Respondent 2012 - banking and investment law moot

Team 26

INTERNATIONAL BANKING AND INVESTMENT LAW MOOT COURT COMPETITION 2012

COUR PERMANENTE D'ARBITRAGE

THE HAGUE

Europa Global Traction and Power Corporation Private Limited (EGTPC)

(Claimant)

V.

The Federal Republic of Asiania

(Respondent)

(Docket No 2/2012)

MEMORANDUM FOR RESPONDENT

Page 2 of 45 MEMORIAL ON BEHALF OF THE RESPONDENT

TABLE OF CONTENTS

Table of Contents ........ ...................................................................................................2

Table of Abbreviations………………………...………………………...........……...….3

Index of Authorities……………………………….....………….........……………….....5

Cases…..................................................................................................................5

Journal…………………………………..….……………………………………………10

Books……………………………………...……………………………….…………….14

Treatises……………………………………...…………………………………………..15

Statement of Facts……………………………..………………………………………...16

Questions Presented…………………………….…………………………………….....19

Summary of Arguments………………………….………………………………………20

Arguments Advanced…………………………….………………….…………………...22

Prayer…………………………………………….…………….…………………………45


TABLE OF ABBREVIATIONS

Abbreviation Full form

¶/¶¶ Paragraph(s)

& And

§/S./ss. Section(s)

A.C. Appeal Cases

All ER All England Law Reports

ARB Administrative Review Board

Art Article

BIT Bilateral Investment Treaty

CEO Chief Executive Officer

CLR Commonwealth Law Report

CPC Communist Party of Calona

Co. Company

Com. Commercial

Corp. Corporation

CPCA Calonian Prevention of Corruption Act

ed./eds. Editor(s)

edn. Edition

e.g. Example

ER English Reports

EU European Union

EWCA Civ. England and Wales Court of Appeals (Civil)

EWHC England and Wales High Court

GPG Global Peace Games

Govt. Government of Calona

HL House of Lords

Ibid Ibidem

ICSID International Centre for Settlement of

Investment Disputes


ICJ International Court of Justice

Inc. Incorporation

Int’l International

LCIA The London Court of International Arbitration

Ltd. Limited

MOU Memorandum of Understanding

NAFTA North Americal Free Trade Agreement

NGO Non

NLS Nakamuka Lighting Sloution

No. Number

OECD Organisation for Economic Cooperation and

Development

Ors. Others

PC Privy Council

PM Prime Minister

pp. Pages

Pty Proprietary

Pvt. Private

QB Queen’s Bench

Rep. Report

SBI Special Bureau of Investigation

Stadium Champs National Stadium

UKHL United Kingdom House of Lords

UN United Nations

UNCITRAL United Nations Commission on International

Trade Law

USA/US United States of America

v. Versus

Vic. Victoria

Vol Volume


INDEX OF AUTHORITIES

CASES

A

Amco Asia Corporation v. Republic of Indonesia (Award, Supplemental Decisions and

Rectification, Resubmitted case), ICSID Case No. ARB/81/1 (Oct. 10,1990), 1 ICSID Rep.

569

American Manufacturing & Trading, Inc. v. Republic of Zaire (Award), ICSID Case No.

ARB/93/1 (Feb. 21, 1997), 36 I.L.M 1531 (1997)

Asian Agricultural Products ltd. (AAPL) v. Republic of Sri Lanka (Award), ICSID Case No.

