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Team Armand
THE LONDON COURT OF INTERNATIONAL ARBITRATION
MEMORIAL FOR RESPONDENT
ON BEHALF OF
Republic of Barancasia
c/o Pierre-Maurice Skolil
Procurator of the Treasury,
Ministry of Finance
Valhallavegen 2-4
1010 Gamla-Uppsala
Barancasia
RESPONDENT
AGAINST
Vasiuki LLC
Helios Boulevard 1100
2401 Ville-de-Ra
Federal Republic of Cogitatia
CLAIMANT
MEMORIAL FOR THE RESPONDENT ARMAND
i
TABLE OF CONTENTS
TABLE OF CONTENTS i
LIST OF ABBREVIATIONS iii
LIST OF AUTHORITIES iv
PRELIMINARY MATTERS 1
I. STATEMENT OF FACTS 1
II. SUMMARY OF ARGUMENTS 5
III. APPLICABLE LAWS AND RULES 7
ARGUMENTS 9
I. THE ARBITRAL TRIBUNAL HAS NO JURISDICTION TO HEAR THIS DISPUTE 9
1. The Tribunal has no jurisdiction to hear this dispute because Barancasia terminated the
BIT through notice on 29 June 2007, which was given before the Claimant’s investments
were made 9
A. Barancasia was entitled to terminate the BIT on the basis of VCLT Article 62 9
(i) Joining the EU was a supervening change of circumstances 10
(ii) The change to exclusive EU competence over Barancasia’s investment policy was
fundamental 10
(a) The change in the rules governing the movement of capital between Member
States was fundamental 11
(b) The change in the rules governing dispute settlement was fundamental 12
(c) The change in the rules governing the equal treatment of investors was
fundamental 13
(iii) The Contracting Parties did not foresee joining the EU in 2004 when they
concluded the BIT in 1998 13
(iv) The Contracting Parties signed the BIT because of the particular obligations it
created, and those obligations changed as a result of joining the EU 14
(v) After accession to the EU, the remaining investment obligations of Barancasia are
radically transformed 15
B. Barancasia was also entitled to terminate the BIT in accordance with VCLT Article 59 16
C. The arbitration clause in the BIT is inapplicable in accordance with VCLT Article
30(3) 17
D. Barancasia’s notice on 29 June 2007 terminated the BIT before the Claimant’s
investments were made. 17
II. BARANCASIA DID NOT BREACH BIT ARTICLE 2 20
1. Barancasia provided FET to the Claimant’s investments 20
MEMORIAL FOR THE RESPONDENT ARMAND
ii
A. The Claimant’s expectation for the feed-in tariff rate to remain static was not
legitimate 20
(i) The Claimant’s expectation that the feed-in tariff would remain unchanged is not
reasonable 20
(ii) The Claimant did not adequately account for Barancasia’s sovereign power to
regulate in the public interest when forming their expectations 22
B. Barancasia did not deny justice or due process to the Claimant’s Alpha project 23
C. Barancasia did not deny justice or due process to the Claimant’s Alpha project 24
D. Barancasia did not deny justice or due process to the Claimant’s Alpha project 25
2. Barancasia observed its obligation with regard to the specific investments of the
Claimant in accordance with Article 2(3) 25
A. The Claimant must provide clear and convincing evidence for a broad interpretation
of the umbrella clause 26
B. In the absence of a stabilization clause, the umbrella should not be interpreted in a
way that implicitly freezes the LRE 27
III. THE TRIBUNAL SHOULD NOT ORDER BARANCASIA TO REPEAL THE
AMENDMENT TO LRE ARTICLE 4 OR TO CONTINUE TO PAY THE CLAIMANT
THE 0.44 EUR/kWh TARIFF 29
A. Arbitral tribunals do not have the power to award restitution or specific performance
in international investment law 29
B. An order for restitution or specific performance would impose a disproportionate
burden on Barancasia. 31
IV. THE TRIBUNAL SHOULD REJECT THE CLAIMANT’S CALCULATIONS FOR
COMPENSATION 33
A. No damages should be awarded with respect to Project Alpha because there is no
causal connection between the LRE and Project Alpha 33
B. The discounted cash flow (DCF) method is not an appropriate way to value the losses
suffered by the Claimant with respect to the Alpha, Cluster, and additional planned
projects 34
C. If the DCF method is used, cash flows to equity should be discounted at the cost of
equity 35
D. Any award to the Claimant for expenditures on the Cluster project should be reduced
to take into account potential mitigation 36
PRAYER FOR RELIEF 37
MEMORIAL FOR THE RESPONDENT ARMAND
iii
LIST OF ABBREVIATIONS
BIT Barancasia-Cogitatia Bilateral Investment Treaty
BEA Barancasia Energy Authority
CCP EU Common Commercial Policy
CIL Customary International Law
DCF Discounted Cash Flow
EC European Community
EU European Union
FDI Foreign Direct Investment
FET Fair and Equitable Treatment
LRE Law on Renewable Energy
NAFTA North American Free Trade Agreement
RSPS Regulation on the Support of the Photovoltaic Sector
TEC Treaty Establishing the European Community
TFEU Treaty on the Functioning of the European Union
VCLT Vienna Convention on the Law of Treaties
WACC Weighted Average Cost Of Capital
MEMORIAL FOR THE RESPONDENT ARMAND
iv
LIST OF AUTHORITIES
TREATIES
RULES
SCHOLARLY WORKS AND ARTICLES
Aust Aust, Anthony, Modern Treaty Law
and Practice (Cambridge University
Press 2007)
38
Bombassaro Bombassaro, Brian and Patricio
Grané, ‘Umbrella Clause Decisions:
The Class of 2012 and a Remapping
of the Jurisprudence’, Kluwer
Arbitration Blog (17 January 2013)
94
Short form Full citation Cited in para.
Swiss-Pakistan BIT Agreement between the Swiss
Federation and the Islamic Republic
of Pakistan on the Promotion and
Reciprocal Protection of Investments
(signed 7 November 1995, in force 5
June 1996)
94
BIT Barancasia-Cogitatia Bilateral
Investment Treaty
Sic passim
TFEU Consolidated version of the Treaty
on the Functioning of the European
Union, October 26, 2012, OJ C
326/49
43, 44, 45, 47, 50, 57,
58, 59, 60
VCLT Vienna Convention on the Law of
Treaties, 23 May 1969, 1155 UNTS
331 (in force 27 January 1980)
Sic passim
LCIA Rules London Court of International
Arbitration Rules (2014)
Sic passim
MEMORIAL FOR THE RESPONDENT ARMAND
v
Brower Brower II, Charles H, ‘Corporations
as Plaintiffs Under International
Law: Three Narratives about
Investment Treaties’ [2011] Santa
Clara J Int'l L 179
81
Corten Corten, Oliver and Pierre Klein, eds,
The Vienna Convention on the Law
of Treaties (Oxford 2011)
40
Crawford Second Report Crawford, James, Special Rapporteur
to the International Law
Commission, Second Report on State
Responsibility, UN Doc A/CN 4/498
(17 March 1999)
88
Crawford ILC Crawford, James, The International
Law Commission’s Articles on State
Responsibility: Introduction, Text
and Commentaries (Cambridge
University Press 2002)
40, 105
Crawford Treaty and
Contract
Crawford, James, ‘Treaty and
Contract in Investment Arbitration’
[2009] 1 TDM at 20
96, 97, 98,
Dolzer and Schreuer Dolzer, Rudolf and Christoph
Schreuer, Principles of International
Investment Law (Oxford University
Press 2012)
34,36, 78, 79
Dörr and Schmalenbach Dörr, Oliver and Kirsten
Schmalenbach, eds, Vienna
Convention on the Law of Treaties:
A Commentary (Springer 2012)
38, 40, 52, 55, 58, 66,
67
Douglas Douglas, Zachary, ‘The Hybrid
Foundations of Investment Treaty
Arbitration’ (2003), 74 BYIL 151
105
Dumberry Dumberry, Patrick, ‘International
Investment Contracts’ in
International Investment Law: The
Sources of Rights and Obligations,
Tarcisio Gazzini and Eric De
Brabandere, eds, Martinus Nijhoff
Publishers (Leiden 2012)
94
MEMORIAL FOR THE RESPONDENT ARMAND
vi
Dumberry Arbitrary
Conduct
Dumberry, Patrick, ‘The Prohibition
Against Arbitrary Conduct’ [2014]
JWIT 117
91
Endicott Endicott, Martin, ‘Remedies in
Investor-State Arbitration:
Restitution, Specific Performance
and Declaratory Awards’ in Philippe
Kahn & Thomas Wälde, eds, New
Aspects of International Investment
Law (2007)
105, 106
Garner Garner, Bryan, ed, Black’s Law
Dictionary, 10th edition (Thomson
Reuters 2014)
43
Gazzini Gazzini, Tarcisio, ‘Bilateral
Investment Treaties’ in International
Investment Law: The Sources of
Rights and Obligations, Tarcisio
Gazzini and Eric De Brabandere,
eds, Martinus Nijhoff Publishers
(Leiden 2012)
84, 86
Gray Gray, Christine, ‘The Choice
Between Restitution and
Compensation’, 10 Eur J Int’l L 413
103, 104
Johnson Johnson, Lise and Oleksandr
Volkov, ‘Investor-State Contracts,
Host-State “Commitments” and the
Myth of Stability in International
Law’, [2013] 361 AMRIARB at 372
96
Julliard Julliard, Patrick, ‘Bilateral
Investment Treaties in the Context of
Investment Law’. [2001] OECD 1
53
Kantor Kantor, Mark, Valuation for
Arbitration: Compensation
Standards, Valuation Methods and
Expert Evidence (Kluwer Law
International 2008)
113, 115, 118
Mann Mann, FA, ‘British Treaties for the
Promotion and Protection of
Investments’ in British Yearbook of
97
MEMORIAL FOR THE RESPONDENT ARMAND
vii
International Law (Oxford
University Press 1981)
Mathijsen 6th edition Mathijsen, Pierre, A Guide to
European Union Law, 6th edition
(Sweet & Maxwell 1995)
43, 45, 48
Mathijsen 9th edition Mathijsen, Pierre, A Guide to
European Union Law, 9th edition
(Sweet & Maxwell 2007)
43
Narbone Narbone, Luigi and Nathalie Tocci,
‘Running around in circles? The
cyclical relationship between Turkey
and the European Union’, [2009]
JSEB 233
50
Raworth Raworth, Philip, Introduction to the
Legal System of the European Union
(Oceana 2001)
43
Reinisch Reinisch, August, ‘The EU on the
Investment Path – Quo Vadis
Europe? The Future of EU BITs and
other Investment Agreements’,
[2013] Santa Clara J Int’l L 111
44, 56
Ripinsky Ripinsky, Sergey with Kevin
Williams, Damages in International
Investment Law (British Institute of
International and Comparative Law
2008)
102
Sabahi Sabahi, Borzu, Compensation and
Restitution in Investor-State
Arbitration: Principles and Practice
(Oxford University Press 2011)
103
Schill Schill, Stephan W, ‘General
Principles of Law’ in International
Investment Law: The Sources of
Rights and Obligations, Tarcisio
Gazzini and Eric De Brabandere,
eds, Martinus Nijhoff Publishers
(Leiden 2012)
79
Shaw Shaw, Malcom and Caroline
Fournet, ‘Volume II, Part V
Invalidity, Termination and
40
MEMORIAL FOR THE RESPONDENT ARMAND
viii
Suspension of the Operation of
Treaties, s.3 Termination and
Suspension of the Operation of
Treaties, Art. 62 1969 Vienna
Convention’, in Olivier Corten and
Pierre Klein, eds, The Vienna
Convention on the Law of Treaties
(Oxford 2011)
Sheppard Sheppard, Stephen, ed, The Wolters
Kluwer Bouvier Law Dictionary,
Desk Edition, Volume 1 (Wolters
Kluwer 2012)
43
Snodgrass Snodgrass, Elizabeth, ‘Protecting
Investors’ Legitimate Expectations:
Recognizing and Delimiting a
General Principle’, (2006) 21 ICSID
Rev
78
Tietje Tietje, Christian, ‘Bilareral
Investment Treaties Between EU
Member States (Intra-EU BITs) –
Challenges in the Multilevel System
of Law’, [2013] Transnational
Dispute Management 1
45, 59, 64
Wälde Wälde, Thomas, ‘The “Umbrella
Clause” in Investment Arbitration –
A Comment on Original Intentions
and Recent Cases’, [2005] 1 JWIT at
26
94
Wong Wong, Jarrod, ‘Umbrella Clauses in
bilateral investment treaties: of
breaches of contract, treaty violations
and the divide between developing
and developed countries in foreign
investments disputes’, [2006] Geo
Mason L Rev 135
94
MEMORIAL FOR THE RESPONDENT ARMAND
ix
ARBITRAL DECISIONS
AAPL AAPL v Sri Lanka, ICSID Case No
ARB/87/3, Award (27 June 1990)
113
Achema Achema BV (formerly Eureko BV) v
The Slovak Republic, UNCITRAL
PCA Case No 2008-13, Preliminary
Decision of the German Federal
Supreme Court (19 September 2013)
45
ADC Affiliate ADC Affiliate v Hungary, ICSID
Case No ARB/03/16, Award of the
Tribunal (2 October 2006)
30, 34
Autopista Autopista v Venezuela, ICSID Case
No ARB/00/5, Award (23 September
2003)
113
Azurix Azurix v Argentine Republic, ICSID
Case No ARB/01/12, Decision on
Jurisdiction (8 December 2003)
30
Biwater Gauff Biwater Gauff (Tanzania) Limited v
United Republic of Tanzania, ICSID
Case No ARB/05/22, Award (24 July
2008)
21
Continental Casualty Continental Casualty Company v
Argentine Republic, ICSID Case No
ARB/03/9, Award (5 September
2008)
81, 83
CME CME v Czech Republic,
UNCITRAL, Final Award (14 May
2003)
118
CMS Award CMS Gas Transmission Company v
Argentina, ICSID Case No
ARB/01/8, Award (25 April 2005)
99
CMS Annulment CMS Gas Transmission Company v.
