PERMANENT COURT OF ARBITRATION PCA Case … · team gaja permanent court of arbitration pca case no. 2016-74 between: atton boro limited claimant republic of mercuria respondent memorial

M E M O R I A L F O R T H E C L A I M A N T T E A M G A J A

TENTH ANNUAL

FOREIGN DIRECT

INVESTMENT

INTERNATIONAL MOOT

COMPETITION 2017

TEAM GAJA

PERMANENT COURT OF

ARBITRATION

PCA Case No. 2016-74

BETWEEN:

ATTON BORO LIMITED

CLAIMANT

REPUBLIC OF MERCURIA

RESPONDENT

MEMORIAL FOR THE CLAIMANT

i

INDEX OF ABBREVIATIONS ................................................................................... iv

INDEX OF AUTHORITIES .......................................................................................... v

INDEX OF CASES.................................................................................................... viii

INDEX OF ARBITRAL AWARDS .............................................................................. ii

INDEX OF LEGAL AUTHORITIES ............................................................................ 2

STATEMENT OF FACTS ............................................................................................. 3

ARGUMENTS ............................................................................................................... 5

A. THIS TRIBUNAL HAS JURISDICTION OVER CLAIMS IN RELATION TO THE

AWARD .................................................................................................................................... 5

(1) THE AWARD ITSELF CONSTITTUTES AN INVESTMENT UNDER ARTICLE

1(1)(c) OF THE BIT ................................................................................................................. 5

(a) Applying VCLT Article 31, the definition of investment is broad, intended by the parties . 5

(b) Under such broad definition of investment, the Award qualifies as an investment ............. 6

(2) THE AWARD IS AN INVESTMENT AS A CONTINUATION OF THE ORIGINAL

INVESTMENT, THE LTA ........................................................................................................ 7

(a) The LTA fulfills the definition of investment pursuant to Article 1(1) of the BIT .............. 8

(b) The LTA fulfilled the economic characteristics of investment ............................................ 9

(c) The LTA forms the integral part of an overall operation that qualifies as an investment. . 10

B. CLAIMANT IS NOT DENIED THE BENEFITS OF THE BIT BY VIRTUE OF

RESPONDENT’S INVOCATION OF ARTICLE 2 OF THE BIT ................................... 11

(1) RESPONDENT DID NOT EXERCISE THE RIGHT TO DENY BENEFITS IN A

TIMELY MANNER ................................................................................................................ 11

(2) RESPONDENT’S BELATED DENIAL HAS NO RETROSPECTIVE EFFECT ........... 13

(3) RESPONDENT HAS NOT ESTABLISHED THAT THE CONDITIONS SET IN

ARTICLE 2 ARE MET ........................................................................................................... 14

(a) Claimant has substantial business activities in Basheera ................................................ 15

(b) Respondent has not proven Claimant is owned or controlled by third state nationals .... 16

C. THE ENACTMENT OF LAW NO. 8458/09 AND THE GRANT OF A LICENSE

FOR THE CLAIMANT’S INVENTION AMOUNT TO A BREACH OF THE BIT ..... 17

(1) CLAIMANT DOES NOT NEED TO EXHAUST LOCAL REMEDIES ......................... 18

(2) RESPONDENT UNLAWFULLY EXPROPRIATED CLAIMANT’S INVESTMENT ... 18

(a) Respondent indirectly expropriated Claimant investment .............................................. 18

(b) Respondent did not pay immediate full and effective compensation .............................. 19

ii

(3) RESPONDENT DID NOT ACCORD CLAIMANT’S INVESTMENT FAIR AND

EQUITABLE TREATMENT .................................................................................................. 19

(a) FET of the BIT is an autonomous standard .................................................................... 20

(b) Respondent frustrated Claimant’s legitimate expectation ............................................... 20

(i) Claimant’s expectation was specifically generated from Respondent’s assurance............. 21

(ii) Claimant’s expectation was reasonable under an objective standard ................................ 22

(iii) Claimant relied on the expectation to make its investment .............................................. 23

(iv) Respondent frustrated Claimant’s legitimate expectations and caused loss ..................... 23

(c) Respondent failed to provide the minimum patent protection of international standards

in breach of fair and equitable treatment ................................................................................. 24

(i) Respondent has the obligation to provide the minimum patent protection of international

standards ................................................................................................................................. 24

(ii) The royalty at 1% rate was not an adequate remuneration ................................................ 25

(iii) Respondent failed to ensure the provision of generic drugs merely for the domestic

market ..................................................................................................................................... 26

(4) RESPONDENT DISCRIMINATED AGAINST CLAIMANT AS A FOREIGN

INVESTOR ............................................................................................................................. 27

(5) RESPONDENT CANNOT BE EXEMPT FROM LIABILITIES TO COMPENSATE BY

INVOCATION OF POLICE POWER OR A STATE OF NECESSITY ................................. 28

D. MERCURIA IS LIABLE UNDER ARTICLE 3 OF THE BIT FOR THE CONDUCT

OF ITS JUDICIARY IN RELATION TO THE ENFORCEMENT PROCEEDINGS. .. 30

(1) RESPONDENT FAILED TO ACCORD CLAIMANT’S INVESTMENTS WITH FAIR

AND EQUITABLE TREATMENT DURING ENFORCEMENT PROCEEDINGS ............. 30

(2) MERCURIAN JUDICIAL CONDUCT WAS ARBITRARY, BIAS AND LACKS

TRANSPARENCY ................................................................................................................. 30

(a) Mercurian judicial conduct exhibits manifest arbitrariness, especially the Supreme Court’s

deviation from its previous decision ....................................................................................... 31

(b) Mercurian judiciary treated Claimant with blatant bias .................................................... 32

(c) The clarification of the Commercial Act could not justify its judicial conduct for lack of

transparency ............................................................................................................................ 33

(3) THE ENFORCEMENT PROCEEDINGS WERE SUBJECT TO UNDUE DELAY ....... 33

(a) The duration is unreasonably long compared to normal practice of states ..................... 34

(b) The enforcement proceedings were not complex .............................................................. 34

iii

(c) Overburdened judiciary could not justify the delay ........................................................... 35

(d) Claimant has spared no efforts to accelerate the proceedings ........................................... 35

(4) RESPONDENT FAILED TO PROVIDE EFFECTIVE MEANS ..................................... 36

E. TERMINATION OF THE LONG-TERM AGREEMENT BY NATIONAL HEALTH

AUTHORITY OF RESPONDENT AMOUNTS TO A VIOLATION OF ARTICLE 3(3)

OF THE BIT .......................................................................................................................... 37

(1) NHA’S CONCLUSION AND TERMINATION OF THE LTA ARE ATTRIBUTABLE TO

RESPONDENT ....................................................................................................................... 37

(a) NHA is a de facto state organ ............................................................................................ 37

(b) NHA is an empowered entity exercising governmental authority with respect to the LTA

38

(c) The conduct was governmental in nature under the functional test ................................... 39

(d) The conducts at stake are carried out under the direction of Respondent ......................... 40

(2) RESPONDENT’S BREACH OF LTA SHALL BE ELEVATED TO A TREATY

VIOLATION ........................................................................................................................... 41

(a) Contractual obligations under the LTA are qualified undertakings within Article 3(3) ..... 42

(i) Article 3(3) broadly covers protection of contractual obligations ...................................... 42

(ii) LTA, as an investment contract, is specifically covered by Article 3(3) ........................... 43

(b) Even under a restrictive reading of Article 3(3), breach of the LTA constitutes a BIT

violation because Respondent acted as sovereign ................................................................... 43

(3) THE DISPUTE SETTLEMENT CLAUSE UNDER LTA ITSELF DOES NOT RENDER

THIS TREATY CLAIM INADMISSIBLE ............................................................................. 44

PRAYER FOR RELIEF ....................................................................................................... 46

iv

INDEX OF ABBREVIATIONS

Arguments Basheera BIT Exh. 1 Facts NHA No. p./pp. Para./Paras. PO 1/2/3 Reef The Award WHO WTO WTO DSU

Arguments in the Memorial of the Claimant The Kingdom of Basheera Agreement between the Republic of Mercuria and the Kingdom of Basheera for the Promotion and Reciprocal Protection of Investments in 1998 Notice of Arbitration Exhibit 1 Uncontested Facts in FDI Moot Problem 2017 National Health Authority of Mercuria Number page/pages Paragraph/Paragraphs Procedural Order No. 1/2/3 The People’s Republic of Reef The arbitral award passed by the Tribunal in Reef in 2009 World Health Organization World Trade Organization Understanding on Rules and Procedures Governing the Settlement of Disputes

v

INDEX OF AUTHORITIES

Crawford, J. De Carvalho, N.P. International Finance Corporation, World Bank Dolzer, R., Christoph, S. Gaillard, E. Heath, C. International Law Association Kühn, W.

The International Law Commission’s Articles on State Responsibility (Cambridge University Press, 2002) [Cited as: Crawford]

The TRIPS Regime of Patents and Test Data (Wolters Kluwer Law & Business, 2014) [Cited as: De Carvalho]

Doing Business 2009: Comparing Regulation in 181 Economies (World Bank and Palgave Macmillon, 2008) [Cited as: Doing Business 2009]

Principles of International Investment Law (Oxford University Press, 2012) [Cited as: Dolzer /Schreuer]

Investment Treaty Arbitration and Jurisdiction over Contract Claims—the SGS Cases Considered, in International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Investment Treaties and Customary International Law 325, 334 (2005). [Cited as: Gaillard]

Parallel Imports and International Trade, 28 I.I.C. 623 (1997) [Cited as: Heath]

ILA Interim Report on Res Judicata and Arbitration, International Law Association Berlin Conference (2004) [Cited as: ILA Interim Report on Res Judicata and Arbitration]

Practical Problems Related To Bilateral Investment Treaties In International Arbitration, in Investment Treaties And Arbitration, A.S.A Special Series No. 19, at 43, 50 (Gabrielle Kaufmann-Kohler & Blaise Stucki eds., Swiss Arbitration Association, 2002) [Cited as: Kühn]

vi

Kinner, M., Fischer, G., Almeida, J., Torres, L., Bidegain, M. Liberti, L. Oxford University Press Paulsson, J. UNCITRAL Secretariat Verhoosel, G. Wälde, T. World Health Organization

International Investment Law: The First 50 Years of ICSID, Wolters Kluwer (2016) [Cited as: Kinner/Fisher/Almeida/Torres/Bidegain]

Intellectual Property Rights in International Investment Agreements: An Overview (OECD Working Papers on International Investment, 2010) [Cited as: Liberti]

Oxford English Dictionary (Second Edition, Oxford University Press, 1989) [Cited as: Oxford English Dictionary]

Denial of Justice in International Law (Cambridge University Press, 2005) [Cited as: Paulsson]

UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcment of Foreign Arbitral Awards (New York, 1958), 2016 Edition, UN Publication Sales No. E. 16. V. 7 [Cited as: UNCITRAL Guidelines for New York Convention]

The Use of Investor-State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law, 6(2) J. I. E. L. 493 (2003) [Cited as: Verhoosel]

Energy Charter Treaty-based Investment Arbitration, 5 J. WORLD INV. & TRADE 373, 393 (2004) [Cited as: Wälde]

Remuneration guidelines for Non-voluntary Use of a Patent on Medical Technologies, WHO/TCM/2005.1 [Cited as: WHO Remuneration guidelines]

vii

Yannaca-Small, K.