ARB/8/7/3 (June 27, 1990)

Award in Case No. 5514 (Dec. 1990) (published in french), Collection of ICC Arbitral

Awards, 1991-1995, 459 (1997)

Azininan v. United Mexican States (Award), ICSID Case No. ARB(AF)/9/7/2 (Nov. 1,1999)

Azurix Corp. v. Argentine Republic (Jurisdiction), ICSID Case No. ARB/01/12 (Dec. 8,

2003)

B

Bechtel Enterprises International (Bermuda) Ltd. V. Overseas Private Investment Corp.,

AAA Case No. 50 T195 00509 02 (Sept. 3, 2003)

Benvenuti & Bonfant SRL v. The Government of the People’s Republic of the Congo

(Award), IVSID Case No. ARB/7/7/2 (Aug. 15, 1980), translated in 1 ICSID Rep. 330

C

Case Concerning Avena and other Mexican Nationals (Mexico v. United States of America)

(Merits),I.C.J.(Mar.31,2004),http://212.153.43.18/icjwww/idocket/imus/imusjudgement/imus

_toc_judgement.htm. (last visited on May 7, 2004)

Case Concerning Electronics Sicular S.P.A (ELSI) (United States Of America v. Italy)

(Award), 1989 I.C.J. Rep. 15 (July 20)

http://212.153.43.18/icjwww/idocket/imus/imusjudgement/imus_toc_judgement.htm

http://212.153.43.18/icjwww/idocket/imus/imusjudgement/imus_toc_judgement.htm


Case Concerning Military and Paramilitary Activities In and Against Nicaragua (Nicaragua v.

United States Of America) (Merits), 1986 I.C.J. Rep. (June 27)

Case Concerning The Factory at Chorzow (Indemnity), 1928 P.C.I.J. (Ser. A) No. 13 (Sept.

13)

Case Concerning the Factory at Chorzow (Jurisdiction), 1927 P.C.I.J. (Ser. A) No. 9 (July 26)

Case Of Certain Norwegian Loans (France v. Norway) (Merits), 1957 I.C.J. Rep. 9 (July 6)

Cayuga Indians (Great Britain) v. United States, R.I.A.A., vo.VI, 173 (Jan 22, 1926)

Claims og Gelbtrunk and “Salvador Commercial Company”, R.I.A.A., vol. XV, 463 (May 2,

1902)

CME Czech Republic B.V.v. The Czech Republic (Award), UNCITRAL Arbitration (Mar.

14, 2003)

CME Czech Republic B.V.v. The Czech Republic (Partial Award), UNCITRAL Arbitration

(Sept. 113, 2001)

CMS Gas Transmission Company v. Argentine Republic (Jurisdiction), ICSID Case No.

ARB/01/08 (July 17, 2003), 42 I.L.M 788 (2003)

Compania de Aguas del Aconquiia S.A. v. Argentine Republic (Decision on Annulment),

ICSID Case No. ARB/9/7/3 (July 3, 2002), 41 I.L.M. 1135 (2002)

Compania de Auguas del Aconquiia S.A. v. Argentine Republic (Award), ICSID Case No.

ARB/97/3 (Nov. 21, 2000), 40 I.L.M. 426 (2001)

Compania del Desarrollo de Santa Elena S.A. v. Republic Of Costa Rica (Award), ICSID

Case No. ARB/96/1 (Feb. 17, 2000)

Corfu Channel Case (United Kingdom v. Albania) (Assessment Of Compensation), 1949

I.C.J Rep. 244 (Dec. 15)

Corfu Channel Case (United Kingdom v. Albania) (Merits), 1949 I.C.J. Rep. 4 (Apr. 9)

D


Difference Relating to Immunity from Legal Process of a Special Rapporteur of the

Commission on Human Rights (Advisory Opinion), 1999 I.C.J. Rep. 62 9Apr. 29)

Dispute Between Libyan American Oil Company (LIAMCO) And The Government of the

Libyan Arab Republic Relating To Petroleum Concessions 16,17 and 20, (Apr. 12, 1977), 62

I.L.R. 141

E

Enron Corporation v. The Argentine Republic (Jurisdiction), ICSID Case No. ARB/01/3 (Jan.

