex Hellas S.Avs Albania - Award 29aprl1999
para 165; Otis Elevator Company Vs. Iran(1991) ILR 618 93
ILC Report(1996), GAOR, 51st Session. Supp.10, p.125.
37
under international Law if the person or group of persons is in fact acting on the
instructions of, or under the direction or control of that State in carrying out the
conduct.‖
134. The commentary of such article clarifies that:
―As a general principle, the conduct of private persons or entities is not
attributable to the State under international law. Circumstances may arise,
however, where such conduct is nevertheless attributable to the State because
there exists a specific factual relationship between the person or entity engaging in
the conduct and the State. Article 8 deals with two such circumstances. The first
involves private persons acting on the instructions of the State in carrying out the
wrongful conduct. The second deals with a more general situation where private
persons act under the State‘s direction or control. Bearing in mind the important
role played by the principle of effectiveness in international law, it is necessary to
take into account in both cases the existence of a real link between the person or
group performing the act and the State machinery.‖
135. It must be noted that it is highly accepted among international jurisprudence the attribution to the
State of actions performed through instructions or express authorization. However it is necessary
the proof of recruiting or instigation of such agents outside the government while performing the
attributable actions.94
136. Emphasizing such understanding, an ICSID tribunal decided in Tradex Vs. Albania95
that not
even acts by the state or decisions by the government, that give rise to actions of third parties
causing damages to investors, are sufficient to be attributable to the state, unless there is a prove
of direct order, or instruction by the State on the conduct of such actions.
137. As in the present case nothing from the records indicate that there were any instructions or
express authorization that gave rise to NPCS‘ actions, it cannot be sustained that those actions
are attributable to the State of Sylvania.
94
ILC Draft Art. 8 cmt. 2; Zafiro case, UNRIAA, vol. VI (Sales No. 1955. V.3), p. 160 (1925); Stephens case
(footnote 147 above), p. 267; Lehigh Valley Railroad Company and Others (U.S.A.) v. Germany (Sabotage cases):
―Black Tom‖ and ―Kingsland‖ incidents, ibid., vol. VIII (Sales No. 58.V.2), p. 84 (1930) and p. 458 (1939). 95
Tradex Vs. Albania, ICSID Case No.Arb.94/2 award of April 29, 1999
38
(B) RESPONDENT DID NOT VIOLATE THE FREEDONIA-SYLVANIA BIT OR
ANY RULE OF INTERNATIONAL CUSTOMARY LAW
138. Claimant alleges that Respondent breached its obligations under the Freedonia-Sylvania BIT and
customary international law, having failed to accord the standards of treatment set out in the
treaty and as provided for in general international law. Namely, the actions that affected
Claimant and purportedly consisted in violations were the amendment of the OPA of 10
December 2009, the taking over of the wells by NPCS and the suspension of the Claimant‘s
exploration license (―License‖), both on 29 November 2010.
139. Despite such allegations however, Respondent never failed to comply with all its commitments
under the BIT and obligations arising out of international customary international law, having
always treated Claimant with fair and equitable treatment (I.) and not having illegally
expropriated Claimant‘s investment (II.).
I. Claimant was always accorded with fair and equitable treatment
140. The standard of fair and equitable treatment is enclosed in BIT art.4(2), and is understood as
determining that foreign investors should be treated with fairness and reasonability,96
holding a
connection with the principles of good faith and proportionality.97
141. Throughout the development of international investment law and the increase of investor‘s resort
to this general principle against different conducts from host States, scholars and international
jurisprudence have set out common features that would compound the obligations under the
standard of fair and equitable treatment.98
142. An example was the Tribunal in Tecmed, where the arbitrators attempted to list the conducts a
State was required to carry out in order to comply with the standard. According to the Tribunal,
the provision requires a State to provide treatment that does not affect the basic expectations of
96
Lowenfeld, p.556-557; Greig et al, p.261; Waste Management, para.98 97
Tecmed, para.155; MTD v Chile, para.113 98
Rudolph & Dolzer, p.130
39
the investor had when it decided to make the investment; to act with consistency, transparency
and free from ambiguity; and not to act with discrimination or arbitrariness.99
To that list,
tribunals also added the obligations of due process of law and procedural propriety.100
143. By applying this consolidated jurisprudential path of understanding, the facts of the case
evidence that Respondent never treated Claimant and its investment with less than fair and
equitable treatment. More specifically, Respondent always ensured transparency, stability and
protection to Claimant‘s legitimate expectations (1.), always made access to justice available to
Claimant and ensured due process of law (2.) an never acted in ways that could be considered as
arbitrary or grossly unfair (3.).