Definition of Investment: An Open-ended Search for a Balanced Approach, in Arbitration under International Investment Agreements: A Guide to the Key Issues (Oxford University Press, 2010) [Cited as: Yannaca-Small]

viii

INDEX OF CASES

International Court of Justice Paris Court of Appeal United States Supreme Court

Barcelona Traction, Light and Power Company, Limited (Belgium v Spain), Judgment of 5 February 1970 - Second Phase - Judgments [1970] ICJ 1; ICJ Reports 1970, p 3; [1970] ICJ Rep 3 (5 February 1970) [Cited as: Barcelona Traction (Second Phase)]

Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment, I.C.J. Report 1989, 20 July 1898 [Cited as: ELSI (Judgment)]

Société SNF v Société Cytec, Cass civ 1re, Rev arb. 2008.473, June 4, 2008 [Cited as: SNF v Cytec]

Thalès Air Defence BV v GIE Euromissile, 132(2), J.D.I. 357 (2005) [Cited as: Thalès v Euromissile]

Mitsubishi Motors Corp. v Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) [Cited as: Mitsubishi]

ii

INDEX OF ARBITRAL AWARDS

Ad Hoc Tribunal

El Oro Mining and Railway Company (Ltd.) (Great Britain) v. M, UK-Mexico Claims Commission, Decision No. 54, 23 June 1931 [Cited as: El Oro Mining v Mexico]

Eureka B. V. v Poland, UNICITRAL, Partial Award, 19 August 2005 [Cited as: Eureka v Poland (Partial Award)]

Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final Award, 12 November 2010 [Cited as: Frontier v Czech Republic (Final Award)]

Glamis Gold Ltd. v USA, UNCITRAL, Award, 8 June 2009 [Cited as: Glamis v USA (Award)]

Khan Resources Inc., et al. v. Mongolia, UNCITRAL, Decision on Jurisdiction, 25 July 2012 [Cited as: Khan Resources v. Mongolia (Jurisdiction)]

Methanex Corporation v USA, UNCITRAL, Award, 3 August 2005 [Cited as: Methanex v. USA (Award)]

S.D. Myers, Inc. v Canada, UNICITRAL, Partial Award, 13 November 2000 [Cited as: S.D. Myers v Canada (Partial Award)]

International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Arbitral Award, 14 February 2007 [Cited as: Thunderbird v Mexico (Award)]

White Industries Australia Limited v India, UNCITRAL, Final Award, 30 November 2011 [Cited as: White Industries v. India (Award)]

Permanent Court of Arbitration

ICSID

Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I), PCA Case No. 34877, UNCITRAL, 30 March 2010 [Cited as: Chevron v Ecuador (Partial Award on Merits)]

Philip Morris Asia Limited v. Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility, 17 December 2015 [Cited as: Philip Morris v Australia (Jurisdiction)]

Ulysseas, Inc. v The Republic of Ecuador, PCA No. 2009-19, Interim Award, 28 September 2010 [Cited as: Ulysseas v Ecuador (Interim Award)]

Veteran Petroleum Limited (Cyprus) v. Russia, PCA Case No. 228, Interim Award on Jurisdiction and Admissibility, 30 November 2009 [Cited as: Veteran Petroline v Russia (Interim Award)]

Asian Agricultural Products Ltd. (AAPL) v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Award, 27 June 1990 [Cited as: AAPL v Sri Lanka (Award)]

ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary, ICSID Case No. ARB/03/16, Award, 2 October 2006 [Cited as: ADC v Hungary (Award)]

AES Summit Generation Ltd. v The Republic of Hungary, ICSID No. ARB/01/04, Award, 23 September 2010 [Cited as: AES v Hungary (Award)]

Ampal-American Israel Corp., EGI-Fund (08-10) Investors LLC, EGI-Series Investments LLC, BSS-EMG Investors LLC and David Fischer v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Liability and Heads of Loss, 21 February 2017 [Cited as: Ampal-American v. Egypt (Decision on Liability)]

ATA Construction, Industrial and Trading Company v the Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/02, Award, 18 May 2010 [Cited as: ATA Construction v Jordan (Award)]

Robert Azinian, Kenneth Davitian, & Ellen Baca Claimants v Mexico, ICSID CASE No. ARB(AF)/97/2, Award 1 November, 1999 [Cited as: Azinian v Mexico (Award)]

Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Final Award, 14 July 2006 [Cited as: Azurix v Argentina (Award)]

Bayinder Insaat Turzim Ticaeret Ve Sanayi A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009 [Cited as: Bayindir v Pakistan (Award)]

Biwater Gauff (Tanzania) Limited v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008 [Cited as: Biwater v Tanzania (Award)]

Ceskoslovenska Obchodni Banka, a.s. v The Slovak Republic, ICSID Case No. ARB/97/4, Award, 29 December 2004 [Cited as: CSOB v Slovak Republic (Award)]

Ceskoslovenska Obchodni Banka, a.s. v The Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction, 24 May 1999 [Cited as: CSOB v Slovak Republic (Jurisdiciton)]

Duke Energy Electroquil Partners and Electroquil S.A. v Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008 [Cited as: Duke Energy v Ecuador (Award)]

EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 [Cited as: EDF v. Romania (Award)]

EL Paso Energy International Company v. The Argentina Republic, ICSID Case No. ARB/03/15, Award, 31 October 2011 [Cited as: El Paso v. Argentina (Award)]

Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, L.P. v Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction (Anc. Claim), 2 August 2004 [Cited as: Enron v Argentina (Jurisdiction)]

Fedax N.V. v The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction, 11 July 1997 [Cited as: Fedax v Venezuela (Jurisdiction)]

Marco Gavazzi and Stefano Gavazzi v Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction, Admissibility and Liability, 21 April 2015 [Cited as: Gavazzi v Romania (Jurisdiction)]

Generation Ukraine Inc. v Ukraine, ICSID Case No. ARB/00/9, Final Award, 16 September 2003 [Cited as: Generation Ukraine v Ukraine (Final Award)]

Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Decision of the ad hoc Committee, 14 June 2010 [Cited as: Helnan v Egypt (Decision on Annulment)]

Inmaris Perestroika Sailing Maritime Services GmbH v Ukraine, ICSID Case No. ARB/08/08, Decision on Jurisdiction, 8 March 2010. [Cited as: Inmaris v Ukraine (Jurisdiction)]

Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, November 6 2008 [Cited as: Jan de Nul v Egypt (Award)]

Ioannis Kardassopoulos and Ron Fuchs v The Republic of Georgia, ICSID Case Nos. ARB/05/18 and ARB/07/15, Award, 3 March 2010 [Cited as: Kardassopoulos and Fuchs v Georgia (Award)]

Joseph Charles Lemire v Ukraine, Award, ICSID Case No. ARB/06/18, 8 July, 2013 [Cited as: Lemire v Ukraine (Award)]

LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. v Argentine Republic, ICSID Case N. ARB/02/1, Decision on Liability, 3 October 2006 [Cited as: LG&E v Argentina (Decision on Liability)]

Liman Caspian Oil BV and NCL Dutch Investment BV v Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010 [Cited as: Liman Oil v Kazakhstan (Excerpts)]

Emilio Agustin Maffezini v Spain, ICSID CASE No. ARB/97/7, Award, November 13, 2000 [Cited as: Maffezini v Spain (Award)]

Merrill and Ring Forestry L.P. v. Canada, ICSID Case No. UNCT/07/1, Award, 31 March 2010 [Cited as: Merrill & Ring Forestry v Canada (Award)]

Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013 [Cited as: Micula v Romania (Final Award)]

Noble Ventures v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 [Cited as: Noble Ventures v. Romania (Award)]

Pac Rim Cayman LLC. v Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on Jurisdictional Objections, 1 June 2012

[Cited as: Pac Rim v El Salvador (Jurisdiction)]

Philip Morris Brands SÀRl, Philip Morris Products S.A. and Abal Hermanos S.A. v Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016 [Cited as: Philip Morris v Uruguay (Award)]

Phoenix Action Ltd v Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009 [Cited as: Phoenix Action v Czech Republic (Award)]

Plama Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 [Cited as: Plama v Bulgaria (Award)]

Plama Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 [Cited as: Plama v Bulgaria (Jurisdiction)]

The Rompetrol Group N.V. v Romania, ICSID Case No. ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008 [Cited as: Rompetrol v Romania (Jurisdiction)]

Salini Costruttori S.p.A. and Italstrade S.p.A. v Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004 [Cited as: Salini v Jordan (Decision on Jurisdiction)]

Salini Costruttori S.p.A. and Italstrade S.p.A. v Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, 23 July 2001 [Cited as: Salini v Morocco (Jurisdiction)]

SGS Société Générale de Surveillance S.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Jurisdiction, 6 August 2003. [Cited as: SGS v Pakistan (Jurisdiction)]

SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Award, 10 February 2012

[Cited as: SGS v Paraguay (Award)]

SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Award, 10 February 2012 [Cited as: SGS v Paraguay (Award)]

SGS Société Générale de Surveillance S.A. v. The Republic of Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 February 2010 [Cited as: SGS v Paraguay (Decision on Jurisdiction)]

SGS Société Générale de Surveillance S.A. v Philippines, ICSID Case No. ARB/02/6, Decision on Objections to Jurisdiction, 29 January 2004 [Cited as: SGS v Philippines (Jurisdiction)]

Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award, 17 January 2007 [Cited as: Siemens v Argentina (Award)]

Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004 [Cited as: Siemens v Argentina (Jurisdiction)]

Tidewater Investment SRL and Tidewater Caribe, C.A. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/10/5, Decision on Jurisdiction, 8 February 2013 [Cited as: Tidewater v Venezuela (Jurisdiction)]

Tokios Tokeles v Ukraine, ICSID Case No. ARB/02118, Decision on Jurisdiction, 29 April 2004 [Cited as: Tokios Tokeles v Ukraine (Jurisdiction)]

Total S.A. v Argentina Republic, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010 [Cited as: Total v Argentina Republic (Decision on Liability)]

ICSID Additional Facility

Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, December 11 2009 [Cited as: Toto v Lebanon (Jurisdiction)]

Cementownia“Nowa Huta” S.A. v Republic of Turkey, ICSID Case No. ARB(AF)/06/2, Award, 17 September 2009 [Cited as: Cementownia v Turkey (Award)]

Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, 4 April 2016 [Cited as: Crystallex v Venezuela (Award)]

Marvin Roy Feldman Karpa v Mexico, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002 [Cited as: Feldman v Mexico (Award)]

Loewen Group, Inc. and Raymond L. Loewen v America, ICSID Case No. ARB(AF)/98/3, Award, 26 June, 2003 [Cited as: Loewen v US (Award)]

Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000 [Cited as: Metalclad v Mexico (Award)]

Mondev International Ltd. v United States of America, ICSID Case No. ARB(AF)/99/2, 11 October 2002 [Cited as: Mondez v USA (Award)]

Técnicas Medioambientales Tecmed, S.A. v Mexico, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 [Cited as: Tecmed v Mexico (Award)]

Waste Management, Inc. v United Mexican States (“Number 2”), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 [Cited as: Waste Management v Mexico II (Award)]

Arbitration Institute of the Stockholm Chamber of Commerce

Limited Liability Company AMTO v Ukraine, SCC Arbitration No. 080/2005, Final Award, 26 March 2008 [Cited as: AMTO v Ukraine (Final Award)]

Anglia Auto Accessories Ltd. v Czech Republic, SCC, Final Award, 10 Mach, 2017 [Cited as: Anglia Auto v Czech Republic (Final Award)]

Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, 19 December 2013 [Cited as: Ascom Group v Kazakhstan (Award)]

2

INDEX OF LEGAL AUTHORITIES

CESCR General Comment No. 3: The Nature of States Parties’ Obligations,

E/1991/23 (1990)

[Cited as: CESCR Comment]

International Law Commission, Articles on Responsibility of States for

Internationally Wrongful Acts (including official Commentary), Yearbook of the

International Law Commission 2001, Vol. II (Part 2)

[Cited as: ILC Articles]

Implementation of the WTO General Council Decision on Paragraph 6 of the Doha

Declaration on the Trips Agreement and Public Health, WHO/EDM/PAR/2004.4

(2004)

[Cited as: Implementation of WTO's 2003 Decision]

Paris Convention for the Protection of Industrial Property, 21 UST 1583, 828 UNTS

305 (1967; 1979)

[Cited as: Paris Convention]

Agreement on Trade-Related Aspects of Intellectual Property Rights, 1869 U.N.T.S.

299 (1994)

[Cited as: TRIPS Agreement]

Vienna Convention on the Law of Treaties, 1155 U.N.T.S. 331, 8 I.L.M. 679 (1969)

[Cited as: VCLT]

Understanding on Rules and Procedures Governing the Settlement of Disputes, 1869

UNTS 401; 33 ILM 1226 (1994)

[Cited as: WTO DSU]

Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and

Public Health, WTO General Council’s Decision of 30 August 2003, WT/L/540

(2003)

[Cited as: WTO's 2003 Decision]

3

STATEMENT OF FACTS

1. Claimant, Atton Boro Limited (“Atton Boro”), is a pharmaceutical company

incorporated in the Kingdom of Basheera (“Basheera”) by Atton Boro Group, whose

100% shares were ultimately controlled by Atton Boro and Company, which was

established under the laws of Reef.

2. Respondent, the Republic of Mercuria (“Mercuria”), concluded an Agreement

for the Promotion and Reciprocal Protection of Investments (“BIT”) with Basheera

on January 11 1998.

3. In 2003, National Health Authority (“NHA”), which is politically accountable to

Respondent, issued the annual report to the Ministry of Health of Mercuria

highlighting that greyscale was the imminent public health concern. The Ministry of

Health invited offers from pharmaceutical companies for supply of FDC greyscale

medicines

4. In May 2004, the NHA invited Claimant to make an offer for supplying its FDC

drug, Sanior. In 2004, the NHA and Claimant entered into the Long-Term Agreement

(“LTA”).