Argentina, ICSID Case No
ARB/01/8, Decision of the ad hoc
Committee on the Application for
Annulment of the Argentine
Republic (September 25 2007)
98
Duke Duke Energy Electroquil Partners &
Electroquil SA v Republic of
Ecuador, ICSID Case No
78
MEMORIAL FOR THE RESPONDENT ARMAND
x
ARB/04/19, Award (18 August
2008)
Eastern Sugar Eastern Sugar BV (Netherlands) v
The Czech Republic, UNCITRAL
Rules, SCC Case No 088/2004,
Partial Award (27 March 2007)
29, 55, 56
EDF EDF (Services) Limited v Romania,
ICSID Case No ARB/05/13, Award
(8 October 2009)
78
Electrabel Electrabel SA v The Republic of
Hungary, ICSID Case No
ARB/07/19, Decision on
Jurisdiction, Applicable Law and
Liability (30 November 2012)
45, 59, 66
El Paso Award El Paso Energy International
Company v Argentina, ICSID Case
No ARB/03/15, Award (27 October
2011)
78, 82, 83
El Paso Decision on
Jurisdiction
El Paso Energy International
Company v Argentina, ICSID Case
No ARB/03/15, Decision on
Jurisdiction (27 April 2006)
95
Enron v Argentina Enron Corporation and Ponderosa
Assets v Argentina, ICSID Case No
ARB/01/3, Decision on Jurisdiction
(Ancillary Claim) (2 August 2004)
34, 91, 118
Eureko Eureko BV v The Slovak Republic,
UNCITRAL PCA Case No 2008-13,
Award on Jurisdiction, Arbitrability
and Suspension (26 October 2010)
45, 46, 59, 64
Gami Gami Investments, Inc v Mexico,
UNCITRAL, Award (15 November
2004)
84, 86, 91
Thunderbird Int'l Thunderbird Gaming Corp v
United Mexican States, UNCITRAL,
Award (3 November 2008)
78
Joy Mining Joy Mining Machinery Limited v The
Arabic Republic of Egypt, ICSID
Case No ARB/03/11, Award on
Jurisdiction (August 6 2004)
100
MEMORIAL FOR THE RESPONDENT ARMAND
xi
LG&E Award LG&E v Argentina, ICSID Case No
ARB/02/1, Damages Award (25 July
2007)
108, 111, 109, 112
LG&E Liability LG&E v Argentina, ICSID Case No
ARB/02/1, Decision on Liability (3
October 2006)
30
Metalclad Award Metalclad v Mexico, ICSID Case No
ARB(AF)/97/1, Award (30 August
2000)
113
Mobil Mobil Investments Canada Inc and
Murphy Oil Corporation v Canada,
ICSID Case No ARB(AF)/07/04,
Decision on Liability (May 22, 2012)
82, 83
MTD v Chile MTD Equity and MTD Chile v Chile,
ICSID Case No ARB/01/7, Award
(25 May 2004)
34
Noble Noble Ventures v Romania, ICSID
Case No ARB/01/11, Award (12
October 2005)
113
Parkerings Parkerings-Compagniet AS v
Lithuania, ICSID Case No
ARB/05/8, Award on Jurisdiction
and Merits (14 August 2007)
78
Saluka Saluka Investments BV (The
Netherlands) v Czech Republic,
UNCITRAL, Partial Award (17
March 2006)
78
SD Myers SD Myers, Inc v Canada,
UNCITRAL, First Partial Award (13
November 2000)
84, 86
SGS Société Générale de Surveillance SA
v Islamic Republic of Pakistan,
ICSID Case No. ARB/01/13,
Decision of the Tribunal on
Objections to Jurisdiction (6 August
2003)
94
Sola Tiles
Sola Tiles, Inc v Islamic Republic of
Iran, Iran-US Claims Tribunal,
Award (22 April 1987), 14 Iran-US
CTR 223
113
MEMORIAL FOR THE RESPONDENT ARMAND
xii
SPP SPP (ME) v Egypt, Award (20 May
1992), (1997) 106 ILR 502
113
Starrett Housing Corp Starrett Housing Corp v Islamic
Republic of Iran, Iran-US Claims
Tribunal, Award (14 August 1987)
118
Tokios Tokios Tokeles v Ukraine, ICSID
Case No ARB/02/18, Decision on
Jurisdiction (29 April 2004)
34
COURT DECISIONS
Elide Gottardo Case C-55/00 Elide Gottardo v Istituto
nazionale della previdenza sociale
(INPS) [2002] ECR I-433
47, 48, 60
Commission v Finland Case C-118/07 Commission v.
Finland, [2009] ECR I-10889
43, 48
Commission v Austria Case C-205/06 Commission v. Austria
[2009] ECR I-1301
43, 48
Annunziata Matteucci Case 235/87 Annunziata Matteucci v
Communauté française of Belgium
[1988] ECR 5606
44, 47, 48, 60
Commission v Sweden Case C-249/06 Commission v. Sweden
[2009] ECR I-1335
43, 47, 48
D v Inspecteur Case 376/03 D v Inspecteur van de
Balestingdienst/Particulieren/Onderne
mingen buitenland te Heerlen [2005]
ECR I-05821
47, 48, 60
Gabčíkovo-Nagymaros Case Concerning the Gabčíkovo-
Nagymaros Project
(Hungary/Slovakia) [1997] ICJ Rep
1997
52, 55
Fisheries Jurisdiction Fisheries Jurisdiction (Germany v
Iceland) [1973] ICJ Rep 175
40, 55
OTHER SOURCES
European Commission
Press Release
‘Commission asks Member States to
terminate their intra-EU bilateral
44
MEMORIAL FOR THE RESPONDENT ARMAND
xiii
investment treaties’, European
Commission Press Release (18 June
2015)
Conclusions of the
Presidency
‘Conclusions of the Presidency’,
European Council in Copenhagen (21-
22 June 1993)
50
Draft Articles ‘Draft Articles on the Law of Treaties
with Commentaries’, [1966] Yearbook
of the International Law Commission,
vol. II
40
Hepburn and Peterson Hepburn, Jarrod and Luke Eric
Peterson, ‘Stage is set for infringement
proceedings over intra-EU BITs, as
informal process between European
Commission and three member-states
fail to resolve EC’s concerns’,
International Arbitration Reporter (2
June 2015)
56
ILC Articles International Law Commission’s
Articles on Responsibility of States for
Internationally Wrongful Acts, in
Report of the International Law
Commission on the Work of its Fifty-
third Session, UN GAOR, 56th Sess,
Supp No 10 at 43, UN Doc A/56/10
(2001)
105, 107, 111
OECD Austria OECD Economic Surveys, Austria
1995 (OECD 1995)
50
OECD Finland OECD Economic Surveys, Finland
1995 (OECD 1995)
50
OECD Sweden OECD Economic Surveys, Sweden
1995 (OECD 1995)
50
OECD Umbrella Clause OECD, ‘Interpretation of the Umbrella
Clause in Investment Agreements’, in
International Investment Law:
Understanding Concepts and Tracking
Innovations: A Companion Volume to
International Investment Perspectives
(OECD Publishing 2008)
100
MEMORIAL FOR THE RESPONDENT ARMAND
xiv
Peterson Peterson, Luke Eric, ‘EC asks
member-states to signal by year’s end
whether they will terminate their intra-
EU investment treaties; spectre of
legal action looms’, International
Arbitration Reporter (20 October
2010)
56
UN Conference, Law of
Treaties
UN Conference on the Law of
Treaties, ‘Summary Records of the
Second Session’ (9 April – 22 May
1969) UN Doc A/CONF/39/11/Add.1
38
UN Conference, Trade
and Development
United Nations Conference on Trade
and Development, ‘Fair and Equitable
Treatment’, Series on International
Investment Agreements II, United
Nations (UN 2012)
109
MEMORIAL FOR THE RESPONDENT ARMAND
1
PRELIMINARY MATTERS
I. STATEMENT OF FACTS
Overview
1. This dispute stems from a state’s need to regulate in the face of changing socio-economic
conditions. Vasiuki, the Claimant, is an energy company that invested in the energy sector
of Barancasia, the Respondent. The Claimant’s investments were based on Barancasian
legislation intended to promote renewable energy development and innovation. After the
introduction of new technology which dramatically increased the profitability of renewable
energy production, members of the Barancasian public demanded changes to this
renewable energy legislation. In light of changing public opinion, Barancasia altered the
fixed feed-in tariff rate that the legislation offered to renewable energy providers. The
Claimant now seeks compensation for what it perceives as Barancasia reneging on its
commitment.
The Introduction of the Law on Renewable Energy
2. Aiming to encourage the development and introduction of innovative renewable energy
technology, and improve the security and diversification of its energy supply, Barancasia
adopted the Law on Renewable Energy (LRE) in May 2010.
3. The LRE authorized the Barancasia Energy Authority (BEA) to issue licences to renewable
energy providers, who would then receive a feed-in tariff for power supplied to the grid.
The tariff was fixed for a period of twelve years from the date the license was issued and
was premised on an 8% average annual return on investment for licensed renewable
projects.
4. The LRE encouraged the production of energy from renewable sources by state measures
until the proportion of electricity generated from renewable sources amounted to no less
than 20% of the country’s gross consumption of energy.
5. The Regulation on the Support of the Photovoltaic Sector (RSPS) implemented the LRE,
providing detailed procedures for calculating and applying the feed-in tariff.
6. On 1 July 2010, the BEA publicly announced that the fixed feed-in tariff rate would be set
MEMORIAL FOR THE RESPONDENT ARMAND
2
at 0.44 EUR/kWh.
7. The Claimant was incorporated in 2002 under the laws of Cogitatia. It is an energy
company engaged in the development, construction, and operation of small-scale fossil fuel
and wind turbine generation facilities in Cogitatia and the surrounding region.