14, 2003)

Estate of Pellat (France) v. United Mexican States, R.I.A.A., vol. V, 534 (June 7, 1929)

(English translation provided by Merrill Translations, May3, 2004)

F

Fedax N.V. v. Republic of Venezuela (Award), ICSID Case No. ARB/96/3 (Mar. 9, 1998) 5

ICSID Rep. 200

Feldman v. United Mexican States (Award), ICSID Case No. ARB (AF)/99/1 (Dec. 16, 2002)

Foremost Tehran, Inc. v. The Government of the Islamic Republic of Iran, Award No. 220-

37/231-1 (Apr. 10, 1986), 10 Iran- U.S. Cl. Trib. Rep. 228

H

Himpurna California Energy Ltd. (Bermuda) v. Republic of Indonesia (Interim Award), 15

Mealey’s Arb. Rep. A-1 (Sept. 26, 1999)

I

In the Matter of an Arbitration between the State of Kuwait and American Independent Oil

Company (Amoniol), (Mar. 24, 1982), 66 I.L.R. 518

INA Corp. v. The Government of the Islamic Republic of Iran, Award No. 184-161-1 (Aug.

12, 1985), 8 Iran-U.S Cl. Trib. Rep.373


L

LaGrand Case (Germany v. United States of America) (Merits), 2001 I.C.J. Rep. 466 (June

27)

LaGrand Case (Germany v. United States of America) (Provisional Measures), 1999 I.CJ.

Rep. 9 (Mar 3)

Lanco International, Inc. v. The Argentine Republic (Jurisdiction), ICSID Case No.

ARB/97/6 (Dec. 8, 1998), 40 I.L.M. 457 (2001)

Lusitania Cases (United States v. Germany), R.I.A.A. vol. VII, 32 )Nov. 1, 1923)

M

Maffezini v. The Kingdom of Spain (Award and Rectification), ICSID Case No. ARB/97/7

(Nov. 13, 2000) (Spanish, and English translation)

Maffezini v. The Kingdom of Spain (Jurisdiction), ICSID Case No. ARB/97/7 (Jan. 25, 2000)

(Spanish, and English Translation

Maritime International Nominees Establishment v. The Republic of Guinea (Award), ICSID

Case No. ARB/84/4 (Jan. 6, 1988) 4 ICSID Rep. 61

Metaclad Corporation v. United Mexican States (Award), ICSID Case No. ARB(AF)/97/1

(Aug. 30,2000)

Middle East Cement Shipping and handling Co.S.A. v. Arab Republic of Egypt (Award),

ICSID Case No. ARB/99/6 (Apr. 12, 2002)

Mondev International Ltd. V. United States of America (Award), ICSID Case No.

ARB(AF)/99/2 (Oct. 11, 2002), 42, I.L.M. 85 (2003)

O

Oil Field of Texas, Inc. v. The Government of the Islamic Republic of Iran, Award No. 258-

43-1, (Oct. 8, 1988) 12 Iran-U.S Cl. Trib. 308

P

Pacific Reinsurance Mnagement Corp. v. Ohio Reinsurance, 935 F.2d 1019 (9th

Cir. 1991)


Philips Petroleum Company Iran v. The Islamic Republic of Iran, Award No. 425-39-2 (June

29, 1989), 21 Iran-U.s Cl. Trib. Rep. 79

S

S.D. Myres, Inc. v. Government of Canada (Partial Award) UNCITRAL Arbitration (Nov.

12, 2000), 40 i.l.m 1408 (2001)

Salini Costruttori S.P.A v. Kingdom of Morocco (Jurisdiction), ICSID Case No. ARB/00/4

(July 23, 2001), 129 Journal du Droit International 196 (2002), translated in 42 I.L.M 609

(2003)

Salome Lerma Vda. De Galvan (United Mexican States) v. United States of America,

R.I.A.A. vol. IV, 273 (July21, 1927)

Sapphire International Petroleums Ltd. V. National Iranian Oil Company, (Mar. 15, 1963), 35

I.L.R. 136

Seaco. Inc. v. The Islamic Republic of Iran, Award No. 531-260-2, (June 25, 1992) 28 Iran-

U.S. Cl. Trib. Rep. 198

SGS Societe Generale de Surveillance S.A. v. Republic of the Philippines (Jurisdiction),