5. By June 2005, Claimant set up manufacturing units for Sanior in Mercuria and

delivered its first consignment. In 2007, Claimant purchased land and machinery to

bolster its production as Sanior’s order value doubled quarterly.

6. In early 2008, the NHA required renegotiate Sanior’s price, demanding an

additional discount of 40%, stating to terminate the agreement if its terms were not

met.

7. On 15 May 2008, the Minister for Health and Mercurian President met privately

with NHA’s Director. On 10 June 2008, the NHA terminated the LTA, using

unsatisfactory performance by Claimant as an excuse.

8. In January 2009, a tribunal seated in Reef passed an award (the “Award”) in

4

favor of Claimant based on NHA’s breach of LTA by terminating it prematurely. On 3

March 2009, Claimant filed enforcement proceedings before the High Court of

Mercuria, which remain pending for more than 8 years.

9. On 10 October 2009, Mercurian President promulgated National Legislation for

its Intellectual Property Law (Law No. 8458/09), which introduced unauthorized use

of patented invention.

10. In November 2009, HG-Pharma, whose 50% shares are held by Respondent,

made an application for a compulsory license of Claimant’s Valtervite patent. On 17

April 2010, Mercurian High Court granted HG-Pharma’s application for Claimant’s

patent, through a fast-track process, and fixed 1% royalty rate of HG-Pharma’s annual

revenues.

11. Between May and August of 2013, three neighbouring States’ government

offices expressed gratitude for Mercuria’s humanitarian aid of greyscale medicines

through letters carried on websites. By 2014, Claimant had lost nearly two-thirds of

its market share to Sanior. In February 2015, Claimant was forced to withdraw from

the greyscale market.

12. On 16 November 2016, Claimant filed Notice of Arbitration before Permanent

Court of Arbitration against Mercuria invoking the dispute resolution clause under the

BIT.

5

ARGUMENTS

A. THIS TRIBUNAL HAS JURISDICTION OVER CLAIMS IN RELATION

TO THE AWARD

1. According to Articles 8 and 13 of the BIT, this Tribunal has jurisdiction over any

“investment” made by investors to the host state. The definition of investment was

provided in Article 1(1) of the BIT. In the current dispute, Respondent has no

contention on jurisdiction over the intellectual property rights or any other tangible

properties as investments. Respondent only contests this Tribunal’s jurisdiction over

the Award.1 Accordingly, Claimant submits that this Tribunal has jurisdiction over

claims in relation to the Award because (1) the Award constitutes an investment under

Article 1(1)(c) of the BIT; and (2) the Award, as a continuation of the original

investment, the Long-Term Agreement (the “LTA”"), qualifies as an investment.

(1) THE AWARD ITSELF CONSTITTUTES AN INVESTMENT UNDER

ARTICLE 1(1)(c) OF THE BIT

2. Article 1(a) of the BIT provides a clear definition of investment, which is

“any kind of asset held or invested either directly, or indirectly through an

investor of a third state… though not exclusively, includes: …(c) claims to

money, and claims to performance under contract having a financial value; …”

3. Claimant submits that (a) the term ‘investment’ in this Article is very broad under

VCLT Article 31 and accordingly, (b) the Award qualifies as an investment under

such broad definition.

(a) Applying VCLT Article 31, the definition of investment is broad, intended by

the parties

4. When interpreting the term investment, tribunals almost invariably start by

1 PO1, Para. 16

6

invoking Article 31 of the VCLT,2 which reflects customary international law.

3 This

Tribunal should adopt the same approach to reveal the true intention of the parties to

the BIT.

5. Article 31 reads:

“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.”4

6. Applying such rule, ‘investment’ in Article 1(1) is particularly broad in definition.

7. First, under Article 1(1) of the BIT, the definition of “investment” is worded as

“every kind of asset”. According to Shorter Oxford English Dictionary, the term

“every” is “used to refer to all the individual members of a set without exception”

and “all possible; the utmost.”5 By using this phrase, parties are intended “to give the

term ‘investment’ a broad, nonexclusive definition, recognizing that investment forms

are constantly evolving.”6

8. Second, while illustrating the scope of the term “investment”, Article 1(1)

comprises a broad non-exhaustive list. This provides further evidence of the drafters’

intent to make the definition of investment as expansive as reasonably possible.7

Arbitral jurisprudence also accepts a broad view on what can constitute an

investment.8

(b) Under such broad definition of investment, the Award qualifies as an

investment

2 AAPL v Sri Lanka (Award), Paras. 38-42; Enron v Argentina (Jurisdiction), Para.32; Plama v

Bulgaria (Jurisdiction), Paras.117, 147-165; Salini v Jordan (Jurisdiction), Para. 75; Methanex v United

States (Award), Part II, Chapter B, Paras. 15-23, Part IV, Chapter B, Para. 29 3 Siemens v Argentina (Jurisdiction), Para.80

4 VCLT, Article 31(1)

5 Shorter Oxford English Dictionary, p. 879

6 Yannaca-Small, p.24

7 Kühn, p. 43

8 Fedax v Venezuela (Jurisdiction), Para. 21-33; CSOB v Slovak Republic (Award), Para. 90; SGS v

Pakistan (Jurisdiction), Para. 133

7

9. Given that the two contracting parties have defined the term investment broadly,

Claimant submits that this Tribunal shall respect such consensus not to restrict this

definition in any way.

10. The Award directed NHA to pay 40 million USD to Claimant based on breach of

the LTA,9 which falls within the plain definition of investment under Article 1(1)(c)

of the BIT as “claims to money, …under contract having a financial value.” This

reasoning has been confirmed by the tribunal in Anglia Auto v Czech Republic,

interpreting an exactly identical definition of “investment” in the Czech Republic-UK

BIT.10

The tribunal found an award itself is an investment because the ordinary

meaning of ‘claims to money’ “encompass a party’s right under an award to be paid

a sum of money.”11

11. Further stated by the Inmaris v Ukraine tribunal, if denying protection to “a claim

recognized in a final, enforceable arbitral award”, there will be detriment to the

autonomy of the contracting parties “who own the rights to define ‘investment’”.12

12. In conclusion, the Award itself is an investment within the definition provided by

Article 1(1)(c) of the BIT.

(2) THE AWARD IS AN INVESTMENT AS A CONTINUATION OF THE

ORIGINAL INVESTMENT, THE LTA

13. Alternatively, Claimant submits that the Award can be considered as an

investment because it is the continuation of the original investment, the LTA. Arbitral

tribunals have confirmed this reasoning in a consistent manner. In White Industries v

India, the tribunal held that:

“The award arising out of disputes concerning investment… represent a

continuation or transformation of the original investment.”13

9 Facts, Para. 17; Notice of Arbitration, Para. 9

10 Anglia Auto v Czech Republic (Final Award), Para.151

11 Ibid.

12 Inmaris v Ukraine (Jurisdiction), Paras. 129-130

8

14. This is because the Award would not even exist without prior investments.

Moreover, it is the Award that creates the economic value for Claimant’s investment.

If the Award cannot be protected, the returns or value of all investments will not

virtually enjoy protection. It is inconsistent with the object and purpose of the BIT

that the investor cannot receive the returns of the investment, affirmed by the

tribunals in Gavazzi v Romania14

and in Saipem v Bangladesh15

.

15. Therefore, if the LTA shall be deemed as an investment, Claimant could establish

that as a continuation, the Award is an investment. Thus, Claimant submits that the

LTA is an investment because (a) it fulfills the definition of investment in the BIT; (b)

it satisfies the economic characteristics of investment; and (c) it forms the integral

part of an overall operation that qualifies as an investment.

(a) The LTA fulfills the definition of investment pursuant to Article 1(1) of the

BIT

16. As Claimant proposed, the scope of investment is very broad. Claimant submits

that the Award constitutes an investment under the BIT.

17. First, according to Article 1(1)(c), the term “investment” includes “claims to

money, and claims to performance under contract having a financial value.” The

LTA requires NHA to pay for the medicine supplied by Claimant for a period of 10

years,16

so the LTA has financial value which entails claims to money, and claims to

performance. Therefore, the LTA shall constitute investment pursuant to Article

1(1)(c).

18. Second, Article 1(1)(e) of the BIT provides that the “investment” includes:

“rights, conferred by law or under contract, to undertake any economic and

commercial activity.” Respondent argued that the LTA was a commercial contract.17

However, according to Article 1(1)(e) of the BIT, the contractual rights of the LTA fall

13

White Industries v India (Final Award), Para. 7.3.8 14

Gavazzi v Romania (Jurisdiction), Para.120 15

Saipem v Bangladesh (Award), Para. 202; ATA Construction v Jordan (Award), Para.115 16

Facts, Para. 10 17

Response to the Notice of Arbitration, Para. 8

9

within the scope of “investment”, namely “rights under contract”. Therefore, the

contractual rights under the LTA and the right to enforce conferred by the BIT and

New York Convention constitute the original investment under Article 1(1)(e). Since

the Award is part of them, the Award is an “investment”.

19. In conclusion, the Award constitutes an investment pursuant to Article 1(1)(c) and

Article 1(1)(e) of the BIT. Therefore, the Tribunal has jurisdiction over claims in

relation to the Award.

(b) The LTA fulfilled the economic characteristics of investment

20. Respondent may propose that the term “investment” contains an inherent

meaning, which shall conform to the object and purpose of the BIT, supported by the

case Salini v Morocco, where the tribunal held that the investment shall contain

“Salini Criteria”18

, which cannot be applied in the current case.

21. In the Annulment Decision of MHS v Malaysia, Salini-based Award was now

designated “a gross error that gave rise to a manifest failure to exercise

jurisdiction”.19

The Annulment Committee held that the decision made by the Sole

Arbitrator treated Salini criteria as “jurisdictional requirements”, without scrutinizing

the definition of investment under the BIT, shall be annulled.

22. In addition, as a PCA tribunal, Article 25 of ICSID Convention cannot be referred

in determining the scope of investment since applying Salini Criteria will violate the

broad consensus established by the BIT because it “may run counter to individual

agreements among investors and host states”.20

In Ascom and others v Kazakhstan,

the tribunal held that:

“Salini test, controversial … in this case and otherwise in ICSID and similar

arbitrations, even if applied as a flexible guideline … cannot be used for the

18

Salini v Morocco (Jurisdiction), Para. 56 19

MHS v Malaysia (Annulment), Para.55. 20

Ibid, Para. 315.

10

definition of investment”.21

23. Therefore, Salini Criteria shall not be applied in non-ICSID cases.

24. Alternatively, the LTA fulfills those criteria even under the Salini test. First, it

fulfills the duration requirement because the LTA is a 10-year constant medicine

supply contract. Second, under clause 6 of the LTA, NHA had the unilateral right to

terminate the LTA based on the unsatisfactory performance of Claimant, while

Claimant had no reciprocal right of such termination.22

Such possibility of NHA’s

termination can be deemed as risk because it would result in no recovery of prior

investment such as the factory and machinery. Third, Claimant has made

contributions to bolster the economy of Mercuria by setting up the factory and

machinery and hiring permanent employees. Therefore, in any aspect, the LTA still

fulfills all requirements and thus shall be viewed as an investment.

(c) The LTA forms the integral part of an overall operation that qualifies as an

investment.

25. Assuming but not conceding that the LTA, taken in isolation, is inconsistent with

those economic characteristics of investment proposed by Respondent, the LTA shall

still be deemed as an investment because it forms the integral part of an overall

operation of the investment made by Claimant in the territory of Mercuria.

26. The LTA is the initial part of Claimant’s general investment plan in Mercuria,

which included the tangible property and the patent rights that indisputably fall within

the jurisdiction of this Tribunal.23

Claimant also built up factory and machinery in

Mercuria to better perform its obligation under the LTA.24

Therefore, the LTA links

all the separate elements of the Claimant’s operation to help to overcome the

greyscale. Even if one certain individual transaction of the project, the LTA, were not

to be deemed as investment in isolation, the LTA shall be considered as an investment

being part of the whole project.

21

Ascom and others v Kazakhstan (Award), Para.806 22

Facts, Para. 10 23

Ibid., Para. 4; Para. 5 24

Facts, Para. 15

11

27. This reasoning is supported by the CSOB v Slovakia tribunal, stating that:

“[A] dispute must be deemed to arise directly out of an investment even when it

is based on a transaction which, standing alone, would not qualify as an

investment… provided that the particular transaction forms an integral part of an

overall operation that qualifies as an investment.”25

28. Therefore, as an integral part of the overall investment made by Claimant, the

LTA shall be deemed as an investment.