8. The Claimant purchased land plots in Barancasia and launched an experimental solar
energy project named “Alpha” in May 2009. Alpha was connected to the Barancasian
power grid and became operational on 1 January 2010. The project operated at a loss due
to defects in the installation and budget overruns.
9. The BEA declined to grant the feed-in tariff rate to the Claimant’s Alpha project on 25
August 2010, because the fixed feed-in tariff would only be available for new projects.
The Claimant was eligible to file a subsequent claim with the administrative courts, but did
not do so.
10. On the same date, the Claimant obtained a license for its second project, “Beta”, which
became operational on 30 January 2011.
The Introduction of Innovative Technology
11. Ground-breaking technology introduced in 2011 made solar panels cheaper to manufacture
and develop, dramatically increasing profits for renewable energy producers.
12. Soon after, the Claimant decided to launch twelve additional solar energy projects (the
Cluster projects) using the new technology. The Cluster projects were individually named
“Chi”, “Delta”, “Digama”, “Dzeta”, “Epsilon”, “Eta”, “Fi”, “Gama”, “Ipsilon”, “Jota”,
“Kapa”, and “Kopa”. On 1 September 2011 the Claimant borrowed substantial sums of
money in order to acquire land plots for the Cluster projects. The Claimant also obtained
the necessary construction permits. Licences were issued to the Cluster projects on 1 July
2012 with a fixed feed-in tariff rate of 0.44 EUR/kWh. The Claimant then ordered solar
panels and started construction of the photovoltaic installations.
13. The BEA received over 7000 applications for licenses to develop new photovoltaic power
plants. If all 7000 applications were approved, up to 15% of Barancasia’s revenue would
be diverted to finance solar feed-in tariffs, a higher share of government revenues than is
allocated to Barancasia’s education system.
14. From the beginning of 2012 Barancasia realized that the LRE had created a “solar bubble”,
MEMORIAL FOR THE RESPONDENT ARMAND
3
and that the whole renewable energy support scheme was unsustainable and amounted to
an unfair windfall for developers.
15. In June 2012 Barancasian teachers organized national strikes demanding increased salaries
and educational funding. Opinion polls suggested that the Barancasian public supported
the belief that the government should treat teachers better than solar panels. Barancasia
promised to review the LRE.
16. At Energy Committee hearings held in November 2012, both national entrepreneurs and
foreign investors totalling a significant share of the local renewables market discussed LRE
reform. The Claimant was not present.
17. Subsequently, on 3 January 2013 Barancasia amended LRE Article 4, allowing the BEA
to annually review the feed-in tariff while “taking into account the costs of the best
available technology”.
18. The BEA then announced that the new annual feed-in tariff would be set at 0.15 EUR/kWh,
a reduction from the original tariff rate that still allowed for at least an 8% return on
investments. The amendment entered into force on 5 January 2013 and applied from 1
January 2013. It applied retroactively to the Beta and Cluster projects.
19. By this time, the Claimant had invested in the Cluster projects, including borrowing money,
buying land plots, hiring personnel, and paying advances for equipment that was shipped
on 31 January 2013.
The Bilateral Investment Treaty
20. Barancasia and Cogitatia are rapidly developing countries that are implementing wide-
ranging social and economic reforms.
21. On 31 December 1998 the Barancasia and Cogitatia signed an Agreement for the
Promotion and Reciprocal Protection of Investments (BIT), which entered into force on 1
August 2002. Both States ratified the Vienna Convention on the Law of Treaties (VCLT)
before 31 December 1998.
22. Both States joined the European Union (EU) on 1 May 2004, after which Barancasia
reviewed its Intra-EU BITs and decided that they had become obsolete.
23. On 29 June 2007 Barancasia notified Cogitatia of its intent to immediately terminate the
BIT. Three months later, on 28 September 2007, the Minister of Foreign Affairs of
MEMORIAL FOR THE RESPONDENT ARMAND
4
Cogitatia confirmed receipt of Barancasia’s notice.
24. When asked by the press about its Intra-EU BITs on 21 November 2010, a spokesperson
from the Barancasian Foreign Ministry stated that Barancasia had informally attempted to
contact Cogitatia to confirm the BIT’s termination, most recently on 3 November 2010,
but that it had not received a response as of 21 November 2010.
25. On 20 April 2014 the Claimant asserted that Barancasia had violated the BIT by reducing
the guaranteed tariff rate and breaching its commitment to fix the initial rate for twelve
years. The Claimant stated its intention to pursue legal remedies under the BIT if the
dispute was not resolved. Barancasia declined negotiations. The Claimant has commenced
these arbitration proceedings under Article 8 of the BIT.
MEMORIAL FOR THE RESPONDENT ARMAND
5
II. SUMMARY OF ARGUMENTS
26. JURISDICTION. The Tribunal has no jurisdiction to hear this dispute because Barancasia
gave notice to terminate the BIT on 29 June 2007, which was given before the Claimant’s
investments were made. First, Barancasia was entitled to terminate the treaty on the basis
of VCLT Article 62, because joining the EU in 2004 was a fundamental change in
circumstance. Accession to the EU fundamentally changed Barancasia’s investment
regime. Second, the BIT and the TFEU deal with the same subject matter and cannot be
applied at the same time. VCLT Article 59 states that when two treaties deal with the same
subject matter and are incapable of being applied at the same time, the earlier treaty is
terminated in favour of the latter treaty. Third, if the Tribunal finds the BIT was not
terminated in accordance with VCLT Article 59, VCLT Article 30(3) then applies. VCLT
Article 30(3) states that the earlier treaty applies only to the extent that its provisions are
compatible with the later treaty. The BIT and TFEU contain contradicting dispute
settlement methods, and the arbitration clause in the BIT is therefore inapplicable in
accordance with VCLT Article 30(3). Fourth, Barancasia is entitled to terminate the BIT
on the basis of VCLT Article 62 or Article 59 because of its notice on 29 June 2007, which
satisfies the termination procedures in VCLT Article 65 and Article 67. This notice was
given before the Claimant’s investments were made.
27. MERITS. Barancasia did not breach BIT Article 2. First, Barancasia met its obligation to
provide FET under BIT Article 2(2) because Barancasia did not (A) fail to meet the
Claimant’s legitimate expectations, as the expectation was not legitimately held; (B) deny
justice or due process; (C) exhibit manifest arbitrariness; or (D) discriminate against the
Claimant’s investments. Second, Barancasia observed its obligation with regard to the
specific investments of the Claimant in accordance with Article 2(3), because (A) the
article should be narrowly interpreted so as to (B) not impute a stabilization clause into the
LRE.
28. DAMAGES. Barancasia should not be ordered to repeal the amendment to LRE Article 4
or to continue to pay the Claimant the 0.44 EUR/kWh feed-in tariff for twelve years. First,
arbitral tribunals do not have the power to award restitution or specific performance in
international investment law. Second, an order for restitution or specific performance
MEMORIAL FOR THE RESPONDENT ARMAND
6
would impose a disproportionate burden on Barancasia.
29. If the Tribunal decides to award compensation, it should reject the calculations for
compensation made by the Claimant’s Expert and instead accept the calculations for
damages made by Barancasia’s Expert, Juanita Priemo. First, no damages should be
awarded with respect to Project Alpha because there is no causal connection between the
LRE and Project Alpha. Second, the discounted cash flow (DCF) method is not an
appropriate way to value the losses suffered by the Claimant with respect to the Alpha,
Cluster, and additional planned projects. Third, if the DCF method is used, cash flows to
equity should be discounted at the cost of equity. Fourth, any award to the Claimant for
expenditures on the Cluster project should be reduced to take into account potential
mitigation.
MEMORIAL FOR THE RESPONDENT ARMAND
7
III. APPLICABLE LAWS AND RULES
30. This arbitration is brought under the BIT, which is therefore the primary source of law for
this tribunal.1 Signing a BIT is “tacit submission to its provisions” in the case of an
investment dispute.2
31. BIT Article 8(5)3 provides that in the event of a dispute, the investor can choose the rules
for arbitration. The Claimant has selected the 2014 London Court of International
Arbitration Rules (LCIA Rules).4 Therefore, the LCIA Rules as well as the Official Rules
of the Foreign Direct Investment International Arbitration Moot govern these proceedings.5
32. LCIA Rule 16.4 states that the law of the seat can prohibit application of other applicable
laws.6 The law of the seat, Dunedin, Caledonia, 7 does not preclude application of the LCIA
Rules. The facts are silent on the content of Caledonian law, and it is therefore inferred that
the law of the seat allows application of the LCIA Rules.
33. The BIT does not contain a choice of law clause. LCIA Rule 22.3 states that in the absence
this clause, the Tribunal may apply the governing law “which it considers appropriate”.8
34. The Tribunal should interpret the treaty in accordance with the norms of the Vienna
Convention on the Law of Treaties (VCLT). The VCLT is customary international law
(CIL) that has been accepted by both Barancasia and Cogitatia.9 Investment tribunals have
traditionally interpreted treaties using the VCLT, and this Tribunal should as well.10
35. In accordance with the VCLT, obligations under the BIT are to be interpreted in light of
1 Barancasia – Cogitatia BIT, Article 8 [hereinafter BIT]; Azurix v Argentine Republic ICSID Case No ARB/01/12,
Decision on Jurisdiction (8 December 2003) at paras 47–66; LG&E v Argentine Republic, ICSID Case No
ARB/02/1, Decision on Liability (3 October 2006) at para 99 [hereinafter LG&E Liability]; ADC Affiliate v Hungary
ICSID Case No ARB/03/16, Award of the Tribunal (2 October 2006) at para 290 [hereinafter ADC Affiliate]. 2 LG&E Liability at para 85. 3 BIT Article 8(5). This is the second provision of Article 8, which appears as 8(5) in the problem. 4 BIT Article 8(5)(d). 5 Problem, Procedural Order No 1 at 17. 6 London Court of International Arbitration Rules (2014), Rule 16.4 [hereinafter LCIA Rules]. 7 LCIA Rules, Rule 16.4. 8 LCIA Rules, Rule 22.3. 9 Problem, Procedural Order No 2 at 57. 10 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press
2012) at 28 [hereinafter Dolzer and Schreuer]; ADC Affiliate at para 290; Tokios Tokeles v Ukraine ICSID Case No
ARB/02/18, Decision on Jurisdiction (29 April 2004) at para 27; MTD Equity and MTD Chile v Chile ICSID Case
No ARB/01/7, Award (25 May 2004) at para 112 [MTD v Chile]; Enron Corporation and Ponderosa Assets v
Argentine Republic ICSID Case No ARB/01/3, Decision on Jurisdiction (Ancillary Claim) (2 August 2004) at para
32 [hereinafter Enron v Argentina].
MEMORIAL FOR THE RESPONDENT ARMAND
8
other applicable international agreements.11 Therefore, the BIT is affected by the parties’
other international obligations, including obligations as members of the EU.12
36. Further, VCLT Article 31(1) provides: “a treaty shall be interpreted in good faith in
accordance with the ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose”.13 This plain meaning approach is critical to treaty
interpretation.14 This Tribunal should therefore apply VCLT Article 31(1) to interpret this
BIT.15
11 Vienna Convention on the Law of Treaties, 23 May 1969, 1155 UNTS 331 (in force 27 January 1980), Article
31(3)(c) [hereinafter VCLT] 12 Problem, Statement of Uncontested Facts at para 5. 13 VCLT, Article 31(1). 14 Dolzer and Schreuer at 29. 15 Ibid at 28.