(1) Respondent ensured transparency, stability and never subverted any of Claimant’s
legitimate expectations
144. On 26 May 2007, Claimant was granted the License that allowed it to explore the Medanos Field
and entered into the MLA with the Respondent. The agreement provided, among other things, for
Claimant‘s obligation to pay a 12% royalty to Respondent and to observe certain safety
obligations, a necessary requirement to conduct the oil exploitation activities.101
This agreement
also further provided, in clause 18, that only the written consent of the parties could modify its
terms and conditions, and in clause 22 that it had the force of law.102
145. Subsequently, on 10 December 2009 the Sylvanian Congress approved the amendment of the
OPA, that introduced a few changes regarding obligation and liability of parties involved in any
way in oil pollution accidents. Then, Claimant contested the effects of the OPA Amendment and
requested before Sylvanian Courts and the Sylvanian Ministry of Energy that the provisions of
the MLA be given precedence over the new legal provisions.
146. In light of these facts, it might be argued by Claimant that such provision gave it reasonable
grounds to develop legitimate expectations that its conditions as a licensee would remain
immune against any type of change, whether of legislative or executive nature, and that any such
99
Tecmed, para.154 100
Metalclad, para.91; Loewen, para.54; 101
Uncontested Facts, para.5 102
Uncontested Facts, para.6.
40
change would be contrary to the guarantees of stability and predictability. Nonetheless, such
arguments have no reasonable basis to be brought up by Claimant.
147. Under the principle of fair and equitable treatment, the common and current practice demands
that, in order to be considered legitimate and binding upon a State, expectations must be
developed under consistent grounds.103
Especially when the expectations relate to the issues of
transparency and stability, their source should be the legal framework or any undertaking made
by the host state.104
148. Nothing from the known scope of the MLA, nor in any piece of law or regulation, guaranteed
that all and every obligation of Claimant, either legal or contractual, would remain intact
throughout time. The guarantee of MLA clause 18 was applicable to the terms and conditions of
the MLA, and nothing beyond that. The MLA was agreed upon between Claimant and
Respondent, within the Respondent‘s legal order, being subject to its whole body of legislation.
149. In this sense, a clause in the agreement that ruled on the modifications of terms and conditions of
that agreement cannot affect all of Respondent‘s legal order. It is accepted in International
Investment Law that effects of legal immutability can be applied to foreign investors in what
concerns the laws and regulations governing its activity as an investor. Such a result, however, is
only achieved by express clauses contained in investment agreements, the so called stabilization
clauses. As a general rule, the host States are not precluded from its normal right of freely
determining its own legal and economic order.105
150. Stabilization clauses provide normally that either the laws of the host state are applicable as in
force of a certain date, or that any future changes of law, that work to the investor‘s
disadvantage, will not be applied to it.106
151. In the case at hand, clause 18 of the MLA or any of the legal instruments that surround the
investment relationship does not have such effect or a wording that would suggest such an
intention from the contracting parties, namely Claimant and Respondent.
103
Craig & Burca, p.382-384; ADF v USA.; Thunderbird, para.147. 104
Rudolph & Dolzer, p.134. 105
Ibid. 106
Ibid, p.75.
41
152. The decision of Texaco v Lybia107
evidences the difference between stabilization clauses and the
type of clauses such as clause 28 contained in the MLA. In that case, the Tribunal recognized
that the investor was protected by the stabilization clause from any legal alterations that could
affect its situation by the provision:
―This concession shall be interpreted during the period of its effectiveness in
accordance with the provisions of the Petroleum Law and the Regulations issued
thereunder at the time of the grant of the concession, and any amendments to or
cancellations of these Regulations shall not apply to the contractual rights of the
Company except with its consent.‖(emphasis added)
153. This clause present in the concession given by the Government of Lybia demonstrates the
unequivocal will of the State to protect the investor from any posterior alterations of law, a will
that is by no means present in the present case, because it does not bear such a direct wording in
this regard.
154. That being the case, it cannot be found in the present case any reasonable grounds for the
development of legitimate expectations over immutability of laws and regulations, nor for the
development of obligations of the State to maintain such extreme stability.