(3) CONCLUSION

29. In conclusion, as both the Award and the LTA constitute investments under the

BIT, this Tribunal shall have jurisdiction over claims in relation to the Award.

B. CLAIMANT IS NOT DENIED THE BENEFITS OF THE BIT BY VIRTUE

OF RESPONDENT’S INVOCATION OF ARTICLE 2 OF THE BIT

30. Article 2 of the BIT, as a denial of benefits clause, allows Respondent to deny the

BIT benefits to any third-country shell company that has no real economic link with

Mercuria.26

Respondent invoked Article 2(1) to render Claimant’s claims

inadmissible.

31. Claimant submits that it has not been denied the BIT benefits because (1)

Respondent did not exercise the right to deny benefits in a timely manner, (2)

Respondent’s belated denial has no retrospective effect, and in any event (3) the

conditions set in Article 2(1) are not met.

(1) RESPONDENT DID NOT EXERCISE THE RIGHT TO DENY BENEFITS

IN A TIMELY MANNER

25

CSOB v Slovakia (Jurisdiction), Para. 72 26

Dolzer/Schreuer, p. 113

12

32. Respondent failed to exercise its right to deny benefits in a proper form and in a

timely manner.

33. Article 2(1) of the BIT provides that each contracting party “reserves” the right

to deny the advantages of this Agreement to certain legal entities,27

which means the

denial is not automatically in effect but needs to be exercised. In Plama v Bulgaria,

while interpreting Article 17(1) of ECT28

which is nearly identical to the current

BIT29

, the tribunal found that the denial in Article 17(1) is not automatically in effect

and can only operate if the invoking state actively exercises such right, which is

echoed by subsequent decisions.30

Comparably, Article 2, given its similar wording,

unambiguously requires the same.

34. Second, to exercise the right of denial, host states must provide reasonable notice

in a proper form and promptly in time. The requirements are recognized by multiple

tribunals for they ensure that the investor can be fully informed of the situation and be

given a reasonable chance to react31

. In Khan Resources v Mongolia, the tribunal

emphasized such exercise of denial of benefits must be associated with “publicity”

and “made reasonably available to investors”.32

This is because the denial of

benefits clause offers little information to the investor by itself, and that the clause

alone can only qualify as half a notice.33

Thus, Respondent’s exercise of the right to

deny benefits contained in Article 2 must comply with these requirements.

35. In the current dispute, the first time Respondent ever purported to exercise the

right in Article 2 was 19 days after Claimant’s request for arbitration, in its response

via email.34

Respondent did not give any notice to Claimant before the investment

was made, or even before the initiation of arbitration. Further, Respondent failed to

27

Annex No. 1, Article 2 28

ECT, Article 17(1) 29

Plama v Bulgaria (Jurisdiction), Para. 155 30

Khan Resources v Mongolia (Jurisdiction), Para. 419; Veteran Petroline v Russia (Interim Award),

Para. 456; Liman v Kazakhstan (Excerpts), Para. 224 31

Ascom Group v Kazakhstan (Award), Para. 716 32

Khan Resources v Mongolia (Jurisdiction), Para. 423; Plama v Bulgaria (Jurisdiction), Paras. 157,

158 33

Plama v Bulgaria (Jurisdiction), Para. 157 34

Response to the Notice of Arbitration, Para. 5

13

discharge its “burden of proof on any relevant facts”35

to show it had equivalent

intention of denial before the dispute arose.36

Respondent also failed to explain why

its exercise of denial is so severely belated since no evidence proves Respondent’s

lack of knowledge of the current circumstances.37

36. Thus, Respondent did not exercise its right to deny benefits in a timely manner.

(2) RESPONDENT’S BELATED DENIAL HAS NO RETROSPECTIVE

EFFECT

37. The only exercise of denial of benefits by Respondent is belated, which occurred

12 years after the investment was made and 19 days after the initiation of arbitration.

This belated denial has no retrospective effect to bar the current claims because

retrospective application of Article 2(1) is against the object and purpose of the BIT

and not a good faith interpretation.

38. Article 31 (1) of VCLT provides that a treaty should 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”38

. In the current case, the BIT

expresses its object and purpose in its preamble as “to promote greater economic

cooperation between them with respect to investment” 39

, and reiterated in Article 3(1)

of the BIT40

as to “encourage and create favorable conditions for investors…to make

investments”. Retrospective application of Article 2(1) would place vulnerable

investors under a state of constant uncertainty and impede the investor’s ability to

evaluate whether or not to make an investment, which would be contrary to the BIT’s

object and purpose of promoting and protecting investment. This position is also

adopted by other tribunals and authors.41

35

Liman v Kazakhstan (Excerpts), Para. 227 36

Ascom Group v Kazakhstan (Award), Para. 745 37

Ibid., Para. 745 38

VCLT, Article 31 39

Annex No. 1, Preamble 40

Ibid., Article 3(1) 41

Kinner/Fisher/Almeida/Torres/Bidegain, p. 465; Liman v Kazakhstan (Excerpts), para. 225; Plama v

Bulgaria (Jurisdiction), para. 163; Khan Resources v Mongolia (Jurisdiction), para. 426.

14

39. Further, Article 2(1) having retrospective effect is clearly not a good faith

interpretation required by Article 31(1). It would allow host states to lure investors by

ostensibly extending to them the protections of the BIT, and then deny these

protections when the investor attempts to invoke them in international arbitration.

Such reasoning is affirmed by arbitral awards such as Plama and Khan Resources.42

40. As such, Respondent’s exercise of its right under Article 2(1) of the BIT has no

retrospective effect. It may only deprive Claimant of the advantages of the BIT

prospectively from that date onwards. The current claims must stay unaffected.

(3) RESPONDENT HAS NOT ESTABLISHED THAT THE CONDITIONS SET

IN ARTICLE 2 ARE MET

41. In any event, Claimant submits that the substantive conditions set in Article 2(1)

are not met.

42. Article 2(1) of the BIT provides that the BIT benefits may be denied to an

investor who is:

“a legal entity, if citizens or nationals of a third state own or control such entity

and if that entity has no substantial business activities in the territory of the

Contracting Party in which it is organized…”

43. Found by various Tribunals, specific terms of “if” and “and” in denial of benefits

clauses indicate that the two substantive conditions, namely “third state ownership or

control” and “no substantial business activities”, must be satisfied cumulatively for a

valid denial to be founded.43

Further, Respondent bears the burden of proof to

establish the above conditions.44

44. Thus, Respondent’s invocation of Article 2(1) must fail because (a) Claimant has

42

Plama v Bulgaria (Jurisdiction), Paras. 162-164; Khan Resources v Mongolia (Jurisdiction), Para.

429 43

Generation Ukraine v Ukraine (Final Award), Para. 15.1-15.7; AMTO v Ukraine (Final Award),

Paras. 61-62; Veteran Petroline v Russia (Interim Award), Para. 460 44

AMTO v Ukraine (Final Award), Paras. 64-65

15

substantial business activities in Basheera, and (b) Respondent has not proven

Claimant is owned or controlled by third state nationals.

(a) Claimant has substantial business activities in Basheera

45. Absent further explanation of “substantial business activities” contained in the

BIT itself, the interpretation advanced in international arbitral jurisprudence is of

guidance. While tribunals accepted the test for substantial business activities is

fact-sensitive, they have uniformly embraced a low threshold on this point.45

The

tribunal in AMTO found, with the purpose of the denial of benefits clause to be

excluding investors which have adopted a nationality of convenience from treaty

protection, “substantial” means of substance, and not merely of form. The tribunal

applied such test and found AMTO’s business activities in Latvia to be substantial

enough, on the basis that it had premises and employment of a small but permanent

staff.46

Meanwhile, the Pac Rim tribunal held that only when a company has no

physical existence or a bank account can it be regarded as having no “substantial

business activities”.47

46. Furthermore, Claimant contends that incorporation in Basheera is not bad-faith

treaty shopping argued by Respondent. Firstly, numerous tribunals have affirmed that

treaty shopping is not prohibited per se.48

Secondly, the tribunal in Pac Rim v El

Salvador held there is a dividing line between bad faith and good faith treaty

shopping, which was affirmed by numerous tribunals. 49

“The dividing-line occurs when the relevant party can see an actual dispute or

can foresee a specific future dispute as a very high probability and not merely as

a possible controversy, and before that dividing-line is reached, there will be

ordinarily no abuse of process; but after that dividing-line is passed, there

45

Pac Rim v El Salvador (Jurisdiction), Para. 4.72; AMTO v Ukraine (Final Award), Para. 69 46

AMTO v Ukraine (Final Award), Para. 69 47

Pac Rim v El Salvador (Jurisdiction), Para 4.75 48

Cementownia v Turkey, Tokios Tokeles v Ukraine, Phoenix Action v Czech Republic, Rompetrol v

Romania, and ADC v Hungary. 49

Tidewater v Venezuela (Jurisdiction), para.145; Phoenix Action v Czech Republic (Award), para,144;

Philip Morris v Australia (Jurisdiction), para.585.

16

ordinarily will be.”50

47. In the current case, Claimant was incorporated on 5 April 199851

, and the patent

for Valtervite in Basheera was assigned to Claimant on 15 April 199852

from AB

Group, more than five years before the LTA was concluded. It is evident that the

dividing line has not been reached, and therefore Respondent’s arguments for bad

faith treaty shopping must fail.

48. For incorporation, Claimant rented out an office space, opened a bank account,

hired a manager and an accountant and commenced business in Basheera.53

From

1998 to 2016, Claimant has had between 2 and 6 permanent employees working in

Basheera managing its portfolio of patents and providing support for marketing, sales

and tax services for AB Group affiliates in South America and Africa.54

In addition,

Claimant complies with its tax obligations in Basheera.55

Clearly, ever since

Claimant was established in Basheera, it has maintained a continuous physical

presence by running an office and staff. Applying the AMTO test, although of a

relatively small size, Claimant does have substantial business activities in Basheera.

The second limb of Article 2(1) is thus not satisfied.

(b) Respondent has not proven Claimant is owned or controlled by third state

nationals

49. As to the condition of “ownership or control”, Claimant accepted that it is wholly

owned by AB Group whose primary shares are held by AB and Company that is

incorporated in Reef.56

However, Claimant contends this finding cannot sufficiently

lead to the conclusion that it is owned or controlled “by citizens or nationals of a third

state” required by Article 2(1).

50. Claimant acknowledges, in determining the nationality of legal entities,

50

Pac Rim v El Salvador (Jurisdiction), para. 2.99. 51

PO NO. 2, para.3. 52

PO NO. 3, line 1575. 53

Facts, para. 4. 54

PO NO. 2, para.3. 55

PO NO. 3, line 1574. 56

Facts, Para. 4

17

international law has long followed the traditional formalistic approach set by

Barcelona Traction, which means the country of incorporation is decisive in

evaluating the nationality of a company and that the corporate veil should only be

lifted “in cases of fraud or malfeasance” or “evasion of legal requirements or of

obligations”,57

which is reiterated in Tokios Tokeles v Ukraine.58

51. Claimant contends that Claimant is not ultimately controlled or owned by

nationals or citizens of third states. When determining the control and ownership,

tribunals found it necessary to look beneath the shareholding structure and look at the

ultimate beneficiaries.59

Furthermore, the tribunal in Ulysseas v Ecuador, when

interpreting the wording “citizens or nationals”, affirmed, in order to satisfy the

control test under the denial of benefits clause, “the natural person who is the

ultimate controller of Ulysseas and its nationality must be identified.”60

52. In the current dispute, shares of AB and Company are held by a mix of private

entities and private individuals of a wide variety of nationalities and its directors come

from several different countries, including Basheera and Mercuria.61

Respondent

failed to prove Claimant is owned or controlled by third-party nationals. As such, this

allegation must fail.

(4) CONCLUSION

53. In conclusion, Claimant asserts that it has not been denied the benefits of the BIT

and all of its claims are admissible.