MEMORIAL FOR THE RESPONDENT ARMAND
9
ARGUMENTS
I. THE ARBITRAL TRIBUNAL HAS NO JURISDICTION TO HEAR THIS DISPUTE
1. The Tribunal has no jurisdiction to hear this dispute because Barancasia
terminated the BIT through notice on 29 June 2007, which was given before the
Claimant’s investments were made
37. The arbitral tribunal has no jurisdiction to hear this dispute because: (A) Barancasia was
entitled to terminate the BIT on the basis of VCLT Article 62; (B) Barancasia was also
entitled to terminate the BIT in accordance with VCLT Article 59; (C) The arbitration
clause in the BIT is inapplicable in accordance with VCLT Article 30(3); and (D)
Barancasia’s notice on 29 June 2007 terminated the BIT before the Claimant’s
investments were made.
A. Barancasia was entitled to terminate the BIT on the basis of VCLT Article 62
38. A state may terminate a treaty in accordance with VCLT Article 62(1) if they can prove a
fundamental change in circumstances.16 In order to prove a fundamental change in
circumstances, the state must cumulatively meet five objective conditions: [1] there is a
supervening change of circumstances; [2] the change is fundamental; [3] the change was
not foreseen by the Parties when they concluded the original treaty; [4] the original terms
were a determining factor in the decision to sign the original treaty, and those terms have
now changed; and [5] the change radically transforms the states’ existing obligations under
the treaty.17
39. Circumstances have fundamentally changed since Barancasia signed the original BIT
because: (i) joining the EU was a supervening change of circumstances; (ii) it
16 VCLT Article 62(1). 17 VCLT Article 62(1); Oliver Dörr and Kirsten Schmalenbach, eds, Vienna Convention on the Law of Treaties: A
Commentary (Springer 2012) at 1078–1089 [hereinafter Dörr and Schmalenbach]; Anthony Aust, Modern Treaty
Law and Practice (Cambridge University Press 2007) at 298–299; UN Conference on the Law of Treaties,
‘Summary Records of the Second Session’ (9 April – 22 May 1969) UN Doc A/CONF/39/11/Add.1 at 119.
MEMORIAL FOR THE RESPONDENT ARMAND
10
fundamentally changed the investment policy of both nations; (iii) the Contracting Parties
did not foresee joining the EU in 2004 when they concluded the BIT in 1998; (iv) the
Contracting Parties signed the BIT because of the particular obligations it created, and
those obligations changed as a result of joining the EU; and (v) after accession to the EU,
the remaining investment obligations of Barancasia are radically transformed.
(i) Joining the EU was a supervening change of circumstances
40. Joining the EU altered the circumstances that existed at the time the BIT was concluded.
A broad political transformation that radically changes the political alignment of a state is
accepted as a supervening change of circumstances within the meaning of VCLT 62(1).18
It is an objective change in the factual circumstances related to the treaty.19 The political
obligations of both states changed upon accession to the EU in May 2004. The EU holds
competence over common action and political obligations for all Member States, and no
Member State can legislate or enter into legally binding acts without being empowered by
the Union.20 Transferring competence over political alignment from Barancasia and
Cogitatia to the EU radically changed the obligations of both states from what they were
at the time the BIT was signed.21
(ii) The change to exclusive EU competence over Barancasia’s investment
policy was fundamental
41. A fundamental change must cause performance to be different from what was originally
undertaken.22 Acceding to the EU, which holds exclusive competence over Barancasian
investment policy, is a fundamental change in three key areas: (a) the movement of capital
between Member States; (b) dispute settlement; and (c) the equal treatment of investors.
18 ‘Draft Articles on the Law of Treaties with Commentaries’, [1966] Yearbook of the International Law
Commission, Vol II at 259; Dörr and Schmalenbach at 1082. 19 Malcolm Shaw and Caroline Fournet, ‘Volume II, Part V Invalidity, Termination and Suspension of the Operation
of Treaties, s.3 Termination and Suspension of the Operation of Treaties, Art. 62 1969 Vienna Convention’ in
Olivier Corten and Pierre Klein, eds, The Vienna Convention on the Law of Treaties (Oxford 2011) at para 24. 20 Consolidated version of the Treaty on the Functioning of the European Union, October 26, 2012, OJ C 326/49 (in
force 1 December 2009), Article 2 [hereinafter TFEU] 21 Fisheries Jurisdiction (Germany v Iceland), [1973] ICJ Rep 175 at para 32 [hereinafter Fisheries Jurisdiction]. 22 Ibid, at para 43.
MEMORIAL FOR THE RESPONDENT ARMAND
11
42. The exclusive authority of the EU over investment at the time Barancasia and Cogitatia
joined the EU was provided for in the Treaty Establishing the European Community (TEC).
The relevant provisions of the TEC have been incorporated unchanged into the current
Treaty on the Functioning of the European Union (TFEU), which presently governs the
relations of EU Member States.
(a) The change in the rules governing the movement of capital between
Member States was fundamental
43. The EU’s exclusive jurisdiction over the free movement of capital and payment between
Member States fundamentally altered the investment obligations of Barancasia.23 Internal
investment policy in the EU is governed as a single market under EU common
commercial policy (CCP).24 TFEU Article 63 removes all restrictions on the internal
movement of capital and payments between Member States in order to promote
investment.25 Member States are required to conform their internal investment procedures
to TFEU Article 63.26 The effect is a single liberalised investment market for Member
States within the CCP, governed only by the provisions of the TFEU.27
44. Because of this single investment market, intra-EU BITs are incompatible with the CCP.
EU exclusive competence implies that only the EU can lawfully institute internal
investment rules between Member States that address the same subject matter as the
CCP.28 Internal investment relationships based on BITs between Member States are
contrary to this single market because Member States no longer have the ability to enter
individual investment agreements on their own.29 The European Community (EC) has
23 TFEU Article 63 24 Philip Raworth, Introduction to the Legal System of the European Union (Oceana 2001) at 29. 25 TFEU Article 63. For the definition of investment see Stephen Sheppard, ed, The Wolters Kluwer Bouvier Law
Dictionary, Desk Edition, Volume 1 (Wolters Kluwer 2012) at 1396; Bryan Garner, ed, Black’s Law Dictionary,
10th edition (Thomson Reuters 2014) at 954. 26 Pierre Mathijsen, A Guide to European Union Law, 6th edition (Sweet & Maxwell 1995) at 256 [hereinafter
Mathijsen 6th edition]; TFEU Article 63; Case C-118/07 Commission v Finland, [2009] ECR I-10889 [hereinafter
Commission v Finland]; Case C-249/06 Commission v Sweden [2009] ECR I-1335 [hereinafter Commission v
Sweden]; Case C-205/06 Commission v Austria [2009] ECR I-1301 [hereinafter Commission v Austria]. 27 Pierre Mathijsen, A Guide to European Union Law, 9th edition (Sweet & Maxwell 2007) at 257. 28 August Reinisch, ‘The EU on the Investment Path – Quo Vadis Europe? The Future of EU BITs and other
Investment Agreements’, [2013] Santa Clara J Int’l L, 111 at 119 [hereinafter Reinisch]. 29 Eastern Sugar BV (Netherlands) v The Czech Republic, UNCITRAL Rules, SCC Case No 088/2004, Partial
Award (27 March 2007) at para 126 [hereinafter Eastern Sugar].
MEMORIAL FOR THE RESPONDENT ARMAND
12
reiterated the precedence of the TFEU over other agreements between Member States,
stating that there is “no need for agreements of this kind”.30 Consequently, the EC has
called for Member States to terminate their intra-EU BITs upon accession to the EU.31
(b) The change in the rules governing dispute settlement was fundamental
45. The TFEU does not allow for investment arbitration, making the method of dispute
settlement fundamentally different from what was originally undertaken.32 The TFEU
governs relationships between Member States and it does not contain provisions on
arbitration for foreign investors.33 Alternatively, intra-EU BITs do not provide for dispute
resolution before the ECJ, as established in TFEU Article 344.34 Member States are
required to conform their investment procedures, including dispute settlement, to the
TFEU.35
46. Joining the EU therefore fundamentally changed the dispute settlement method available
to Barancasia and Cogitatia. Investment protections such as access to arbitration are
essential features of BITs, 36 and accession to the EU therefore caused performance to be
radically different from what was originally undertaken.
30 Ibid. 31 Ibid; ‘Commission asks Member States to terminate their intra-EU bilateral investment treaties’, European
Commission Press Release (18 June 2015); Case 235/87 Annunziata Matteucci v Communauté française of Belgium
[1988] ECR 5606 at para 22 [hereinafter Annunziata Matteucci]. 32 Eureko BV v The Slovak Republic, UNCITRAL PCA Case No 2008-13, Award on Jurisdiction, Arbitrability and
Suspension (26 October 2010) at para 209 [hereinafter Eureko]; Electrabel SA v The Republic of Hungary, ICSID
Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012) at para 5.37
[hereinafter Electrabel]; Christian Tietje, ‘Bilareral Investment Treaties Between EU Member States (Intra-EU
BITs) – Challenges in the Multilevel System of Law’, [2013] Transnational Dispute Management 1 at 18
[hereinafter Tietje]. 33 Eureko at para 209; Electrabel at para 5.37; Tietje at 18. 34 Tietje at 18; Achema BV (formerly Eureko BV) v The Slovak Republic, UNCITRAL PCA Case No 2008–13,
Preliminary Decision of the German Federal Supreme Court (19 September 2013). 35 Mathijsen 6th edition at 256 36 Eureko at para 245.
MEMORIAL FOR THE RESPONDENT ARMAND
13
(c) The change in the rules governing the equal treatment of investors was
fundamental
47. TFEU Article 18 requires the equal treatment of investors. Under TFEU Article 18,
Member States cannot be discriminated against based on nationality.37 Within the EU’s
single market, all Member States must be treated the same.38
48. BIT advantages investors from Cogitatia over investors from other Member States by
granting it investment protections and access to investor-state arbitration.39 This
disadvantages investors from other Member States that are not party to the BIT and
therefore do not have access to the same investment protections as the Claimant. Such
unequal treatment is contrary to TFEU Article 18.40 Accession to the EU, and the
consequent change in the standard for the equal treatment of investors, rendered
Barancasia’s obligations to the Claimant different from those which were originally
undertaken.
(iii) The Contracting Parties did not foresee joining the EU in 2004 when they
concluded the BIT in 1998
49. Barancasia and Cogitatia did not foresee joining the EU when they signed the BIT because
they were experiencing rapid development and wide ranging social and economic
reforms.41 They were not in a position to foresee accession to the EU within six years.
50. EU accession criteria refers to a stable market economy and the ability to take on the
obligations of membership in the EU.42 Strict economic criteria for membership are
referred to in TFEU Article 140, including measuring price stability against existing EU
Member States.43 At the time the BIT was signed, the EU had just admitted Finland,
37 TFEU Article 18. 38 Case 376/03 D v Inspecteur van de Balestingdienst/Particulieren/Ondernemingen buitenland te Heerlen [2005]
ECR I-05821 at paras 57–61 [hereinafter D v Inspecteur]. See also Case C-55/00 Elide Gottardo v Istituto nazionale
della previdenza sociale (INPS) [2002] ECR I-433 [hereinafter Elide Gottardo]; Annunziata Matteucci. 39 Mathijsen 6th edition at 256; TFEU Article 63; Commission v Finland; Commission v Sweden; Commission v
Austria. 40 TFEU Article 18. See also: D v Inspecteur at paras 57-61; Elide Gottardo; Annunziata Matteucci; Commission v
Sweden at para 27. 41 Problem, Statement of Uncontested Facts at para 2. 42 ‘Conclusions of the Presidency’, European Council in Copenhagen (21–22 June 1993) at 13. 43 TFEU Articles 63 and 207 (formerly Articles 121, 122, 123 TEC).
MEMORIAL FOR THE RESPONDENT ARMAND
14
Austria, and Sweden, which were three developed nations with relatively strong and stable
economies.44 There was pushback against admitting countries such as Turkey, based on
their developing and constantly changing political and economic situations.45 Therefore it
is unlikely that Barancasia and Cogitatia, countries with rapidly developing and constantly
changing socio-economic conditions, would have foreseen that they could meet the strict
criteria for joining the EU.