155. International investment protection cannot be deemed to freeze a State‘s sovereignty or power to
legislate. In this sense, when tribunals concluded for the responsibility of the Respondent state in
what concerns modifications of law on the sole ground of fair and equitable treatment, without
the existence of stabilization clauses, it was only because the alterations had been in such a non-
transparent, unpredictable and repetitive way that it generated juridical insecurity on the part of
the investor.108
156. An example is the PSEG v Turkey case, where the Tribunal found that the fair and equitable
treatment obligation was seriously breached by what has been described as the ―roller-coaster‖
effect of the continuing legislative changes.109
In the present case, one cannot consider that there
was a continuous change in legislations concerning the Claimant, only the OPA and blab la
which were taken in light of the recent and grave events related to the oil spill. Therefore,
107
Texaco v Lybia, p.177/182. 108
MTD v Chile, para.163; Occidental, para184; CMS v Argentina, para.274-276 109
PSEG v Turkey, para.250/255
42
without the presence of stabilization clauses in the MLA, it is not possible to reach the
conclusion that respondent‘s legislative measures were extreme to the point of breaching
claimant‘s expectations.
157. As a conclusion, the said expectations of Claimant cannot be seen as legitimate, in the way that
they do not bind the State. The non compliance with said expectations therefore cannot be
deemed a violation of the BIT.
(2) Claimant always had access to justice and guarantees of due process
158. A breach of fair and equitable treatment on the ground of lack of judicial propriety and due
process is related to the investor‘s right to seek judicial relief and to have a fair and transparent
trial. In Thunderbird, for example, the Tribunal found no violation when the facts demonstrated
that the investor had been given a full opportunity to be heard and to present evidence.110
159. This is a very similar context as the one we have in the present case. As demonstrated by the
uncontested facts of case, especially paras. 16 and 18, Claimant had guaranteed access to justice
and due process since as soon as it felt unsatisfied with the changes promoted by the OPA
Amendment, Claimant resorted to Sylvania courts, seeking for a declaratory relief on that issue.
The case is still pending and there is no evidence of any infringement to due process, thus no
violation of the BIT.
(3) Respondent did not take any actions that could be seen as grossly unfair
160. The definition of fair and equitable treatment violation on this ground relates to the principles of
justice and ultimate fairness. In this sense, tribunals have understood that an action that would be
so contrary to such a general sense, in the way that it would be shocking and idiosyncratic, would
entail the violation of a State‘s obligation to accord the investor with the FET treatment.111
161. In the present case, all the actions from the Respondent that affected Claimant were taken
110
Thunderbird, para.47 111
Pope&Talbot, para.118; ELSI, para.154; Waste Management, para.98.
43
following determinations of law, normal legislative procedure and well-based decisions, and all
were made public assuring the transparency that would allow Claimant to take any actions it
found appropriated.
162. As a conclusion, not only none of Respondent‘s actions can be seen as being grossly unfair, as
Respondent never failed to comply of the requirements of treatment set out by the Freedonia-
Sylvania BIT and by international customary international law.
II. In case this Tribunal considers NPCS’ actions attributable to Respondent, such actions
did not amount to illegal expropriation and are not subject to the requisites of BIT art.4
163. Claimant alleges that the taking over of the oil wells by NPCS and the suspension of the License
amounted to expropriation, more precisely to indirect expropriation.
164. BIT art.4 provides for the limits of the right of a Contracting Party to expropriate. According to
this article, generally an investor may not be deprived by the property, use or enjoyment of its
investment, unless if provided by law, preceded by a judicial or administrative decision, for
public purpose and followed by full and adequate compensation.
165. However, in the present case, Respondent‘s actions, if this Tribunal decides to attribute NPCS
actions to Sylvania, are not subject to the provisions of the cited article. This is because, in this
hypothesis, it should be then concluded that the actions taken towards Claimant‘s assets
amounted to a mere exercise of regulatory powers (police powers) by the Respondent.