C. THE ENACTMENT OF LAW NO. 8458/09 AND THE GRANT OF A

LICENSE FOR THE CLAIMANT’S INVENTION AMOUNT TO A BREACH

OF THE BIT

57

Barcelona Traction (Second Phase), Para. 58 58

Tokios Tokelés v Ukraine (Jurisdiction), Para. 39 59

Ibid., Para. 36; Pac Rim v El Salvador (Jurisdiction), Para. 4.81 60

Ibid., Para.170 61

PO3, line 1570

18

54. Claimant argues that Respondent violated Article 3 and 6 of the BIT, by enacting

Law No. 8458/09 and granting a license for Claimant’s invention. (1) Claimant does

not need to exhaust local remedies to raise these claims: (2) Respondent indirectly

expropriated Claimant’s investment relating to its Mercurian Patent No. 0187204; (3)

Respondent did not accord Claimant’s investment fair and equitable treatment; and (4)

Respondent discriminated against Claimant’s investment. In addition, (5) Respondent

cannot be exempt from liabilities by invocation of a state of necessity.

(1) CLAIMANT DOES NOT NEED TO EXHAUST LOCAL REMEDIES

55. The two challenged measures were taken by state organs, attributable to

Respondent. Claimant contends that regardless of whether Claimant has exhausted

local remedies before Mercurian courts, Claimant is entitled to raise claims under the

BIT. Without an express proviso, Claimant does not need to exhaust local remedies

before the initiation of this arbitration because this additional requirement will

disentitle an investor from pursuing the claim grounded on investment agreements 62

(2) RESPONDENT UNLAWFULLY EXPROPRIATED CLAIMANT’S

INVESTMENT

56. Article 6(1) of the BIT provides that any measure which might limit investments’

rights will constitute expropriation. Article 6(2) requires Respondent to refrain from

any direct expropriation, or indirect expropriation having “similar effects”. Article 6(2)

sets forth four cumulative conditions to justify an expropriation, including “immediate

full and effective compensation” and Article 6(4) further illustrates the justifiable

circumstances.

57. In this dispute, Respondent (a) indirectly expropriated Claimant’s investment

relating to its Valtervite patent, which is eligible investment under Article 1(1)(d) of

the BIT; and (b) failed to pay just compensation.

(a) Respondent indirectly expropriated Claimant investment

62

Helnan v Egypt (Annulment), Para. 53; Dolzer/Schreuer, p. 278

19

58. Indirect expropriation has:

“the effect of depriving the owner, in whole or in significant part, of the use or

reasonably-to-be-expected economic benefit”.63

59. Claimant argues that Respondent’s acts have the effect of depriving Claimant of

the use of its investment and of its economic benefit in a significant part.

60. The use of Claimant’s investment and its economic benefits were substantially

deprived. In 2012, the generic drugs were marketed at 20% of previous proce.64

Faced with the price war facilitated by Respondent, it was impossible for Claimant to

make use of its patent. Further, Claimant had lost its market share and was forced to

withdraw from this market.65

In this regard, Claimant was substantially deprived of

its economic benefits.

61. As such, Claimant’s investment was indirectly expropriated.

(b) Respondent did not pay immediate full and effective compensation

62. Domestic laws cannot justify a breach under an investment agreement.66

The

four cumulative conditions must be satisfied to justify an expropriation. The 1%

royalty is not from Respondent and does not satisfy the “real market value” standard

in Article 6(3). Since Respondent did not pay any just compensation, the indirect

expropriation is unlawful.

63. In conclusion, Respondent expropriated Claimant’s investment in breach of

Article 6.

(3) RESPONDENT DID NOT ACCORD CLAIMANT’S INVESTMENT FAIR

AND EQUITABLE TREATMENT

63

Metalclad v Mexico (Award), Para. 103 64

Facts, Para. 22 65

Ibid., Para. 25 66

Tecmed v Mexico (Award), Paras. 120-121

20

64. Respondent has the obligations to accord Claimant’s investment fair and

equitable treatment (“FET”) in Article 3(2) of the BIT, which reads: “Investments…

shall at all times be accorded fair and equitable treatment…”

65. Claimant contends that (a) FET is an autonomous standard. By the two

challenged acts, Respondent (b) frustrated Claimant’s legitimate expectations and (c)

failed to provide the minimum patent protection of international standards, in breach

of FET.

(a) FET of the BIT is an autonomous standard

66. Claimant contends that FET in the BIT is an autonomous standard, which evolves

with time67

. The minimum standard of protection cannot be adopted without

additional language in the BIT.68

67. In addition, a conduct does not need to be outrageousness or in bad faith as in the

Neer v Mexico case decided in 1926, to breach the standard of FET.69

The minimum

standard adopted in some NAFTA tribunals shall not apply here because: non-NAFTA

treaties have their own drafting history70

; and, there is no express wording of

“Minimum Standard of Treatment” as in Article 1105 of NAFTA71

. Moreover, even in

NAFTA cases, “the minimum standard of treatment is an evolutionary notion” and a

breach of FET needs not to be shocking while it suffices to “infringe a sense of

fairness, equality, and reasonableness”.72

(b) Respondent frustrated Claimant’s legitimate expectation

68. Protection of legitimate expectations is a central element of FET.73

Even

67

Mondev v USA (Award), Paras. 123-124; Loewen v USA (Award), Para. 132; Waste Management v

Mexico II (Award), Para. 98; Tecmed v Mexico (Award), Para. 154 68

Philip Morris v Uruguay (Award), Paras. 316-324 69

Crystallex v Bolivarian (Award), Para. 543 70

Verhoosel, p. 497 71

Annex No. 1, Article 3; Philip Morris v Uruguay (Award), Paras.316-324 72

Merrill & Ring Forestry v Canada (Award), Paras. 210-223 73

Dolzer/Schreuer, p. 184; Crystallex v Venezuela (Award); Thunderbird v Mexico (Award); El Paso

v. Argentina (Award), Para. 348

21

tribunals adopting the minimum standard admitted that the minimum standard evolves

and includes protection of legitimate expectations74

. As long as the expectations at

stake are specific, reasonable, and relied on by the investor when making investments,

they are protected by the BIT under the FET standard.75

69. In this regard, Claimant argues that its legitimate expectation that Respondent

would provide consistent patent protection towards its patent-backed investment was

(i) specifically generated from Respondent’s assurance; (ii) reasonable; and (iii) relied

on by Claimant to make its investment; and (iv) was frustrated by Respondent.

(i) Claimant’s expectation was specifically generated from Respondent’s

assurance

70. First, Respondent’s assurance was specific enough to generate Claimant’s

expectation. In 2014, the Minister of Health made a statement on NHA’s successful

partnership with Claimant, guaranteed “[a] stable, progressive IP [right regime]”:

“Mercuria reaffirms its commitment to empower and engage right holders in

order to pave the way forward and secure access to healthcare for all.” 76

71. Claimant was directly mentioned in the first statement and specifically targeted.

Moreover, Respondent’s assurance was strengthened when the Mercurian President’s

tweet shared the above statement.77

72. Even if the statement was also issued towards other investors, the assurance still

generated specific expectation because assurance could create specific expectation

“regardless of whether the assurance per se was issued generally or specifically”, as

confirmed by tribunals in Micula v Romania and Biwater v Tanzania.78

73. In addition, the possible political nature of the statements did not impair the

74

Philip Morris v Uruguay (Award), Para. 290; Merrill & Ring Forestry v Canada (Award), Paras.

242, 500; Glamis v USA (Award), Para. 621 75

Micula v Romania (Final Award), Paras. 668-669 76

Annex No. 2, Paras. 2-4. 77

Facts, Para. 8 78

Micula v Romania (Final Award), Para. 671; Biwater v Tanzania (Award), Paras. 622-625

22

assurance that an investor could rely on.79

(ii) Claimant’s expectation was reasonable under an objective standard

74. Claimant contends that its expectation was reasonable. As confirmed by the

tribunal in Micula v Romania, the assurance shall be examined under an objective

standard and the state’s intention is irrelevant because Mercuria “acted in a manner

that would reasonably be understood to create such an appearance” is sufficient.80

75. Claimant argued that it was reasonable to rely on the assurance of the Minister of

Health and the Mercurian President. The Mercurian President “typically uses his

verified twitter account” to announce government policies” and has 40 million

followers,81

which is huge compared with Mercuria’s population of 67 million.82

Therefore, Claimant reasonably relied on the twitter as the “primary source of

information of government activity” as many other users.83

76. Claimant argued that it was reasonable to expect that Respondent would not have

granted a compulsory license of its patent under “the political, socioeconomic…

conditions prevailing in the host state”.84

77. Before Mercurian first edited its IP law in 1976, the Paris Convention (1967

version) has provided compulsory license in Article 5, but Mercuria never adopted

such mechanism until 2009.85

Even faced with much more severe prevalence of

AIDS, Respondent did not adopt compulsory licensing but chose to cooperate with

Claimant, because “patents are the cornerstone of pharmaceutical industry”, and to

abridge these rights would be “myopic”86

. Given that Respondent “reaffirms its

commitment” towards pharmaceutical patents, Claimant reasonably expected that

Respondent would not abridge its patent by a compulsory license. 87

79

Ibid. 80

Micula v Romania (Final Award), Para. 669 81

PO3, lines 1567-1568 82

Annex No. 3, line 1328 83

PO3, lines 568-1569 84

Duke Energy v Ecuador (Award), Para. 340; Micula v Romania (Final Award), Para. 669 85

PO3, lines 1577-1578; Annex No. 4, lines 1381, 1386 86

Annex No. 2, Para. 4 87

Ibid.

23

78. Alternatively, it was unreasonable to predict that it would be necessary enough to

tackle greyscale by granting a compulsory license. In 2003, 0.03 % of Mercurian

people were affirmed patents88

. In 2005, only 10,012 patients “depended solely on

public health schemes” while Respondent’s greyscale budget was 200 million USD89

.

In ideal conditions, “Valtervite prevents 80% patients from transmitting greyscale to

healthy people”90

and greyscale could be tackled without impairing Claimant’s

patent.

(iii) Claimant relied on the expectation to make its investment

79. Claimant contends that it relied on the expectation to put its Valtervite patent into

production, cooperate with NHA to tackle greyscale four months after Respondent

gave its assurance, set up its manufacturing unit and purchase more land and

machinery.91

80. Claimant argues that the expectation of consistent patent protection was a

decisive factor when it made more investment. It was unnecessary to prove the

investment was made solely because of its legitimate expectation.92

Although

Claimant got its patent in 1998, the subsequent steps of its investment stated above

shall be examined respectively and were related to its legitimate expectation.93

(iv) Respondent frustrated Claimant’s legitimate expectations and caused loss

81. Claimant contends that by granting the compulsory license, Respondent frustrated

Claimant’s legitimate expectation, which caused tremendous losses to Claimant of

more than 1.5 billion USD annually and forced it to withdraw from the market.94

82. In conclusion, Respondent frustrated Claimant’s legitimate expectation of

88

Annex No.3, lines 1327, 1339 89

Ibid., lines 1359, 1363-1364 90

PO3, lines 1586-1587 91

Facts, Paras. 9, 11 and 15 92

Micula v Romania (Final Award), Para. 672 93

Crystallex v Venezuela (Award), Para. 557; Frontier v Czech Republic (Final Award), Para. 287 94

Facts, Para. 22, 25

24

consistent patent protection in breach of FET.

(c) Respondent failed to provide the minimum patent protection of international

standards in breach of fair and equitable treatment

83. Claimant contends that (i) under FET, Respondent should provide at least the

minimum patent protection of international standards in the granting of the license.

However, Respondent failed to do so because (ii) the royalty was unreasonably

inadequate, and (iii) Respondent failed to ensure that generic drugs under the

compulsory license were provided for the domestic market.