(iv) The Contracting Parties signed the BIT because of the particular
obligations it created, and those obligations changed as a result of joining the
EU
51. The original terms of the BIT, outlining the protection and promotion of investments, were
essential to Barancasia and Cogitatia’s decision to conclude the agreement.46 Joining the
EU terminated the BIT, thereby altering those essential terms, and consequently changed
the investment relationship between Cogitatia and Barancasia.
52. The ICJ, in the Case Concerning the Gabčíkovo-Nagymaros Project, concluded that an
investment tribunal must determine how closely linked the terms of a treaty are to its
purpose.47 A tribunal must ask whether the parties would have signed the original treaty in
the absence of those terms.48
53. The purpose of the BIT was to maintain an ongoing stable legal environment for investment
by defining and protecting the conditions of an acceptable international investment
relationship between an investor and Barancasia.49 This is commonly accepted as the
purpose of a BIT,50 and is the reason the Contracting Parties signed it.51
44 OECD Economic Surveys, Austria 1995 (OECD 1995); OECD Economic Surveys, Finland 1995 (OECD 1995);
OECD Economic Surveys, Sweden 1995 (OECD 1995). 45 Luigi Narbone and Nathalie Tocci, ‘Running around in circles? The cyclical relationship between Turkey and the
European Union’, [2009] JSEB 233. 46 BIT Preamble. 47 Case Concerning the Gabčíkovo-Nagymaros Project (Hungary/Slovakia), [1997] ICJ Rep 1997 at para 104
[hereinafter Gabčíkovo-Nagymaros]. 48 Dörr and Schmalenbach at 1088. 49 BIT Preamble; Patrick Julliard, ‘Bilateral Investment Treaties in the Context of Investment Law’, [2001] OECD 1
at 1 [hereinafter Julliard]. 50 Julliard at 1. 51 BIT Preamble.
MEMORIAL FOR THE RESPONDENT ARMAND
15
54. Joining the EU demonstrated that the intent of the Contracting Parties had changed. They
no longer intended to promote and protect an international investment relationship through
foreign investors, but rather to promote the free movement of capital between the borders
of EU Member States. This is a radically different relationship than was present under the
BIT.
(v) After accession to the EU, the remaining investment obligations of
Barancasia are radically transformed
55. Based on the fundamental change of investment policy as a result of accession to the EU,
the remaining investment obligations of Barancasia are fundamentally different than what
was originally undertaken.52 Article 62 does not require that all obligations change, rather
that obligations change to the extent that the affected party can no longer fulfill them.53
56. Joining the EU shifted domestic investment competence from Barancasia to the EU.54 This
frustrated Barancasia’s ability to fulfill any remaining investment protections under the
BIT because the EC, which has publicly stated there is no need for intra-EU BITs55 and is
actively trying to terminate them, 56 now controls Barancasia’s investment regime.
Barancasia no longer has the ability to provide the Claimant with investment protections
under the BIT, such as access to arbitration, because the BIT no longer applies to
Barancasia’s investment regime.57
52 Fisheries Jurisdiction at para 43; Gabčíkovo-Nagymaros at para 104. 53 Dörr and Schmalenbach at 1089. 54 Eastern Sugar at para 126; Reinisch at 119. 55 Eastern Sugar at para 126. 56 Luke Eric Peterson, ‘EC asks member-states to signal by year’s end whether they will terminate their intra-EU
investment treaties; spectre of legal action looms’, International Arbitration Reporter (20 October 2010); Jarrod
Hepburn and Luke Eric Peterson, ‘Stage is set for infringement proceedings over intra-EU BITs, as informal process
between European Commission and three member-states fail to resolve EC’s concerns’, International Arbitration
Reporter (2 June 2015). 57 Eastern Sugar at para 126; Reinisch at 119.
MEMORIAL FOR THE RESPONDENT ARMAND
16
B. Barancasia was also entitled to terminate the BIT in accordance with VCLT
Article 59
57. In addition to terminating on the basis of a fundamental change in circumstance, the BIT
was also terminated in accordance with VCLT Article 59 because the VCLT and TFEU
cannot be applied at the same time.
58. Termination under VCLT Article 59 requires that a subsequent treaty govern the same
subject matter, making both treaties incapable of being applied at the same time.58 The BIT
and TFEU govern the same subject matter in contradictory ways in relation to dispute
settlement and the equal treatment of investors. The treaties are therefore incapable of
being applied concurrently.
59. As discussed, the TFEU does not provide for investor-state arbitration, where the BIT
does.59 These contradicting investment dispute settlement methods make the two treaties
incapable of being applied at the same time. One treaty, the BIT, provides for a dispute
settlement method unavailable in the TFEU. Therefore, the BIT is subject to the
termination provisions of VCLT Article 59.60
60. With respect to the equal treatment of investors, access to arbitration advantages investors
from Cogitatia over investors from other Member States. The Claimant’s access to
arbitration is based on the existence of a valid BIT.61 Under TFEU Article 18, Member
States cannot be discriminated against based on nationality.62 Within the EU’s single
market, all Member States must be granted the same economic treatment.63 Under the
TFEU, the Claimant does not have access to arbitration as a dispute settlement method.
Investors from other Member States similarly lack access to arbitration. Allowing the BIT
to remain in force therefore permits Cogitatia to discriminate against investors from
Member States not party to the BIT by not providing them access to arbitration.
58 VCLT Article 59; Dörr and Schmalenbach at 1012. 59 Eureko at para 209; Electrabel at para 5.37; Tietje at 18. 60 VCLT Article 59. 61 BIT Article 8. 62 TFEU Article 18. 63 D v Inspecteur at paras 57-61. See also Elide Gottardo; Annunziata Matteucci.
MEMORIAL FOR THE RESPONDENT ARMAND
17
61. These contradictions between the BIT and TFEU mean that the two treaties are incapable
of being applied at the same time, and in accordance with VCLT Article 59, the BIT is
terminated.
C. The arbitration clause in the BIT is inapplicable in accordance with VCLT
Article 30(3)
62. If the Tribunal finds that the BIT was not terminated in accordance with VCLT Article 59,
it should find that the arbitration clause in the BIT is inapplicable in accordance with VCLT
Article 30(3).
63. VCLT Article 30(3) states that where two successive treaties cover the same material, but
the earlier treaty is not terminated in accordance with VCLT Article 59, the earlier treaty
applies only to the extent that its provisions are compatible with the later treaty.64
64. The dispute settlement methods contained in the BIT and TFEU are contradictory, and
incapable of being applied at the same time. Investor-state arbitration is an essential aspect
of the BIT, 65 and the TFEU does not provide access to arbitration as a means of settling
investment disputes.66 In accordance with VCLT Article 30(3), the terms of the BIT should
apply only insofar as they are compatible. This contradiction in dispute settlement means
that the arbitration clause contained in BIT Article 8 is not compatible with the TFEU, and
therefore should not apply. The Tribunal therefore does not have jurisdiction to hear this
dispute.
D. Barancasia’s notice on 29 June 2007 terminated the BIT before the Claimant’s
investments were made.
65. Barancasia is entitled to terminate the BIT on the basis of VCLT Article 62 or Article 59
because of its notice on 29 June 2007, which satisfies the termination procedures in VCLT
Article 65 and Article 67.
64 VCLT Article 30(3). 65 BIT Article 8; See also Eureko at para 245. 66 Eureko at para 209; Electrabel at para 5.37; Tietje at 18.
MEMORIAL FOR THE RESPONDENT ARMAND
18
66. VCLT Articles 65(1) provides termination procedures that must be followed when
terminating or withdrawing from a treaty based on the VCLT.67 Article 65 requires that the
terminating party provide proper notice to terminate, including the specific action to be
taken and reasons for that action.68 However, states may dispense with this requirement to
provide reasons.69 Further, Article 65(2) requires that three months pass from the
notification date before the treaty is terminated.70
67. VCLT Article 67 adds two final requirements: Article 67(1) states that notification must
be in writing,71 and Article 67(2) requires that notification come from a head of state or
foreign affairs minister.72
68. Barancasia provided proper notice to terminate the BIT on 29 June 2007, when notice to
terminate the BIT was sent from the Prime Minister of Barancasia to Cogitatia.73 This
notice was in writing, and stated that Barancasia considered the BIT terminated.74 The
document also cited Resolution No. 1800, which indicates that Barancasia was initiating
termination procedures for all BITs concluded with members of the European Union.75
69. Though Barancasia was not obliged to provide reasons in the 29 June 2007 notice,76 it is
likely that Cogitatia knew Barancasia’s reasons for terminating the BIT. By June 2007,
Barancasia had made a number of statements about terminating intra-EU BITs. These
statements were either made through public newspapers or official government decisions.77
As a Contracting Party to the BIT, it is unlikely that Cogitatia had no knowledge of these
public statements.
70. Barancasia’s notice on 29 June 2007 initiated a three-month period, as per VCLT Article
65(2), meaning the BIT was officially terminated on 29 September 2007. This was before
the Claimant’s investments were made.
67 VCLT Article 65. 68 VCLT Article 65(1). 69 Dörr and Schmalenbach at 1145. 70 VCLT Article 65(2). 71 VCLT Article 67(1). 72 VCLT Article 67(2). 73 Problem, Annex No 7.1 Notification dated June 29, 2007 at 39. 74 Problem, Annex No 7.1 Notification dated June 29, 2007 at 39. 75 Problem, Annex No 6 Resolution 1800 at 37. 76 Dörr and Schmalenbach at 1145. 77 See e.g. Problem, Annex No. 5 at 36; Problem, Annex No. 6 at 37.
MEMORIAL FOR THE RESPONDENT ARMAND
19
71. On 1 January 2010 the Alpha project became operational,78 and projects in the renewable
energy sector cannot operate without a license. It can be inferred that Alpha received a
license before it commenced operations,79 and the date of investment for Alpha is, at the
latest, 1 January 2010.
72. On 25 August 2010 the Claimant obtained a license from the Barancasian Energy Authority
(BEA) for its second photovoltaic project, Beta.80 The date of investment for Beta is, at the
latest, 25 August 2010.
73. On 1 September 2011 the Claimant borrowed large sums of money to fund its Cluster
projects.81 When the loan was secure, the Claimant obtained land plots for the Cluster
projects.82 The Claimant then obtained licenses for the development of the Cluster projects
on 1 July 2012.83 Investing in the Cluster began on 1 September 2011, and the investment
was completed, at the latest, on 1 July 2012.
74. Based on Barancasia’s termination notice, the BIT could be terminated in accordance with
VCLT Article 62 or Article 59 on 29 September 2007. The Claimant’s investments were
made after this date, and they are not subject to protection under the BIT. The Tribunal
therefore has no jurisdiction to hear this dispute.
78 Problem, Statement of Uncontested Facts at para 13. 79 Problem, Procedural Order No 3 at 62. 80 Problem, Statement of Uncontested Facts at para 23. 81 Problem, Procedural Order No 2 at 57. 82 Problem, Procedural Order No 2 at 58. 83 Problem, Statement of Uncontested Facts at para 33.
MEMORIAL FOR THE RESPONDENT ARMAND
20
II. BARANCASIA DID NOT BREACH BIT ARTICLE 2
75. Barancasia met its obligations under BIT Article 2 because (1) it provided the Claimant’s
investments with fair and equitable treatment (FET) as required by Article 2(2) and (2)
observed its obligation with regard to the specific investments of the Claimant in
accordance with Article 2(3).
1. Barancasia provided FET to the Claimant’s investments
76. Regardless of whether the Tribunal qualifies BIT Article 2(2) as an autonomous or
customary international law standard, when applied to the present dispute, Barancasia has
met the requirements of FET. Barancasia’s treatment of the Claimant’s investment
complied with FET because Barancasia did not (A) fail to meet the Claimant’s legitimate
expectations, because the expectation was not legitimately held; (B) deny justice or due
process; (C) exhibit manifest arbitrariness; or (D) discriminate against the Claimant’s
investments.