ICSID Case No. ARB/02//6 (Jan 29, 2004)

SGS Societe Generale de Surveillance S.A. v.Islamic Republic of Pakistan (Jurisdiction),

ICSID Case No. ARB/01/12 (Aug. 6, 2003)

Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (Award),

ICSID Case No. ARB/84/3 (May 20, 1992), 3 ICSID Rep. 189

Sperry Int’l Trade Inc. v. Israel, 689 F.2d 301 (2d Cir. 1982)

Starrett Housing Corporation v. The Government of the Islamic Republic of Iran

(Interlocutory Award), Award No. ITL 32-24-1, (Dec. 19, 1983), 4 Iran- U.S. Cl. Trib. Rep.

122

T

Tecnicas Medioambientales Tecmed S.A. v. The United Mexican States (Award), ICSID

Case No. ARBZ(AF)/00/2 (May 29, 2003), translated in 43 I.L.M. 133 (2004)


Tippets v. TAMS-AFFA Consulting Engineers of Iran, Award No. 141-7-2 (June 22, 1984), 6

Iran-U.S. Cl. Trib. Rep. 219

U

United Painting Company, Inc. v.v The Islamic Republic of Iran, Award No. 458-11286-3

(Dec. 20, 1989), 23 Iran-U.S Cl. Trib. 351

United States v. Sperry Corp., 493 U.S 52 (1989)

W

Wena Hotels Limited v. Arab Republic of Egypt (Annulment Proceeding), ICSID Case No.

ARB/98/4, (Jan. 28, 2002), 41 I.L.M. 933 (2002)

Wena Hotels Limited v. Arab Republic of Egypt (Award), ICSID Case No. ARB/98/4 (Dec.

8, 2000), 41 I.L.M. 896 (2002)

JOURNALS

A

A.M. Shea, “Discharge from Performance of Contracts by Failure of Condition”, (1979),

Modern Law Review, Volume 42

Andreas Hans Roth, “The Minimum Standard of International Law Applied to

Aliens”,(1949), 127

Alexander Jolles, “Consequences of Multi-tier Arbitration Clauses: Issues of Enforcement”,

(2006), The Chartered Institute of Arbitrators

B

Bruno Zeller, “Determining the Contractual Intent of parties under the CISG and Common

Law – A Comparative Analysis”, (2002), 4 Eur. L.J. Reform 629

C

C. F Amerasinghe, “Jurisdiction of International Tribunals 70”, Kluwer 2003


Christopher F. Dugan, Don Wallace, Jr. Noah Rubins, Borzu Sabahi, “Investor-State

Arbitration”, Oxford University Press, Ch. XVIII, p.56

C. Schreuer, “Consent to Arbitration”

C. Schreuer, “Convention Establishing the Multilateral Investment Guarantee Agency, Oct

11, 1985,Art. 12 (d) (i)

Christopher Schreuer, “The ICSID Convention: A Commentary”, (2001), 191-224,

Cambridge University Press

Christian Kessel Michael J.E. Herington, “Retention of title in English law”, (1994),

International Company and Commercial Law Review

Christopher Koch, “Arbitrability- International and Comparative Perspectives”, (2011),

Arbitration

Christopher Staughton, “Interpretation of (commercial) contracts”, (1990), Arbitration

D

David Foster, “Umbrella clauses - a retreat from the Philippines?”, (2006), International

Arbitration Law Review

Dugan, C. F, Jr. D. W, Rubins, N., Sabahi, B “Governing Law in Investment Disputes”

Investor –State Arbitration, Oxford University Press, p 201

E

E. Jane Sidnell, W. J. Kenny and Debra Curcio- Lister Miller Thomson LLP, “Managing

Consequential Damages in Contracts: Drafting an Enforceable Exclusion Clause”

F

Frank Griffith Dawson, “International Law and the Procedural Rights of Aliens before

National Tribunals”, (1968), 17 Int’l & Comp. L.Q. 404

G

Georges Delume, “Consent to ICSID Arbitration, in The Changing World of International