(i) Respondent has the obligation to provide the minimum patent protection of

international standards

84. Claimant contends that international standards for patent protection can serve as

guidance when determining whether the grant of the compulsory license was “fair

and equitable”. FET requires at least the protection for investment under standards of

international law and sets out a floor instead of a ceiling for protection.95

85. Claimant further contends that legal rules and principles in international treaties

such as the Paris Convention and the TRIPS Agreement, to which Mercuria and

Basheera are members without reservation96

, can serve as guidance. Binding on over

160 countries and districts, the TRIPS Agreement provides the minimum protection

for intellectual property rights of international standards.97

Respondent should have

provided patent protection no lower than the TRIPS Agreement in its domestic

intellectual property law before 200598

because it was not a least developed country

enjoying a longer period of transition99

. Although the TRIPS Agreement is not directly

applicable in this dispute, it should be read together when interpreting the standard of

FET100

and Respondent’s failure to provide at least the minimum standards of patent

95

Azurix v Argentina (Award), Para. 361; Duke Energy v Ecuador (Award), Para. 335; Philip Morris v

Uruguay (Award), Para. 317 96

PO2, Para. 2 97

Liberti, p. 4 98

Implementation of WTO's 2003 Decision, p. 1, note 2 99

PO2, Para. 5 100

Verhoose, p. 494

25

protection under the TRIPS Agreement shall lead to violations of FET, as affirmed by

tribunals holding that international treaties such as WTO Agreements shall provide

guidance in examining breaches of international investment agreements.101

86. In addition, the reference to the TRIPS Agreement does not contradict the WTO

DSU. Nothing theoretically prevents tribunals from referring to the TRIPS Agreement

in investment arbitrations because WTO DSU only forbids member states themselves

from directly determining a violation of the TRIPS Agreement.102

Otherwise, it would

be impossible for investors to be compensated when WTO DSU does not offer any

financial relief for private companies.103

87. WTO’s 2003 Decision only affirms Respondent’s flexibilities to implement

provisions under the TRIPS Agreement “other than Paragraphs 31(f) and (h) of

Article 31”.104

These two Paragraphs read:

“(f) any such use shall be authorized predominantly for the supply of the domestic

market of the Member authorizing such use; …

(h) the right holder shall be paid adequate remuneration…”

88. However, these two obligations have both been violated by Respondent.

(ii) The royalty at 1% rate was not an adequate remuneration

89. Claimant contends that it refused to provide its bank details105

because the

royalty rate of 1% of HG-Pharma earnings, which supplied generic drugs at an 80%

discount, was not an adequate remuneration.

90. Claimant’s patent resulted from the investment of more than 1 billion USD106

.

101

Total v Argentina (Decision on Liability), Para. 123; Verhoosel, pp. 494-496; SD Myers v Canada

(Partial Award), Para. 264 102

Verhoosel, p. 493; WTO DSU, Article 23 103

Verhoosel, p.493; De Carvalho, p. 699 104

WTO's 2003 Decision, Para. 9 105

PO3, lines 1598-1599 106

Ibid., line 1601

26

However, supposed that Claimant’s patent registered in 1998 would be protected for

20 years, Claimant could only be paid 0.024 billion (24 million) (calculated with the

data of 2012)107

totally, which could by no means make up the input of the risky

R&D and its land and machinery.

91. Although in 2009-2010, the royalty rates reached in Mercuria ranged from 0.5 %

to 3%108

, there was no indication that the royalty rate was reached by negotiations or

ruled for compulsory licenses, or that the patent was owned by public or private

sectors. Thus, this range could not justify the unreasonable royalty of 1%.

92. In addition, Claimant contends that the royalty of 1 % is also far below the

reasonable rate acknowledged by international standards. According to the studies of

WHO and United Nations Development Programme, when government has funded

the R&D of private companies, the royalty rate could be lower; when the patent is

owned by the government, the royalty could even be 0%.109

However, in the context

of patents developed and owned by private sectors, as in this dispute, the minimum

reasonable rate is 4%.110

93. As such, the royalty rate of 1% is inadequate in terms of the economic value of

Claimant’s investment and under international standards in breached of FET.

(iii) Respondent failed to ensure the provision of generic drugs merely for the

domestic market

94. Claimant contends that Respondent has the obligation to ensure that the generic

drugs produced under the compulsory license were only provided in the domestic

market. However, by exporting the generic drugs to three other countries where

Claimant’s patents were protected111

, Respondent violated the international minimum

standard for patent protection in breach of FET.

107

Facts, Para. 22 108

PO3, line 1590 109

WHO Remuneration guidelines, p. 67 110

Ibid. 111

PO3, line 1581

27

95. Given that Respondent and the three importing countries did not make

notifications to the TRIPS Council as required by the Implementation of WTO's 2003

Decision and/or Article 31bis of the TRIPS Agreement, the compulsory license cannot

exempt the legal constraints under the TRIPS Agreement. The TRIPS Agreement

provides that the compulsory license “shall be authorized predominantly for the

supply of the domestic market”112

. Only the export of residual medicines that are

“unavoidable” could be possibly justified.113

However, while Respondent allegedly

had to grant the compulsory license due to its unsatisfied domestic needs, as many as

three states received drugs from Respondent.114

Apparently, Respondent failed to

ensure that the drugs were provided predominantly for the domestic market.

96. This position is further supported by the principle of independent protection in

Article 4bis

of the Paris Convention. International exhaustion of patent rights is a rule

of exception115

, and cannot be applied when the products “have been put on the

market under a compulsory license”.116

97. In addition, the TRIPS Agreement and the Paris Convention do not require the

prohibited exports to be commercial. The TRIPS Agreement’s note 6 under Article

28(1)(a) reads that patent rights include “use, sale, importation or other distribution of

goods”. The difference between importation and exportation is whether the

distribution is into or out of the territory, with no requirement of commercial nature.

98. In conclusion, Respondent failed to provide the minimum patent protection of

international standards, which leads to the breach of FET.

(4) RESPONDENT DISCRIMINATED AGAINST CLAIMANT AS A FOREIGN

INVESTOR

99. Article 3(2) provides that Respondent shall not adopt “discriminatory measures”

impairing Claimant’s investment. Claimant argues that Respondent violated its

112

TRIPS Agreement, Article 31(f) 113

De Carvalho, p. 417 114

Facts, Para. 30 115

De Carvalho, p. 151 116

Health, p. 13

28

obligation.

100. Claimant contends that it suffices to prove there is one foreign investor

receiving less favorable treatment than one national investor in similar situations and

it is unnecessary to prove the discriminatory intention117

, or the nexus between

Claimant’s nationality and the measures.118

101. After its effort of forcing Claimant to change the supply price of Sanior was

aborted in 2008, the public entity NHA, which is politically accountable to

Respondent,119

breached the LTA by terminating it unilaterally and failed to find an

alternative for Claimant’s patented medicines.120

Soon in 2009, Law No. 8458/09 was

enacted. Within one month, the Respondent-owned121

company, HG-Pharma, made

the application for a compulsory license.122

102. Claimant was treated less favorable than the two Mercurian companies,

HG-Pharma and the private pharmaceutical corporation that holds 50% of

HG-Pharma123

, which used Claimant’s patent to produce cheap drugs without any

R&D. Claimant and the national investors were in similar situations: they were

producers of greyscale drugs; and Claimant and the private corporation were in

comparable financial situations124

since they were both private investors.

103. In conclusion, Claimant was treated less favorable than HG-Pharma and/or the

private pharmaceutical corporation in similar situations. Thus Respondent adopted

discriminatory measures in breach of the BIT.

(5) RESPONDENT CANNOT BE EXEMPT FROM LIABILITIES TO

COMPENSATE BY INVOCATION OF POLICE POWER OR A STATE OF

NECESSITY

117

Kardassopoulos and Fuchs v Georgia (Award), Para. 393 118

Feldman v Mexico (Award), Para. 181; ADC v Hungary (Award), Para. 442 119

PO3, line 1591 120

Ibid., line 1584 121

Ibid., line 1597 122

Facts, Para. 21 123

PO3, lines 1596-1597 124

Bayindir v Pakistan (Award), Para. 402

29

104. First, Claimant argues that regulatory power in domestic law cannot justify

breaches under the BIT or international law.125

Similarly, the ICESCR Convention’s

objective is “to establish clear obligations for States”126

, rather than exempt

Respondent from liabilities for breaches of international treaties.

105. Second, Respondent cannot invoke a state of necessity because the grant of the

compulsory license was not “the only way” to safeguard an essential interest127

against “grave and imminent peril”, which should be established under objective

standard, not merely possible.128

Price negotiations was still open to Respondent.129

State necessity cannot be invoked if there were other lawful alternatives, “even if they

may be more costly or less convenient.”130

In addition, the threaten of greyscale was

neither grave nor imminent because the confirmed patients accounts only 0.03 % of

Mercuria’s population131

and the alleged threat was not “‘imminent’ as soon as it is

established”132

, at the time of the grant of the compulsory license.

106. Even if Article 25 of the ILC Articles can be invoked, pursuant to Article 27,

“the question of compensation for any material loss caused by the act in question”

shall not be changed.

(6) CONCLUSION

107. In conclusion, (1) Claimant does not need to exhaust local remedies.

Respondent (2) conducted indirect expropriation unlawfully, (3) violated fair and

equitable treatment, and (4) discriminated against Claimant. In addition, (5)

Respondent cannot be exempt from liabilities.

125

Tecmed v Mexico (Award), Paras. 120-121; Kardassopoulos and Fuchs v Georgia (Award), Para.

394 126

CESCR Comment, Para. 9 127

ILC Articles, Article 25(1)(a) 128

ILC Articles Commentary, p. 83 129

Facts, Para. 15 130


Annex No.3, lines 1327, 1339 132

Ibid.

30

D. MERCURIA IS LIABLE UNDER ARTICLE 3 OF THE BIT FOR THE

CONDUCT OF ITS JUDICIARY IN RELATION TO THE ENFORCEMENT

PROCEEDINGS.

108. Claimant submits that Respondent’s judicial conduct has violated Article 3 of

the BIT by (1) failing to accord Claimant’s investments with fair and equitable

treatment because (2) Mercurian judicial conduct was arbitrary, bias, and lacks

transparency, (3) the enforcement proceedings were subject to undue delay, (4) and

Respondent failed to provide effective means for Claimant to assert claims and

enforce rights.

(1) RESPONDENT FAILED TO ACCORD CLAIMANT’S INVESTMENTS

WITH FAIR AND EQUITABLE TREATMENT DURING ENFORCEMENT

PROCEEDINGS

109. As mentioned in Issue C, Claimant shall “at all times be accorded with fair and

equitable treatment”.133

Tribunals have held in a number of cases that arbitrariness,

lack of due process and denial of justice were important elements to find violation of

the FET standard.134

Modern tribunals have accepted that providing effective means

of asserting claims and enforcing rights to investors can also be regarded as

significant standards of FET.135

110. Claimant submits that Respondent has violated the obligations of FET because

(a) Mercuria Supreme Court’s conduct was arbitrary and discriminatory, and lacks

transparency, (b) the enforcement proceedings were subject to undue delay, (c)


enforce its rights and (d) Respondent has frustrated Claimant’s legitimate

expectations.

(2) MERCURIAN JUDICIAL CONDUCT WAS ARBITRARY, BIAS AND

LACKS TRANSPARENCY

133

Annex No. 1, p. 33, Article 3(2) 134

Waste Management v Mexico (No.2) (Award), Para. 98; Tecmed v Mexico (Award), Para. 154 135

Mondev v USA (Award), Paras. 123-124; Loewen v USA (Award), Para. 132; Waste Management v

Mexico II (Award), Para. 98

31

111. Claimant submits that (a) Mercurian judicial conduct Exh.s manifest

arbitrariness, that (b) Mercurian judiciary treated Claimant with blatant bias and (c)

that the clarification over the Commercial Courts Act could not justify the

misbehaved conducts.

(a) Mercurian judicial conduct exhibits manifest arbitrariness, especially the

Supreme Court’s deviation from its previous decision

112. Tribunals have agreed that “arbitrary” is interchangeable with “unreasonable”,

and means “wilful disregard of due process of law, an act which shocks, or at least

surprises, a sense of judicial propriety”. 136 There are 2 elements to determine

arbitrariness: whether there is a rational policy and the reasonableness of the state’s

act in relation to the policy.137

Such analysis pattern is endorsed by series of

tribunals.138

113. Claimant submits that the Supreme Court’s conduct clearly amounts to

arbitrariness because the highest tier of the Mercurian judiciary made two completely

contradictory decisions within a short period without legitimate reason. In April 2012,

the Supreme Court upheld two decisions supporting the jurisdiction of the

Commercial Bench on enforcement of arbitral awards.139

However, within only 1

year and a half, in September 2013, the same court abruptly toppled its previous

position and ruled against the Commercial Bench’s jurisdiction on enforcement

affairs.140

Claimant argues that such arbitrary changes of procedure arrangements

were not rational measures and were even made without any reason, which indicates

that the conduct is manifestly arbitrary.

114. Further, Claimant’s enforcement proceedings were constantly postponed without

legal basis. For instance, Mercurian High Court granted NHA’s request for

adjournment because its counsel was travelling or its counsel could not contact its

136

ELSI, Judgment, I.C.J. Report, p. 15; Azurix v Argentina(Award), Para. 392; El Paso v

Argentina(Award), Para. 319 137

AES v Hungary, Paras. 10.3.7-10.3.9 138

EDF v Romania(Award), Para. 303 ; Lemire v Ukraine (Award), Para. 262 139

Exh. 1, Para. 17 140

Ibid., Para. 26

32

own client;141

NHA was absent for 6 times without good reason while the courts

never heard the matter ex parte or took any substantive actions.142

All those actions

and omissions happened time after time during enforcement proceedings, which

constitutes a wilful disregard of due process of law and a breach of judicial propriety.