A. The Claimant’s expectation for the feed-in tariff rate to remain static was not
legitimate
77. Expectations are only protected by FET when they are legitimately held, and the
Claimant’s expectation that the LRE would remain unaltered was not legitimate because
(i) the expectation was not reasonable, and (ii) the expectation did not adequately account
for Barancasia’s right to regulate in the public interest.
(i) The Claimant’s expectation that the feed-in tariff would remain unchanged
is not reasonable
78. It was not reasonable for the Claimant to expect the LRE to remain static despite rapid
developments in technology, because the contingencies and presumptions built into the
LRE should have informed the Claimant’s expectation that the tariff could change if
MEMORIAL FOR THE RESPONDENT ARMAND
21
conditions changed. An investor’s expectations are deemed legitimate if they are
reasonable,84 and investors should reasonably expect regulatory change over time.85
79. A change to the tariff rate should have been expected because the factors that informed the
incentive scheme, including proportions of energy consumption and return rates, changed
dramatically. As the legal regime under which the Claimant’s Beta and Cluster projects
were made, the LRE is relevant to determining expectations.86 LRE Article 2 states:
production of energy from renewable sources shall be incentivized
by state measures until the share of electricity generated from
renewable sources amounts to no less than 20 percent as compared
with the country’s gross consumption of energy.87
This 20% qualification informs investors that the incentive regime was not indefinite.
The feed-in tariff rate was based on the premise that the “average annual return on
investment for licensed renewable projects should be 8%”,88 which could change with
more efficient technology. The reduction in the feed-in tariff rate to 0.15 EUR/kWh still
allows investors to receive at least an 8% return,89 consistent with the original premise.
80. Further, the Claimant should have expected technological innovation. The “introduction
of innovative technologies” was one of the desired objectives of the LRE.90 The Claimant
inadequately took into account the risk of change as a result of the development of new
technology when it made its investments, because technological innovation was
encouraged by the LRE.91
84 Elizabeth Snodgrass, ‘Protecting Investors’ Legitimate Expectations: Recognizing and Delimiting a General
Principle’, (2006) 21 ICSID Rev at paras 35–36. See e.g. Duke Energy Electroquil Partners & Electroquil SA v
Republic of Ecuador, ICSID Case No ARB/ 04/19, Award (18 August 2008) at paras 351–354; Saluka Investments
BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award (17 March 2006) at 304–308 [hereinafter
Saluka]; EDF (Services) Limited v Romania, ICSID Case No ARB/05/13, Award (8 October 2009) at para 219; Int'l
Thunderbird Gaming Corp v United Mexican States, UNCITRAL, Award (3 November 2008) at para 147. 85 Dolzer and Schreuer at 147. See e.g. Saluka at paras 304-308; El Paso Energy International Company v
Argentina, ICSID Case No ARB/03/15, Award (27 October 2011) at paras 344–352, 365–374 [hereinafter El Paso
Award]; Parkerings-Compagniet AS v Lithuania, ICSID Case No ARB/05/8, Award on Jurisdiction and Merits (14
August 2007) at paras 327–338. 86 Dolzer and Schreuer at 134; Stephan W Schill, ‘General Principles of Law’ in International Investment Law: The
Sources of Rights and Obligations, Tarcisio Gazzini and Eric De Brabandere, eds, Martinus Nijhoff Publishers
(Leiden 2012) at 169. 87 Problem, Annex No 2: The Republic of Barancasia Law on Renewable Energy, Article 2 page 32. 88 Problem, Uncontested Statement of Facts at para 21. 89 Problem, Procedural Order No 2 at para 27 page 59-60. 90 Problem, Annex No 2: The Republic of Barancasia Law on Renewable Energy, Article 1 page 32. 91 Problem, Uncontested Statement of Facts at para 14.
MEMORIAL FOR THE RESPONDENT ARMAND
22
(ii) The Claimant did not adequately account for Barancasia’s sovereign power
to regulate in the public interest when forming their expectations
81. The Claimant should have anticipated that Barancasia would fulfill its duty to regulate in
the public interest as a result of changes in technology and economic circumstances. The
Claimant should have anticipated that the exercise of Barancasia’s sovereign power could
include regulatory changes.92 Legitimate expectations for investments should consider the
relevance of public interest and policy balancing attempts by the state when enacting new
legislation.93
82. Laws can be changed with social, economic, or other justification.94 Alterations to the law
may result in far reaching consequences and burdens on investors and still not violate
FET.95
83. It is unreasonable to expect that laws will not change, because it would be
“unconscionable” for a state to make that kind of commitment as a part of FET.96 It is
“inconceivable” that entering into a BIT would preclude Barancasia from modifying
legislation, 97 and would consequently inhibit its sovereign power:
[g]overnments change, policies changes and rules change. These are
facts of life with which investors and all legal and natural persons
have to live with.98
The Claimant could not reasonably expect to be immune from changing political pressures
and circumstances.
84. Public opinion in Barancasia was overwhelmingly in support of treating teachers better
than solar panels,99 and a responsible government must respond to changing circumstances
and desires of the population to which it is accountable.100 Technological advancement
92 Charles H. Brower II, ‘Corporations as Plaintiffs Under International Law: Three Narratives about Investment
Treaties’, [2011] Santa Clara J Int'l L 179 at 187 93 Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, Award (5 September 2008) at
para 261 [hereinafter Continental Casualty]. 94 El Paso Award at para 372. 95 Mobil Investments Canada Inc and Murphy Oil Corporation v Canada, ICSID Case No ARB(AF)/07/04,
Decision on Liability (22 May 2012) at para 153 [hereinafter Mobil]. 96 El Paso Award at para 372, citing Continental Casualty at para 258. 97 El Paso Award at paras 367–368. 98 Mobil at para 153. 99 Problem, Uncontested Statement of Facts at para 32. 100 Tarcisio Gazzini, ‘Bilateral Investment Treaties’ in International Investment Law: The Sources of Rights and
Obligations, Tarcisio Gazzini and Eric De Brabandere, eds, Martinus Nijhoff Publishers (Leiden 2012) at 113
MEMORIAL FOR THE RESPONDENT ARMAND
23
made photovoltaic energy production more profitable,101 increasing the number of
applications made under to the BEA.102
85. Barancasia had to balance competing policy objectives for future allocations of the state
budget, because up to 15% of Barancasia’s revenue would be paid to finance solar feed-in
tariffs—a higher share of government revenues than is assigned to Barancasia’s education
system.103 The Barancasian public believed teachers should not be treated worse than solar
panels.104 Barancasia’s amendment of LRE Article 4 was consistent with its promise to
review the legislation.105 The law was changed with the public’s interest education and
responsible economic regulation in mind.
86. The Tribunal does not have an “open mandate” to review Barancasia’s exercise of
regulatory power.106 The Tribunal should not substitute its own determination on the
correct or appropriate policy choice in a controversial circumstance for that of the
sovereign state.107
B. Barancasia did not deny justice or due process to the Claimant’s Alpha project
87. Barancasia did not deny justice or due process to the Alpha project because it provided the
Claimant with a fair procedure, including consideration and rejection of its application with
reasons, and recourse to Barancasia’s administrative courts.108
88. Instances of denial of justice include refusing to make a decision or provide access to the
courts, unreasonable delay in proceedings, judicial corruption, and a lack of due process
such as no notice or opportunity to be heard.109 FET protects against intrinsic, systematic
[hereinafter Gazzini]; See also SD Myers, Inc v Canada, UNCITRAL, First Partial Award (13 November 2000) at
para 261 [hereinafter SD Myers]; Gami Investments, Inc v Mexico, UNCITRAL, Award (15 November 2004) at para
93 [hereinafter Gami]. 101 Problem, Uncontested Statement of Facts at para 25. 102 Problem, Uncontested Statement of Facts at para 29. 103 Problem, Uncontested Statement of Facts at para 29. 104 Problem, Uncontested Statement of Facts at para 32. 105 Problem, Uncontested Statement of Facts at para 32. 106 Gazzini at 113, citing SD Myers at para 261 and Gami at para 93. 107 SD Myers at para 261; Gami at para 93. 108 Problem, Procedural Order No 2 at 59. 109 United Nations Conference on Trade and Development, ‘Fair and Equitable Treatment’, Series on International
Investment Agreements II, United Nations (UN 2012) at 80 [hereinafter UNCTAD FET].
MEMORIAL FOR THE RESPONDENT ARMAND
24
failures to provide fairness which are not rectifiable, making exhaustion of local remedies
an element of establishing a denial of justice.110
89. Alpha was able to apply for the new feed-in tariff,111 the BEA did not refuse to make a
decision:112 it denied the feed-in tariff with reasons based on its interpretation of the
LRE.113 The Barancasian legal system provided the opportunity be heard in the
administrative courts to correct the decision, if the Claimant had applied.114 There is no
evidence to suggest delay in proceedings or judicial corruption.115 Barancasia met its
obligations to provide due process under FET.
C. Barancasia did not deny justice or due process to the Claimant’s Alpha project
90. The explanation for the denial of Alpha’s feed-in tariff was consistent with the LRE’s
purpose to promote further developments in the energy sector. This made the relationship
between the decision and the objective rational, not arbitrary.
91. If a rational explanation exists, whether that explanation for the decision was good or bad
is not a matter for this Tribunal to decide.116 For instance, in Gami, the Tribunal had to
decide on allegations that Mexico failed to implement and enforce its legislation in a
consistent manner which, in the Claimants view, amounted to arbitrary conduct.117 The
Tribunal held that claims of arbitrary conduct require more than a simple demonstration of
maladministration on the part of the host state, it requires that the maladministration was
based on arbitrary reasons.118
92. The Claimant’s Alpha project predated the adoption of the LRE.119 Barancasia denied the
feed-in tariff to Alpha because the LRE was intended to “promote further development and
110 UNCTAD FET at 81; James Crawford, Special Rapporteur to the International Law Commission, Second Report
on State Responsibility, 17 March 1999, UN Doc A/CN 4/498 at para 75 [hereinafter Crawford Second Report]. 111 Problem, Statement of Uncontested Facts at para 22. 112 Problem, Statement of Uncontested Facts at para 22. 113 Problem, Statement of Uncontested Facts at para 22. 114 Problem, Procedural Order No 2, at page 59. 115 Problem, Procedural Order No 2, at page 59. 116 Enron v Argentina at 281; UNCTAD FET at 78. 117 Gami at paras 101–103; Patrick Dumberry, ‘The Prohibition Against Arbitrary Conduct’, [2014] JWIT 117 at 131
[hereinafter Dumberry Arbitrary Conduct]. 118 Gami at para 105; Dumberry Arbitrary Conduct at 131. 119 Problem, Statement of Uncontested Facts at paras 13–14.
MEMORIAL FOR THE RESPONDENT ARMAND
25
introduction of innovative technologies”.120 The BEA assessed that the feed-in tariff should
apply to future investments,121 which is a rational reason based on its interpretation of the
LRE.
D. Barancasia did not deny justice or due process to the Claimant’s Alpha project
21. The amendment to the LRE was not discriminatory, as the new fixed feed-in tariff did not
single out the Claimant nor did it favour domestic over foreign investments.122 As
described by the Tribunal in Biwater Gauff, discriminatory measures are those that treat
foreign investment less favorably than domestic investment.123 The amendment makes no
distinction to which investors it applies.124
2. Barancasia observed its obligation with regard to the specific investments of the
Claimant in accordance with Article 2(3)
93. The Tribunal should find that Barancasia’s alteration of the LRE did not breach its
obligations to the Claimant, and therefore did not violate the BIT. Barancasia observed its
obligation with regard to the specific investments of the Claimant in accordance with
Article 2(3), because (A) the article should be narrowly interpreted where the Claimant
cannot provide clear and convincing evidence for a broad interpretation of the umbrella
clause, and (B) in the absence of a stabilization clause, the umbrella should not be
interpreted in a way that implicitly freezes the LRE. This interpretation allows Barancasia
to make amendments to its own laws, including the feed-in tariff rate, without violating the
BIT.