166. It is accepted in international law that when a measure is taken in the bona fide exercise of
functions that are generally considered part of the government‘s powers to regulate the general
welfare, if observed the principles of reasonableness and proportionality, it is not considered as
expropriation.112
As a consequence, such measures would not be subject to the obligation of
compensation. 113
This was the holding of the arbitrators in Feldman v Mexico, who stated that:
―governments must be free to act in the broader public interest through protection
of the environment, new or modified tax regimes, the granting or withdrawal of
government subsidies, reductions or increases in tariff levels, [etc]. Reasonable
112
Telenor v Hungary, para.78; SD Myers, para.281; Methanex, Part IV, Chapter D, para.4; Saluka, para.262;
Dolzer & Schreuer, p.109. 113
Reinisch in Handbook, p.432
44
governmental regulation of this type cannot be achieved if any business that is
adversely affected may seek compensation, and it is safe to say that customary
international recognizes this.‖114
167. Such understanding preserves the general regulatory powers of States and prevents foreign
investors from shielding illegal and criminal acts and deviated use of property under the
allegation of the protections agreed upon by the host State under BITs.115
Such powers have been
even better accepted when applied in order to preserve public order or morality and to protect
human health and the environment.116
168. In the present case, the motivation and legitimacy to exercise such regulatory powers by the
Respondent was the dangerous threat to its environment. As the facts of the case demonstrate,
Claimant was in possession of a License and of oil wells that allowed it to explore the oil blocks
of the Medanos Field. However, after the explosion on 9 June 2009, Claimant‘s incapacity to
properly address the emergency only let the situation develop and worsen. Such development
increasingly threatened Sylvanian and general maritime wildlife, risking its permanent damage,
especially concerning the imminent arrival of the leaking oil to the Sylvania Keys, a protected
area with high levels of biodiversity.117
169. In this scenario Respondent was especially legitimated to act because the emergency dealt with
its natural resources.
170. International instruments such as the UN General Assembly Resolutions 1803/1962 and
3171/1973, the Rio Declaration on Environment and Development of 1992 and the Convention
on Biological Diversity recognize that States have permanent sovereignty over their natural
resources. According to the principle, accepted as customary international law,118
States have
the sovereign right to freely dispose of and exploit their own resources pursuant to their own
environmental policies. Such sovereign right also entails the obligation and responsibility to
ensure that activities within their control do not cause damage to the environment.119
114
Feldman v Mexico, para.103 115
Newcombe & Paradell, p.358-359. 116
Newcombe & Paradell, p.358 117
Problem, para.8 118
Texaco v Lybia, p.183. 119
Sands, p.235.
45
171. Consequently, facing the increasing risks of greater environmental damage, Respondent had the
interest and the obligation under international law to take necessary measures to remedy the
damage caused and to assess the risks of new possible environmental disasters.
172. In this regard, the principle of PSONR provides that the State is free to set the level of
environmental protection it considers appropriate, and that it is allowed to proceed with the
measures that are necessary to reach such a level of protection, or in the present case, reparation.
Such understanding is also recognized in the WTO Agreement on Sanitary and Phytosanitary
Measures and strongly corroborated by the Organization‘s jurisprudence,120
to which Respondent
is a member.
173. As a result, Respondent was entitled to act in order to achieve the level of control and
management of the oil disaster that was deemed necessary. Therefore, facing Claimant‘s inability
to assess and repair the current damages and the risk of new disasters, Respondent was fully
entitled to suspend Claimant‘s License and to permit NPCS‘s taking over the wells. These
actions were a result of the inherent power to regulate of States. Furthermore, the case presents
enough evidence that the measures were not permanent, and were taken just as means to address
the oil spill emergency, being completely compatible with the principle of good faith and
proportionality.
III. Respondent’s alleged omission did not violate BIT
174. Claimant alleges the violation of the standard of full protection and security, contained in BIT
art.4(2). The content of the full protection and security principle/expression is that the State is
under the obligation to take active measures to protect the foreign investor from adverse effects
stemming from actions of the State itself or from third parties.121
These adverse effects relate
primarily to physical violence against the investor‘s property, including the invasion of premises
of the investment.122
175. In this point, it should firstly be brought to this Tribunal‘s attention that Respondent contends
120
Hormones; Saumon ; Sardines, Viande d’agneau ; Tuyaux. 121
Dolzer&Schreuer, p.149. 122
Ibid, p.149; ELSI, p.15; Wena Hotels, para.84; Tecmed; Amco v Indonesia.
46
that NPCS‘ actions are not attributable to it, as demonstrated above. In this sense, the fact that
respondent did not prevent Claimant from NPCS`s actions should not be interpreted as a
violation of full protection and security on the Respondent‘s part. This is because NPCS‘ actions
against Claimant were part of the necessary measures taken by Respondent to address the
environmental emergency, as part of its exercise of regulatory powers. Therefore, for the same
reasons demonstrated above, such omission by Respondent cannot be understood as a violation
to the standard of full protection and security.