Therefore, the mentioned actions and omissions of Respondent’s judiciary are

unreasonable and arbitrary.

(b) Mercurian judiciary treated Claimant with blatant bias

115. Claimant submits that Claimant has been treated differently during the

proceeding with clear bias.

116. Claimant first submits that Atton Boro’s enforcement proceedings were

unfavorably prolonged over 8 years while similar enforcement proceedings were

resolved within months: Two similar applications for enforcement of arbitral awards

were solved by the newly set up Commercial Bench before April 2012, only 3 months

after the Bench was established, while Atton Boro’s enforcement applications,

which was the same in kind with these 2 cases, was delayed from time to time for 8

years.143

The bias treatment was more clearly demonstrated by comparing Claimant’s

case with other more complex litigants, such as the grant of Claimant’s compulsory

license, where the court effectively addressed HG-Pharma’s case within 5 months

but stated “overburdened judiciary” towards Claimant.144

117. Further, the Mercurian judiciary even admitted such blatant bias by making a

public statement though its High Court Judge, stating “private parties ought to be

more accommodating of their public counterparts…A delay in service of one

rejoinder will hardly run a billion dollar corporation into the ground”.145

While the

obligation of the judiciary is to restore justice and behave even-handedly, Mercurian

judiciary exhibits blatant bias towards foreign investors and violated its obligation of

fair and equitable treatment.

141

Ibid., Para. 17 142

Ibid., Paras. 4, 5, 19, 21, 34, 39, 44 143

Ibid., Para. 17 144

Uncontested Facts, Para. 21. 145

Exh. 1, Para. 14

33

(c) The clarification of the Commercial Act could not justify its judicial conduct

for lack of transparency

118. Transparency is defined as “all relevant legal requirements should be capable of

being readily known to all affected investors” and that “there should be no room for

doubt or uncertainty”146

Further, the Metalclad v Mexico tribunal stated that where

there was any confusion or misunderstanding, “it is the State’s duty to ensure that the

correct position is promptly determined and clearly stated”, so that investors can have

confident belief that they are acting in accordance with all relevant laws.147

119. Claimant submits that the requirement of prompt clarification is clearly lacking

in the court’s conduct related to the 2012 Commercial Court Act. When the 2012

Commercial Court Act was issued in January 2012, there was clearly confusion over

which court had jurisdiction over enforcement of arbitral awards.148

However, instead

of clarifying such confusion immediately after the confusion was raised in April 2012,

it took the Mercurian Supreme Court about 23 months to finally issued a clarification

with unknown content in December 2013, right after Claimant’s conversion of

jurisdiction.149

Therefore Respondent’s judiciary failed the requirement of prompt

clarification and lacks transparency.

(3) THE ENFORCEMENT PROCEEDINGS WERE SUBJECT TO UNDUE

DELAY

120. Subjecting Claimant to a denial of justice is also a ground for a breach of

FET.150

The tribunal in Azinian v Mexico held that “a denial of justice could be

pleaded if the relevant courts… subject it to undue delay”.151

Claimant submits that

although there is no universal standard for a particular case to be resolved, the total

duration of 8 years plus 6 months, starting from March 2009 till this moment, (a) is

146

Metalclad v Mexico(Award), Para. 76 147

Ibid. 148

Exh. 1, Paras. 17, 18, 28 149

Ibid., Paras, 28, 29 150

Dolzer/Schreuer, p.142; Jan de Nul v Egypt(Award), Para. 188. 151

Azinian v Mexico(Award), Para. 102-103; El Ore Mining and Railway v Mexico, p. 198, Para. 10;

Paulsson, p. 200

34

still unreasonably long compared to the normal practice of states. Alternatively,

Claimant submits that even taken factual situations into consideration, as tribunals did

in White v India and Toto v Lebanon,152

the delay is still undue because: (b) the

enforcement proceedings were not complex, (c) overburdened judiciary could not

justify such delay, and (d) Claimant had spared no efforts to accelerate the

proceedings.

(a) The duration is unreasonably long compared to normal practice of states

121. Under Annex 4, Article 4 of the Moot Problem, Claimant could provide

statistics from other jurisdictions for comparative purposes.153

According to the

Doing Business Report 2009, in the top 10 states where the enforcement proceedings

were the slowest in the world, the average time of enforcement was 4 years.

Mercurian courts, however, took over 8 years and still failed to enforce an award,

which almost doubled the average time in the lowest countries in the word.154

Therefore, the delay is unreasonably long compared to normal practice of states and

Claimant’s enforcement proceedings were subject to undue delay.

(b) The enforcement proceedings were not complex

122. Claimant argues that according to Article 3 of New York Convention,

Respondent shall enforce foreign arbitral awards in accordance with its procedural

laws without substantial review.155

Therefore, the enforcement proceedings were in

no way complex. Even if the Tribunal considers that NHA’s public policy defence

allows Mercurian courts to look into merits of the case, Claimant submits that the

scope of such review is highly restricted so as to ensure the finality of the arbitrator’s

final decision.156

State’s practice has also indicated that under New York Convention,

the efficacy of arbitral process requires the substantive review at the

152

White v India (Final Award), Para. 10.4.7; Toto v Lebanon (Award), Para. 163 153

Annex 4, p. 48 154

Doing Business Report 2009, World Bank, p. 50 155

UNCITRAL Guidelines for New York Convention, p. 83, Para. 21 156

Ibid., p. 248, Para. 30

35

award-enforcement stage “remain minimal”.157

Therefore, the enforcement

proceedings were not complex and should be enforced promptly.

(c) Overburdened judiciary could not justify the delay

123. Claimant argues that the alleged overburdened judiciary is questionable because

Mercurian courts resolved other cases such as 2 enforcement awards and

HG-Pharma’s application for non-voluntary license all within months while Atton

Boro’s pure enforcement proceedings were prolonged by 8 years and remained

pending till now.158

Alternatively, even if overburdened judiciary is proved,

Respondent could not use it to justify the undue delay, as affirmed by the tribunal in

White v India and the committee in El Oro Mining and Railway v Mexico that: “The

amount of work incumbent on the Court and the multitude of law suits… may explain,

but not excuse, the delay.”159

If this number of cases is so enormous as led to an

arrear of nine years, the tribunal would get the conclusion that “the judicial machinery

is defective.”160

(d) Claimant has spared no efforts to accelerate the proceedings

124. Claimant submits that Respondent was liable for the undue delay because

Claimant had tried every measure to accelerate the proceedings. Claimant had raised

objections against Mercurian courts’ unjustified silence over NHA’s absence for 4

times and other violations of Mercurian procedural law. It was the courts that ignored

such objections and took no substantive measures to advance the proceedings.161

Because commercial courts would resolve commercial disputes more efficiently, as

confirmed by World Bank in its 2009 Doing Business Report, Claimant transferred its

case to the Commercial Bench, hoping to speed up the proceedings.162

However, such

157

Mitsubishi, Para. 638; SNF v Cytec, Thales v Euromissile. 158

Uncontested Facts, Para. 21; Exh. 1, Para. 17 159

White v India (Final Award), Para. 10.4.20; El Oro Mining v Mexico, V RIAA191 160

Ibid. 161

Exh. 1, Paras. 4, 13, 14, 16, 17, 18, 19, 21, 32, 34, 37 162

Doing Business Report 2009, World Bank, pp. 51-52

36

effort to seek more efficient legal remedy was again frustrated with Claimant’s case

being transferred back due to the opacity of Mercurian legal system.163

125. Therefore, Respondent has committed a denial of justice by subjecting

Claimant’s claim to undue delay in breach of FET.

(4) RESPONDENT FAILED TO PROVIDE EFFECTIVE MEANS

126. According to Article 31(1) of VCLT, “a treaty shall be interpreted in good

faith … and in the light of its object and purpose”.164

The purpose of the BIT was

stated in the preamble that: “Recognizing the importance of providing effective means

of asserting claims and enforcing rights.”165

When interpreting the BIT, the parties’

intention to provide protection of effective means shall not be ignored. Article 3(2)

provides that: “Neither contracting party should …, in any way impair…the

management, maintenance, use, enjoyment or disposal of investments.”166

Claimant

submits that Claimant shall be provided protection under effective means to enjoy its

investment.

127. The Chevron v Ecuador tribunal held that effective means is a distinct and

less-demanding standard as compared to denial of justice and that a failure of

domestic courts to enforce rights “effectively” will constitute a violation of the

effective means standard.167

In this regard, Claimant submits that Respondent failed

to provide effective means of enforcing right with respect to Claimant’s investment

because Atton Boro’s enforcement application was prolonged by 8 years due to

Mercurian courts’ low efficiency.

(5) CONCLUSION

128. In conclusion, Claimant submits that the judicial conduct of Respondent has

violated Article 3 of the BIT by failing to accord Claimant’s investments with fair and

163

Exh. 1, Para. 29 164

VCLT, Article 31 165

Annex No. 1, Preamble 166

Ibid., Article 2 167

Chevron v. Ecuador (Partial Award on the Merits), Para. 246

37

equitable treatment because Mercurian judicial conduct was arbitrary, bias, and lacks

transparency, the enforcement proceedings were subject to undue delay, and


enforce its rights.

E. TERMINATION OF THE LONG-TERM AGREEMENT BY NATIONAL

HEALTH AUTHORITY OF RESPONDENT AMOUNTS TO A VIOLATION

OF ARTICLE 3(3) OF THE BIT

129. Claimant argues that NHA’s termination of the LTA constitutes a violation of

Article 3(3) as (1) NHA’s conclusion and termination of the LTA are attributable to

Respondent and (2) Respondent’s contractual breach of LTA shall constitute a

violation of the BIT by Article 3(3). In addition, (3) the dispute settlement clause

under LTA itself does not render this treaty claim inadmissible.

(1) NHA’S CONCLUSION AND TERMINATION OF THE LTA ARE

ATTRIBUTABLE TO RESPONDENT

130. NHA’s conclusion and termination of the LTA are attributable to Respondent,

because NHA is (a) a de facto state organ; (b) and an empowered entity exercising

governmental authority with respect to the LTA. Alternatively, the conducts at stake

are (c) governmental in nature under the functional test; and (d) carried out under

Respondent’s direction.

(a) NHA is a de facto state organ

131. Article 4 of the ILC Articles provides:

“the conduct of any State organ shall be considered an act of that State”.

132. Provided in ILC’s 2001 Commentary, the meaning of the term “organ” under

Article 4 is broad, and should be determined not only by the state’s internal law but

38

also by practice.168

Accordingly, a State cannot avoid responsibility for de facto state

organ merely by denying its status under its own law.169

133. Applying the test advanced in Ampal-American v Egypt, the entity’s purpose of

establishment, its role in the government and its funding status should be looked at to

determine whether it qualifies as a de facto state organ.170

134. In the current case, the NHA was set up by the Central Government to secure

universal healthcare for its people, as envisioned by the Constitution of Mercuria.171

Then the NHA conducted a five-year health plan to tackle critical diseases in

Mercuria.172 Such purpose and role is always reserved for the State rather than private

businesses. Second, NHA directly and regularly reports to the Ministry of Health of

Mercuria, and the Ministry of Health can order the NHA to undertake tasks on public

health, showing NHA’s subordinate position to the Ministry of Health of Mercuria.

Finally, NHA is funded largely by national taxation and organized by NHA trusts,

public sector corporations established by Mercuria’s law, the NHA Act.173

All these

features are strikingly similar to EGPC and EGAS in Ampal-American v Egypt, which

the tribunal found to be state organs despite both of the entities having independent

legal personalities.174

135. Furthermore, Mercurian Government described the NHA’s Comprehensive

HIV/AIDS Partnership with Claimant as a public-private partnership,175 indicating

NHA’s public role. Although NHA was not classified as a state organ in Mercurian

law, it still constitutes a de facto state organ.

(b) NHA is an empowered entity exercising governmental authority with respect

to the LTA

168

ILC Articles Commentary (2001), p. 42, Para. 11 169

Ibid. 170

Ampal-American v. Egypt, Paras. 138-139 171

Annex No. 2, Para. 2 172

Ibid. 173

PO3, lines 1592-1594 174

Ampal-American v. Egypt, Paras. 138-139 175

Annex No. 2, Para. 4

39

136. Even if this Tribunal were to find that the NHA is not a state organ, attribution is

still established under Article 5 of ILC Articles.