120 Problem, Statement of Uncontested Facts at para 14; Problem, Annex No 4: The Republic of Barancasia Law on
the Amendment of Article 4 of the Law on Renewable Energy, Article 1 at 32. 121 Problem, Statement of Uncontested Facts at para 22. 122 Problem, Annex No 4: The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable
Energy, Article 1 at 32. 123 Biwater Gauff (Tanzania) Limited v United Republic of Tanzania, ICSID Case No ARB/05/22, Award (24 July
2008) at para 695. See also US v Italy (Elettronica Sicula Spa case), 1989 ICJ Reports 15 (20 July 1989) at para 128. 124 Problem, Annex No 4: The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable
Energy, Article 1 at 32.
MEMORIAL FOR THE RESPONDENT ARMAND
26
A. The Claimant must provide clear and convincing evidence for a broad
interpretation of the umbrella clause
94. Without clear and convincing evidence of the Contracting Parties’ intent for a widely
encompassing umbrella clause, the Tribunal should adopt a narrow approach. Articles with
a similar structure and wording to BIT Article 2(3) are often referred to as umbrella
clauses.125 BIT Article 2(3) provides that:
[e]ach Contracting Party shall observe any other obligation it may
have with regard to a specific investment of an investor of the other
Contracting Party.126
The Tribunal in SGS v. Pakistan, faced with a similarly worded provision, 127 did not find
that an umbrella clause elevated a contract breach to a treaty breach.128 The Tribunal
interpreted the clause narrowly in the absence of clear and convincing evidence to suggest
the state parties had intended the clause to have a broad scope.129 Otherwise, the clause
would incorporate a possibly infinite number of state contracts,130 which could unjustly
open the “floodgates” to potential disputes.131
95. The alteration of the LRE reflects Barancasia’s responsibility to ensure its renewable
energy regime could evolve following the development of new technology. This Tribunal
should take a balanced interpretive approach, described in El Paso132 which considers “the
State's responsibility to create an adapted and evolutionary framework for the development
of economic activities”.133
125 Patrick Dumberry, ‘International Investment Contracts’ in International Investment Law: The Sources of Rights
and Obligations, Tarcisio Gazzini and Eric De Brabandere, eds, Martinus Nijhoff Publishers (Leiden 2012) at 236. 126 BIT Article 2(3). 127 Agreement between the Swiss Federation and the Islamic Republic of Pakistan on the Promotion and Reciprocal
Protection of Investments (signed 7 November 1995, in force 5 June 1996), Article 11. 128 Société Générale de Surveillance SA v Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision of the
Tribunal on Objections to Jurisdiction (6 August 2003) at para 174 [hereinafter SGS]. See also Brian Bombassaro
and Patricio Grané, ‘Umbrella Clause Decisions: The Class of 2012 and a Remapping of the Jurisprudence’, Kluwer
Arbitration Blog (17 January 2013); Jarrod Wong, ‘Umbrella Clauses in bilateral investment treaties: of breaches of
contract, treaty violations and the divide between developing and developed countries in foreign investments
disputes’, [2006] Geo Mason L Rev 135 at 152. 129 SGS at paras 166-167. 130 SGS at paras 166-167. 131 Thomas Wälde, ‘The “Umbrella Clause” in Investment Arbitration- A Comment on Original Intentions and
Recent Cases’, [2005] 1 JWIT at 26 [hereinafter Wälde]. 132 El Paso Energy International Company v Argentina, ICSID Case No ARB/03/15, Decision on Jurisdiction (27
April 2006) at para 70 [hereinafter El Paso Decision on Jurisdiction]. 133 El Paso Decision on Jurisdiction at para 70.
MEMORIAL FOR THE RESPONDENT ARMAND
27
B. In the absence of a stabilization clause, the umbrella should not be interpreted in
a way that implicitly freezes the LRE
96. Without express mention of stabilization, Barancasia should not be assumed to have taken
on an obligation not to change its laws or regulations.134 Unlike a stabilization clause, the
umbrella clause does not make Barancasia’s obligations more onerous; the purpose of the
umbrella clause is merely to provide a forum for certain contractual breaches.135
97. Though umbrella clauses, in general, protect specific obligations pertaining to
concessions,136 there is no specific obligation contained in the Beta and Cluster licenses
which guarantees that the LRE should remain unchanged throughout the life of the projects.
The LRE is a legal regime that targets specific investors and investments, meaning that it
could fall within BIT Article 2(3) as an obligation.137 LRE Article 4 was amended, but
Barancasia was in compliance with its own amendment by changing the tariff rate.138 It
could therefore not be assumed that this amendment violated an obligation under BIT
Article 2(3).
98. A host state is under an obligation to follow its own laws while they are in force.139 If a
specific law is altered the content of the obligation, to follow the law, remains the same.140
The feed-in tariff is not a separate obligation “distinct from the law itself”. 141 In the absence
of a stabilization clause, “investors take the risk that the obligations of the host State under
its own law may change, and the umbrella clause makes no difference to this basic
proposition”.142
99. There was no “stabilization clause” contained in the LRE, and the twelve year guarantee
should not be interpreted as such in the context of the accompanying conditions and
134 James Crawford, ‘Treaty and Contract in Investment Arbitration’, [2009] 1 TDM at 20 [hereinafter Crawford
Treaty and Contract]. 135 Lise Johnson and Oleksandr Volkov, ‘Investor-State Contracts, Host-State “Commitments” and the Myth of
Stability in International Law’, [2013] 361 AMRIARB at 372. 136 FA Mann, ‘British Treaties for the Promotion and Protection of Investments’ in British Yearbook of International
Law (Oxford University Press 1981) at 246. 137 Crawford Treaty and Contract at 20. 138 Problem, Statement of Uncontested Facts at para 35. 139 Crawford Treaty and Contract at 20. 140 CMS Gas Transmission Company v Argentina, ICSID Case No ARB/01/8, Decision of the ad hoc Committee on
the Application for Annulment of the Argentine Republic (September 25 2007) at para 95(c) [hereinafter CMS
Annulment]. 141 Crawford Treaty and Contract at 20. 142 Crawford Treaty and Contract at 20.
MEMORIAL FOR THE RESPONDENT ARMAND
28
contingencies in the legal regime.143 In CMS, the dismantling of the tariff regime breached
the umbrella clause.144 However, the license at the center of the dispute contained two
contractual “stabilization clauses” that guaranteed that the tariff regime would not be
subject to freezes or price controls and that any changes to the rules governing the licenses
would be authorized by the written consent of the licensee.145
100. The amendment to the LRE should not be considered sufficiently grave enough to breach
Barancasia’s international obligations under the treaty. The Tribunal in Joy Mining found
that contract breaches should have sufficient magnitude in order to “trigger” provisions
contained in international treaties.146 Umbrella clauses should only protect against
substantial interferences with contracts made with sovereign powers.147 In this instance,
the LRE was amended to allow for an annual review of the feed-in tariff rate;148 the
renewable energy regime continued,149 licences were not revoked,150 and subsidies were
still provided to investors subsequent to the amendment.151 The reduction in the tariff rate
to 0.15 EUR/kWh maintained the 8% annual return on which the tariff rate was
premised.152
143 Problem, Statement of Uncontested Facts at para 21; Problem, Annex No 2: The Republic of Barancasia Law on
Renewable Energy, Article 2 page 32. 144 CMS Gas Transmission Company v Argentina, ICSID Case No ARB/01/8, Award (25 April 2005) at para 303
[hereinafter CMS Award]. 145 CMS Award at para 302. 146 Joy Mining Machinery Limited v The Arabic Republic of Egypt, ICSID Case No ARB/03/11, Award on
Jurisdiction (August 6 2004) at para 81. 147 OECD, “Interpretation of the Umbrella Clause in Investment Agreements”, in International Investment Law:
Understanding Concepts and Tracking Innovations: A Companion Volume to International Investment Perspectives
(OECD Publishing 2008) at 109. 148 Problem, Statement of Uncontested Facts at para 34; Problem, Annex No 4: The Republic of Barancasia Law on
the Amendment of Article 4 of the Law on Renewable Energy at 35. 149 Problem, Annex No 4: The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable
Energy at 35. 150 Problem, Annex No 4: The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable
Energy at 35. 151 Problem, Statement of Uncontested Facts at para 35; Problem, Annex No 4: The Republic of Barancasia Law on
the Amendment of Article 4 of the Law on Renewable Energy at 35. 152 Problem, Procedural No 2, at 59–60.
MEMORIAL FOR THE RESPONDENT ARMAND
29
III. THE TRIBUNAL SHOULD NOT ORDER BARANCASIA TO REPEAL THE
AMENDMENT TO LRE ARTICLE 4 OR TO CONTINUE TO PAY THE CLAIMANT
THE 0.44 EUR/kWh TARIFF
101. Barancasia should not be ordered to repeal the amendment to LRE Article 4 or to continue
to pay the Claimant the 0.44 EUR/kWh feed-in tariff for twelve years, because (A) arbitral
tribunals do not have the power to award restitution or specific performance in international
investment law, and (B) an order for restitution or specific performance would impose a
disproportionate burden on Barancasia.
A. Arbitral tribunals do not have the power to award restitution or specific
performance in international investment law
102. The remedy for breach of the FET obligation must be determined in accordance with
CIL.153 Most international investment agreements, including the Barancasia-Cogitatia BIT,
do not contain rules regarding the appropriate remedy when one of the Contracting Parties
breaches the obligation to provide FET. The only guidance with respect to remedies is in
the form of substantive principles for determining compensation in the event of
expropriation.154
103. Under CIL, restitution and specific performance are not available remedies in investor-
state disputes. This is indicated by the practice of arbitral tribunals, which has
overwhelmingly been to award compensation rather than restitution. As Christine Gray
notes, “[o]ne of the problems in establishing the primacy of restitution lies in the large gap
between practice and theory”.155 This is especially true with respect to restitution in the
form of an order to modify the legal situation in a state, such as an order to repeal a domestic
legislative measure, which is known as juridical restitution. Never has such an order clearly
been granted in modern investment arbitration.156
153 Sergey Ripinsky with Kevin Williams, Damages in International Investment Law (British Institute of
International and Comparative Law 2008) at 25 [hereinafter Ripinsky]. 154 Ripinsky at 25. 155 Christine Gray, ‘The Choice Between Restitution and Compensation’, 10 Eur J Int’l L 413 at 416 [hereinafter
Gray]. 156 Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (Oxford
University Press 2011) at 77 [hereinafter Sabahi].
MEMORIAL FOR THE RESPONDENT ARMAND
30
104. The Chorzów Factory case is often relied upon to establish the primacy of restitution.
However, in Chorzów Factory, the Permanent Court of International Justice (PCIJ) did not
in fact order restitution.157 As noted by the Tribunal in BP v Libya, “what the Court
established [in Chorzów] were ‘the principles which should serve to determine the amount
of compensation due for an act contrary to international law’”. After an extensive review
of the law, the Tribunal concluded:
the responsibility incurred by the defaulting party for breach of an
obligation to perform a contractual undertaking is a duty to pay
damages, and […] the concept of restitutio in integrum has been
employed merely as a vehicle for establishing the amount of
damages.158
105. Furthermore, the International Law Commission’s Articles on the Responsibility of States
for Internationally Wrongful Acts (ILC Articles) should not be used as justification for a
restitution order. First, the ILC Articles represent both a codification and progressive
development of the law, and should not be treated as a formal source of law.159 Second, the
ILC Articles should not be uncritically applied in investor-state disputes.160 In the ILC
Articles, Part Two contains the relevant articles with respect to the obligation to provide
restitution. However, this obligation does not extend to investors. Article 33(1) states: “The
obligations of the responsible State set out in [Part Two] may be owed to another State, to
several States, or to the international community as a whole […]”161 Therefore, the primacy
of restitution in the inter-state context, indicated by the ILC Articles, should not be
transplanted into the investor-state context.