(C) RESPONDENT IS ENTITLED TO RELY ON ITS DOMESTIC LAW AND
INTERNATIONAL LEGAL NOTIONS OF NATIONAL SECURITY AND
PUBLIC INTEREST AS DEFENSES
176. In the event this Tribunal finds that the above cited actions, or any other actions invoked by
Claimant, constituted a violation of Respondent‘s obligations under the BIT or general
international law, it should be taken into consideration that Respondent is entitled to invoke state
of necessity, precluding the alleged wrongfulness of its acts.
177. BIT art.9 allows Respondent to rely on its own law to invoke state of necessity (I.).
Alternatively, the declaration of state of necessity fits the international requirements of national
security and public interest invoked by the Respondent (II.).
I. BIT Art.9 allows Respondent to rely on its domestic law to invoke State of Necessity
178. The general rule of state of necessity, as codified in the ILC Draft art.25, is interpreted as being
non-self-judging.123
However, the wording of BIT art.9 calls for a different interpretation, since it
expressly delegates the consideration and evaluation of the state of necessity to the State.
179. ILC Draft art.25 expresses that necessity may not be invoked unless the act ―is the only way […]
and does not seriously impair …‖ (emphasis added). On the other hand, BIT art.9 provides that
―nothing in th[at] Agreeement shall be construed: (2) to preclude a Party from applying measures
123
Newcombe & Paradell, p.492
47
that it considers necessary …‖ (emphasis added).
180. While the ILC Draft requires an objective factual connection between the act and the necessity,
the Freedonia-Sylvania BIT establishes a subjective analysis between the measures to be taken
and the necessity. In other words, the wording of the ILC entails that the measures to be taken
should be, as a matter of fact, the only way. As a consequence to that, the analysis is subject to
judicial control in order to assess if the measure chosen by the State was in fact the only way.
Such understanding, nonetheless, cannot apply to art.9. This article refers the choice of measure
upon the state of necessity to the consideration of the State, and for being so subjective, such a
choice cannot be reevaluated nor contested by third parties, unless if evidently having been
carried out in bad faith.124
Such evidence is not present in this case, and bad faith cannot be
presumed in international law.
181. The wording of Art.9 follows the example of Art.XXI of the GATT, which carries the sentence
―that it considers necessary‖ as well, having been considered in different occasions as bearing a
self-judging language.125
In the Nicaragua case, it was exactly the absence of explicit ‗which it
considers‘ language that lead the ICJ to deny the self-judging nature of a security exception
clause in the Nicaragua-US FCN Treaty.126
182. Therefore, art.9 being a self-judging provision, Respondent‘s reliance on its laws, namely the
Sylvanian Hydrocarbon Law and the Sylvanian Oil Pollution Act, to declare the state of
emergency through the Executive Proclamation no. 52-2010, was valid under international law
and is not subject to this tribunal‘s ruling.
II. Respondent may rely on national security and public interest to invoke state of
necessity
183. BIT art.9 applies specifically to the obligations of the Contracting Parties of the treaty.
Therefore, as lex specialis applicable to the regime of obligations towards foreign investors set
out in the BIT, it derogates the customary provisions of ILC Draft art.25.
124
Newcombe & Paradell, p.493 125
CMS v Argentina, paras 366-373; LG&E, para.212; Enron, para.322-342; Sempra, para.364-391; Nicaragua,
para.222. 126
Nicaragua, para.222
48
184. This reasoning derives from the fact the there is no hierarchy between treaty and custom as
sources of international law.127
Being so, considering that the BIT is a fruit of the will of the
parties involved as to the regime of their obligations to one another and its interpretation affects
strictly the their relationship, its terms should be given precedence over the customary provisions
that differ from it.
185. As a consequence, as expressly authorized by BIT art.9, Respondent was allowed to rely on
public interest and national security, which impedes the characterization of any of its acts as
violating the BIT.
186. As previously demonstrated, public interest and national security in this case relate to the danger
that Sylvanian ecosystems were facing. Therefore, in the event any of the actions of the
Respondent is considered as having violated the BIT, since already demonstrated that all the
actions had as purpose try to diminish, control and repair the damages caused by the oil, they fall
within the scope of the actions to be considered as necessary to ensure Sylvanian national interest
and public purpose.
127
Cançado Trindade; p.33