137. Under Article 5 of the ILC Articles, if an entity is “empowered with

governmental authority and acting in that capacity in a particular instance”, the

conduct of such entity would be considered an act of State.176

In aid of ILC’s

commentary to this Article and the tribunal’s opinion in Jan de Nul v Egypt, to

determine whether there is governmental empowerment, factors such as content of

powers, purposes and the way of the exercise of powers and accountability to the

government177

should be considered.

138. NHA’s function of “securing universal healthcare for Mercurian people” is an

element of governmental authority, in that NHA was empowered to operate public

health schemes and distribute treatment in moments of national health crisis.178

Further, NHA is politically accountable to Respondent.179

In this sense, although the

NHA is autonomous legally, it is nevertheless an empowered entity within the

meaning of Article 5. By concluding the LTA to gain medicines for public distribution,

and terminating the LTA to resolve budgetary problems in government healthcare

programs,180

the NHA was clearly exercising elements of governmental authority.

Thus, NHA’s conducts concerning the LTA are attributable to Respondent.

(c) The conduct was governmental in nature under the functional test

139. Alternatively, the conducts at stake are attributable to Respondent under the

functional test applied by Maffezini v Spain, where the tribunal held that the specific

acts that are governmental rather than commercial shall be attributed to states.181

140. Claimant contends that the NHA’s conclusion and termination of the LTA are

governmental in nature. In 2004, the NHA entered into the LTA with Claimant to deal

176

ILC Articles, Article 5 177

Crawford, (2002), pp. 100-101; Jan de Nul v. Egypt, Para. 163 178

Annex No. 2, Para. 2; Facts, Para. 11 179

PO3, lines 1591-1592 180

Facts, Para. 16 181

Maffezini v Spain (Award), Para. 52

40

with the increasing public concern about the incidence of greyscale.182

This function

is always carried out by the State instead of private sectors, which is governmental in

nature. As regards to the termination of the LTA, on 15 May 2008, the Minister for

Health met privately with the Director of the NHA to resolve budgetary problems.

Soon after the meeting, the NHA unilaterally terminated the LTA prematurely.183

It

can be reasonably presumed that the NHA terminated the LTA only to resolve

budgetary problems which falls within the remit of the State’s authority. Thus, the

NHA’s conclusion and termination of the LTA are governmental in nature, which are

attributable to Respondent.

(d) The conducts at stake are carried out under the direction of Respondent

141. Further and/or alternatively, the conducts at stake shall be attributed to

Respondent under Article 8 of ILC Articles for they are carried out under the direction

of Respondent.

142. Article 8 provides that the conduct of persons shall be attributed to a state if:

“the...group of persons is in fact acting on the instructions of, or under the

direction and control of, that State in carrying out the conduct.”

143. This Article deals with two circumstances: where private persons acting on the

instructions of the State in carrying out the conduct; and where more generally private

persons act under the State’s direction or control. If either one is satisfied, such

conduct is attributable to the State.184

144. In this dispute, when greyscale was the public concern in Mercuria, the Ministry

of Health directed the NHA to estimate the requirement and invited offers from

pharmaceutical companies for supplies of FDC greyscale medicines.185

Under such

instruction, NHA invited Claimant to make an offer in May 2004 and entered into the

182

Facts, Paras. 6-9 183

Ibid., Paras. 16-17 184


Facts, Para. 7

41

LTA.186

145. Further, NHA’s termination of the LTA was directed by Respondent. In Bayindir

v. Pakistan, the General Musharraf of Pakistan held a meeting with the chairman of

the entity at stake and discussed possible termination of the contract.187

Based on this

meeting and time interval of less than a month between this meeting and the

subsequent termination, the tribunal found direction within the meaning of Article

8.188

Similarly, a meeting was held in 2008 between the Director of NHA and the

Mercurian government, including the Minister for Health and the Mercuria’s

President, discussing budgetary problems in government healthcare programs.189

Within a month, on 10 June 2008, NHA terminated the LTA using unsatisfactory

performance as an excuse.190

146. The conclusion and termination of the LTA was conducted on the instructions of

the Ministry of Health and thus attributable to Respondent under Article 8 of the ILC

Articles.

147. As such under any of the four aforementioned tests, NHA’s conclusion and

termination of the LTA are attributable to Respondent, making Respondent the actual

party to the LTA. Hence, Respondent is liable for its premature termination of the LTA

which is an undisputed breach as found by the Award.191

(2) RESPONDENT’S BREACH OF LTA SHALL BE ELEVATED TO A

TREATY VIOLATION

148. With attribution established, Claimant argues that Respondent’s breach of

contract constitutes a violation of Article 3(3) of the BIT because (a) Contractual

obligations under the LTA are qualified undertakings within Article 3(3)’s broad

protection. (b) Even under restrictive interpretation, breach of the LTA amounts to a

BIT violation as it involved an abuse of sovereign power.

186

Ibid., Paras. 6-9 187

Bayindir v. Pakistan, Paras. 125-128 188

Ibid. 189

Facts, Para. 16 190

Ibid., Paras. 16-17 191

Ibid.

42

(a) Contractual obligations under the LTA are qualified undertakings within

Article 3(3)

149. Article 3(3) is an umbrella clause, with the function of “bringing contractual and

other commitments under the treaty’s protective umbrella”.192

While various wording

of such clauses in different treaties results in difference in its meaning,193

Article 3(3)

should be interpreted particularly along with the current BIT to determine its scope of

coverage. Because (i) the scope of Artticle 3(3) is particularly broad to protect

contractual obligations and (ii) LTA is an investment contract, obligations under the

LTA are covered by the BIT.

(i) Article 3(3) broadly covers protection of contractual obligations

150. Article 3(3) reads:

“Each Contracting Party shall observe any obligation it may have entered into

with regard to investments of investors of the other Contracting Party.”

151. Claimant contends that this Tribunal shall refer to Article 31 of the VCLT to

interpret this clause, by looking at its ordinary meaning. Further added by the tribunal

in SGS v Philippines and other decisions, the principle of effectiveness in treaty

interpretation should be adopted.194

152. The use of the term “shall” in Article 3(3), in its ordinary meaning, intends to

create obligation and “obviously obligations beyond those specified in other

provisions of the BIT itself”.195

Given that other treaties, if concluded, would be

subject to the general principle of pacta sunt servanda, the term “obligation” the

parties “entered into” in this clause shall refer to investment contracts which comprise

of specific obligations assumed by the host state vis-à-vis the investor concerning a

192

Dolzer/Shreuer, p. 201 193

Ibid., p. 202 194

SGS v Philippines (Jurisdiction), Para. 116 ; Salini v Jordan (Jurisdiction), Para. 95 ; Noble

Venture v Romania (Award), Para.50 195

Noble Venture v Romania (Award), Para.51

43

specific investment.196

This notion is also affirmed by the tribunal in SGS v Paraguay

where a similar provision was interpreted.197

Further, flowing from the term “any”

and “in the absence of any textual limitation”, Article 3(3) is intended to provide the

broadest sense of protection to investment contracts.198

Thus, it is a clear intention of

the parties to draft Article 3(3) as broad as possible, affirmed by similar interpretation

in SGS v Philippines.199

153. Such broad interpretation is supported by the principle of effectiveness as well.

The tribunals in Siemens v Argentina, Noble Venture v Romania and other cases,

invariantly found that an interpretation to the contrary would deprive the investor of

any internationally secured legal remedy in respect of investment contracts that it has

entered into with the host State and agreed to give full effect to umbrella clauses.200

(ii) LTA, as an investment contract, is specifically covered by Article 3(3)

154. Under the above interpretation, the LTA is in every way covered by Article 3(3).

As proven in the arguments on Claim A, LTA is an investment contract.201

It is not

only a claim to money under Article 1(1)(c) of the BIT to be considered as an

investment, but also the foundation of all subsequent investment. Only with the LTA

in place as a legally binding document, would Claimant “purchase land and

machinery to bolster its production setup” in response to the rising demand of Sanior

in Mercuria.202

As a legally binding instrument, conducts relating to which is

attributable to Respondent, the LTA should be deemed as covered by Article 3(3).

(b) Even under a restrictive reading of Article 3(3), breach of the LTA constitutes

a BIT violation because Respondent acted as sovereign

155. Respondent may argue that Article 3(3), even as an umbrella clause, can only be

196

Ibid. 197

SGS v Paraguay (Jurisdiction), Para. 167 198

Ibid., Paras. 168-169 199

SGS v Philippines (Jurisdiction), Para. 128 200

Siemens v Argentina (Award), Paras. 196-206; Noble Venture v Romania (Award), Para.52; LG&E

v Argentina (Liability), Paras. 164-175; Plama v Bulgaria (Award), Paras. 185-187 201

Arguments, Issue A, p. 2 202

Facts, Para. 15

44

applied restrictively to cover only those contracts which involve Respondent’s

sovereign act. Even if accepting this assumption, Respondent’s breach of the LTA still

constitutes a BIT breach.

156. According to SGS v. Paraguay, a state’s sovereign act is not restricted in form

such as legislation.203

That tribunal further stated the context and purpose of the act

itself should be considered.204

The conclusion and termination of the LTA were

conducted for the purpose of easing public health problems and attributable to

Respondent. Respondent’s decisions concerning the LTA are public-oriented,

deviating from the reasonable and normal pattern of private and profit-seeking

contracting parties. Thus, the breach of the LTA accordingly should be considered as a

sovereign act, covered by Article 3(3) even under a restrictive interpretation.

157. In conclusion, (a) Article 3(3), as an umbrella clause, can elevate contractual

breaches to BIT violations. The LTA is in every way covered by this Article 3(3) for it

not only (b) is an investment contract; but also (c) involves Respondent’s abuse of

sovereign power. Thus the breach of the LTA constitutes a violation of the BIT.

(3) THE DISPUTE SETTLEMENT CLAUSE UNDER LTA ITSELF DOES NOT

RENDER THIS TREATY CLAIM INADMISSIBLE

158. Claimant also contends that a dispute settlement clause in the LTA itself cannot

render this claim inadmissible.

159. As noted by the tribunal in Duke Energy v Ecuador, a separate dispute

settlement clause “does not in and of itself preclude the Claimants from availing

themselves of the Treaty for additional claims” without express intention by the

parties.205

In the current dispute, there was no express limitation in the dispute

settlement clause under the LTA.

160. Further, to prioritize the dispute settlement clause under the contract is subject

203

SGS v Paraguay (Award), Para. 74 204

Ibid., Para. 73 205

Duke Energy v. Ecuador, Para. 159

45

to strong criticism. Thomas W. Wälde and Emmanuel Gaillard stated that it is

improper to dismiss the claim for such reason, calling such approach “impractical”206

and resulting in “the BIT tribunal having jurisdiction over an empty shell and

depriving the BIT dispute resolution process of any meaning.”207

161. Finally, the fact that the contractual dispute was decided by a commercial

tribunal does not affect the current claim, either. The doctrine of res judicata does not

apply because the current claim has a different cause of action.208

162. Therefore, the current claim must stay intact even if there in a separate dispute

settlement clause in the LTA.

(4) Conclusion

163. In conclusion, (1) NHA’s conclusion and termination of the LTA are attributable

to Respondent, which is bound by and breached the LTA. (2) Such breach, by Article

3(3), the umbrella clause, constitutes a violation of the BIT. (3) Claimant’s

independent treaty claim cannot be affected by the dispute settlement clause in the

LTA. Respondent must accordingly be held internationally liable.

206

Wälde, pp. 373-393 207

Gaillard, pp. 325-334: SGS v Paraguay (Jurisdiction), Para. 172 208

ILA Interim Report, p. 2

46

PRAYER FOR RELIEF

In light of the foregoing, Claimant respectfully requests this Tribunal to find that:

(A) This Tribunal has jurisdiction over claims in relation to the Award;

(B) Claimant is not denied the benefits of the BIT by virtue of Respondent’s

invocation of Article 2 of the BIT;

(C) The enactment of law no. 8458/09 and the grant of a license for the Claimant’s

invention amount to a breach of the BIT, in particular, the fair and equitable treatment

standard;

(D) Mercuria is liable under Article 3 of the BIT for the conduct of its judiciary in

relation to the enforcement proceedings;

(E) Termination of the LTA by the NHA of Respondent amounts to a violation of

Article 3(3) of the BIT.

RESPECTFULLY SUBMITTED ON 18 SEPTEMBER 2017 BY

TEAM GAJA

On behalf of Claimant,

Atton Boro Limited

Documents

PERMANENT COURT OF ARBITRATION PCA Case … · team gaja permanent court of arbitration pca case no. 2016-74 between: atton boro limited claimant republic of mercuria respondent memorial