106. Finally, the LCIA Rules should not be interpreted to give this Tribunal the power to award
restitution in this dispute. LCIA Rule 22.1(vii) states that the Arbitral Tribunal may decide
“to order compliance with any legal obligation […] and specific performance of any
157 Gray at 416. 158 BP v Libya, Award (Merits) (10 October 1973), (1979) 53 ILR 297 at 347. 159 James Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and
Commentaries (Cambridge University Press 2002) at 74; Martin Endicott, ‘Remedies in Investor-State Arbitration:
Restitution, Specific Performance and Declaratory Awards’, in Philippe Kahn & Thomas Wälde, eds, New Aspects
of International Investment Law (2007) at 530 [hereinafter Endicott]. 160 Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003), 74 BYIL 151 at 189. 161 International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts, in
Report of the International Law Commission on the Work of its Fifty-third Session, UN GAOR, 56th Sess, Supp No
10 at 43, UN Doc A/56/10 (2001), Article 33(1) [hereinafter ILC Articles].
MEMORIAL FOR THE RESPONDENT ARMAND
31
agreement”.162 This confirms that the Tribunal has jurisdiction to make such an order, but
says nothing about the circumstances in which the applicable law permits such an order to
be made.163 International investment law does not permit an order for restitution or specific
performance.
B. An order for restitution or specific performance would impose a disproportionate
burden on Barancasia.
107. Even if the Tribunal has the power to order restitution or specific performance, it should
not make such an order in this case. The ILC Articles specify that restitution should only
be ordered if it “does not involve a burden out of all proportion to the benefit deriving from
restitution instead of compensation”.164
108. This limitation has been applied by several arbitral tribunals. In LG&E v Argentina, the
Claimant was seeking the restoration of the gas regulatory framework that had been in
place prior to the state’s breach. The Tribunal declined this request for juridical restitution,
stating that it could not compel Argentina to annul or enact legislative and administrative
measures to make over the effect of the legislation in breach “without a sentiment of undue
interference with its sovereignty”.165
109. In the situation at hand, if restitution were to be ordered, there would be a grave
disproportionality between the burden imposed on Barancasia and the benefit to the
Claimant. The benefit to the Claimant of continuing to receive the 0.44 EUR/kWh feed-in
tariff for twelve years, rather than simply receiving compensation up-front, is difficult to
discern. On the other hand, Barancasia’s economic stability and political independence
would be threatened if it were ordered to repeal the amendment to Article 4. By 3 January
2013 Barancasia had already issued 6000 licenses under the LRE.166 Approving all 7000
applications would have required the diversion of 15% of state revenues to the renewable
energy scheme; therefore, repealing Article 4 and paying at least 6000 licensees the 0.44
EUR/kWh tariff would result in approximately 12-13% of state revenues being spent on
162 LCIA Rules, Rule 22.1(vii). 163 Endicott at 521 n 9. 164 ILC Articles, Article 35(b). 165 LG&E v Argentina, ICSID Case No ARB/02/1, Damages Award (25 July 2007) at para 87 [hereinafter LG&E
Award]. 166 Problem, Procedural Order No 2 at 58.
MEMORIAL FOR THE RESPONDENT ARMAND
32
renewable energy.167 In addition, borrowing the necessary amounts for the maintenance of
the renewable energy support scheme without affecting other areas of the budget would
require Barancasia to exceed its EU-mandated borrowing limits.168
167 Problem, Statement of Uncontested Facts at para 28. 168 Problem, Statement of Uncontested Facts at para 30.
MEMORIAL FOR THE RESPONDENT ARMAND
33
IV. THE TRIBUNAL SHOULD REJECT THE CLAIMANT’S CALCULATIONS FOR
COMPENSATION
110. If the Tribunal decides to award compensation, it should reject the calculations for
compensation made by the Claimant’s Expert and instead accept the calculations for
damages made by Barancasia’s Expert, Juanita Priemo, MBA, C.A., for the following
reasons: (A) no damages should be awarded with respect to Project Alpha because there is
no causal connection between the LRE and Project Alpha; (B) the discounted cash flow
(DCF) method is not an appropriate way to value the losses suffered by the Claimant with
respect to the Alpha, Cluster, and additional planned projects; (C) if the DCF method is
used, cash flows to equity should be discounted at the cost of equity; and (D) any award to
the Claimant for expenditures on the Cluster project should be reduced to take into account
potential mitigation.
A. No damages should be awarded with respect to Project Alpha because there is no
causal connection between the LRE and Project Alpha
111. Article 31(1) of the ILC Articles states: “The responsible State is under an obligation to
make full reparation for the injury caused by the internationally wrongful act”.169 The
Tribunal in LG&E v Argentina, after considering the ILC Articles and arbitral decisions,
emphasized that it had to determine the “actual loss” suffered by the investor “as a result”
of Argentina’s conduct.170
112. The Claimant’s losses on the Alpha project were not caused by Barancasia’s internationally
wrongful act. Since the Alpha project was conceived and developed prior to the LRE, the
project’s losses existed prior to Barancasia’s reduction of the 0.44 EUR/kWh feed-in tariff
and there is no causal connection between the amendment to LRE Article 4 and the
Claimant’s decision to proceed with the project.171
169 ILC Articles, Article 31(1) [emphasis added]. 170 LG&E Award at para 45 [emphasis original]. 171 Problem, Expert Report of Juanita Priemo at para 7.
MEMORIAL FOR THE RESPONDENT ARMAND
34
B. The discounted cash flow (DCF) method is not an appropriate way to value the
losses suffered by the Claimant with respect to the Alpha, Cluster, and additional
planned projects
113. It would not be appropriate to value the losses suffered by the Claimant with respect to the
Alpha, Cluster, and additional planned projects using the DCF method. The DCF method
is a highly speculative method that relies on projections many years into the future. Arbitral
tribunals often refer to the requirement that an enterprise is a “going concern” in order for
the DCF method to be reasonable.172 Kantor explains that arbitral tribunals’ refusal to use
the DCF method for enterprises that are not going concerns is “best understood as declining
to grant an investor compensation for future earnings because the arbitrators were
concerned that projecting future earnings would be too speculative and uncertain in the
particular circumstances”.173 In Metalclad v Mexico, for example, the Tribunal recognized
that “where an enterprise has not operated for a sufficiently long time […] any award based
on future profits would be wholly speculative”.174 The DCF method was rejected in Sola
Tiles despite three years of operations, and in AAPL v Sri Lanka, the Tribunal held that “the
prior presence on the market for at least two or three years” was required before the
enterprise could be considered a going concern. In addition, as noted by the Tribunal in
Noble Ventures v Romania:
[u]nder international law, an enterprise may be considered a going
concern only if it has a recent history of profitability from which to
project future profits with a reasonable degree of certainty”.175
114. In the present situation, the Alpha, Cluster, and additional planned projects do not have a
sufficient history of profitable operations from which to project future profits with a
reasonable degree of certainty. The Alpha project began operations in January 2010, but
operated at a loss and did not achieve its expected capacity until 2013, when the LRE was
172 Metalclad v Mexico, ICSID Case No ARB(AF)/97/1, Award (30 August 2000) [hereinafter Metalclad]; AAPL v
Sri Lanka, ICSID Case No ARB/87/3, Award (27 June 1990); Sola Tiles, Inc v Islamic Republic of Iran, Iran-US
Claims Tribunal, Award (22 April 1987), 14 Iran-US CTR 223; Autopista v Venezuela, ICSID Case No ARB/00/5,
Award (23 September 2003); SPP (ME) v Egypt, Award (20 May 1992), (1997) 106 ILR 502. 173 Mark Kantor, Valuation for Arbitration: Compensation Standards, Valuation Methods and Expert Evidence
(Kluwer Law International 2008) at 102 [hereinafter Kantor]. 174 Metalclad at paras 120-121. 175 Noble Ventures v Romania, ICSID Case No ARB/01/11, Award (12 October 2005) at para 228.
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35
amended.176 The Cluster project was still in development at this time.177 Therefore, at the
time of Barancasia’s reduction of the fixed feed-in tariff, neither of these projects had a
sufficient record of profitability from which to project future profits. Furthermore, the
Claimant’s claim for compensation for its allegedly planned projects, for which no
investments have been made, is entirely inappropriate. The only support for the allegedly
planned projects is a witness statement from a local manager, who stated that this was a
long-term goal of the company.178 This falls well short of meeting the requirement that an
enterprise have several years of profitability before the DCF method can be used.
C. If the DCF method is used, cash flows to equity should be discounted at the cost
of equity
115. The Claimant’s Expert made a valuation error when he used the weighted average cost of
capital (WACC) as the discount rate for all of the cash flows in his valuations using the
DCF method. As Kantor explains, “using WACC may overvalue a company by under-
discounting the portion of a company’s net cash flows that benefits solely the equity
investors”.179
116. This is what the Claimant’s Expert has done. While both the Beta and Cluster projects were
financed in part by debt,180 there is no indication that the debt-to-equity ratio will remain
constant throughout their business lives. In fact, the projected income statement for the
Cluster project shows interest on loans being paid only through 2015, and it is reasonable
to assume that Beta was financed in a similar manner.181 At that point, assuming that the
Claimant does not take on additional debt, all of the net cash flows would solely benefit
the equity investors, and should therefore be discounted at the cost of equity.
117. The evidence suggests that the Claimant would not take on additional debt to finance these
projects. As indicated by Barancasia’s Expert, the annual operating costs of photovoltaic
installations are very low and tend to be up-front fixed costs.182 These costs have already
176 Problem, Expert Report of Marko Kovic at para 6. 177 Problem, Statement of Uncontested Facts at para 36. 178 Problem, Procedural Order No 2 at 28. 179 Kantor at 169. 180 Problem, Procedural Order No 3 at 63. 181 Problem, Kovic-Annex 4, p 1. 182 Problem, Expert Report of Juanita Priemo at para 9.
MEMORIAL FOR THE RESPONDENT ARMAND
36
been paid. It is therefore unlikely that the Claimant would take on additional debt, since
the annual operating costs are low and would be easily met through revenues.
D. Any award to the Claimant for expenditures on the Cluster project should be
reduced to take into account potential mitigation
118. Many arbitral tribunals have recognized the responsibility of an injured party to take
reasonable measures to mitigate its losses.183 If the Claimant’s losses with respect to the
Cluster project are measured on the basis of the cost of land and equipment for the project,
the Tribunal should take into account that these assets continue to have value.
119. The calculation provided by the Claimant’s Expert effectively assumes that the land and
equipment purchased by the Claimant is without value. In fact, the Claimant has continued
to use the land and equipment to operate the project.184 If the Claimant halted the project
as a result of not receiving the 0.44 EUR/kWh feed-in tariff, it could sell the assets in order
to recover its expenditures. The price of the land is now 10% higher than when it was
bought, and it is unlikely that the photovoltaic panels have significantly declined in value
in such a short period of time.185
183 Kantor at 113; see e.g. Enron v Argentina; CME v Czech Republic, UNCITRAL, Final Award (14 May 2003);
Starrett Housing Corp v Islamic Republic of Iran, Iran-US Claims Tribunal, Award (14 August 1987). 184 Problem, Procedural Order No 2 at 59. 185 Problem, Procedural Order No 2 at 60.
MEMORIAL FOR THE RESPONDENT ARMAND
37
PRAYER FOR RELIEF
THE RESPONDENT RESPECTFULLY REQUESTS THAT THE ARBITRAL
TRIBUNAL:
• FIND that it has no jurisdiction.
• In the event that the tribunal finds that it does have jurisdiction, FIND that Barancasia
has not violated the protections of the BIT.
• In the event that the tribunal finds that Barancasia has violated the BIT, DENY the
Claimant’s request for restitution or specific performance.
• FIND that the Claimant’s Expert’s calculations for damages are ill-supported, and
instead accept the calculations of Barancasia’s Expert.
• FIND that Barancasia is entitled to all costs related to these proceedings from the
Claimant.
ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 26TH DAY OF SEPTEMBER, 2015.