Law in the Twenty-First Century”,155, 164 (Kluwer 1998)


George K. Foster, “Striking a Balance Between Investor Protections and National

Sovereignty: The Relevance of Local Remedies in Investment Treaty Arbitration”, (2011) 49

Colum. J. Transnat’l L. 201

H

Hakeem Seriki, “Umbrella clauses and investment treaty arbitration: all encompassing or a

respite for sovereign states and state entities?”, (2007)

Hop Xuan Dang, “Jurisdiction Clauses in State Contracts Subject to Bilateral Investment

Treaties”, (2011), International Arbitration Law Review

J

Jolles, A., “Consequences of Multi tier Arbitration Clauses: Issue of Enforcement, The

Chartered Institues of Arbitration”, (2006), London, Sweet & Maxwell

Jeremy Thomas, “Some recent commercial cases on termination for breach of contract” ,

(2001), International Company and Commercial Law Review

Jean-George Betto, “International Arbitration Awards Digest”, (2002), International

Business Law Journal

K

Kathleen Scanlon, Country report for US, in “Enforcement of Multi-tiered Dispute

Resolution Clauses”, IBA Newsletter of Committee D (Arbitration and ADR), Vol.6 No.2,

October 2001

L

L. A. Lawreson, “The Sale of Goods by Description - A Return to Caveat Emptor”, (1991),

M.L.R. 1991, 54(1), 122-126

Loukas A. Mistellis and Stavros L. Brekoulakis, r. by Christopher Koch, “Arbitrability –

International and Comparative Perspectives”, (2011), Publication Review

L.W. Everett, “Waiving Right to Reject Goods”, (1970), Arbitration

M


M. Sornarajah, “The International Law on Foreign Investment 7”,(2004), Cambridge

University Press

O

OECD, “Declaration on International Investment and Multinational Enterprises”, (1976), 15

I.L.M. 967

OECD, “Fair and Equitable Standard in International Investment Law”, (2004) 8 note 32,

Working Papers in International Investment

OECD, “International Investment Law: Understanding Concepts and Tracking Innovations”,

(2008)

OECD, “Interpretation of the Umbrella Clause in Investment Agreements”, (2006), Working

Papers on International Investment

P

Peter Tiersma, “The Language of Silence”, (1995), Rutgers Law Review

Philip Naughton Q.C., Country report for England in “Enforcement of Multi-tiered Dispute

Resolution Clauses”, IBA Newsletter of Committee D (Arbitration and ADR), Vol.6 No.2,

October 2001

R

Robert N. Dobbings, “The Layered Dispute Resolution Clause: from Boilerplate to Business

Opportunity” (2005) Hastings Business Law Journal

S

Sir Robert Jennings & Sir Arthur Watts eds.,“Oppenheim’s International Law”, (1992), 931

Stefan A. Reisenfeld, Foreign Investments, in 8 Encyclopedia of Public International Law

246, (1990), Rudolf Bernhardt ed., Elsevier Science

Stephen M. Schwebel, “Arbitration and the Exhaustion of Local Remedies Revisited”, (1989)

23 Int’l L. 951

Y


YiraSegrera Ayala, “Restoring the Balance in Bilateral Investment Treaties: Incorporating

Human Rights Clauses”, (2009), artículo de investigación

BOOKS

A

Anandan Krishnan, “Words, Phrases & Maxims, Legally &Jusicially Defined”, Lexis Nexis.

Arthur L. Corbin, “Corbin on Contracts”, 1 Volume edn., West Publishing Co.

B

Benjamin J., “Sale of Goods”, 6th

edn., Sweet & Maxwell

Bryan A. Garner, “Black’s Law Dictionary”, 9th

edn., WEST

C

Chitty, “Contracts, Volume-1, General Principles”, 28th

edn., Sweet & Maxwell

Christopher S. Dugan, Don Wallace, Jr., Noah Rubins, BorzuSabahi, “Investor State

Arbitration”, Oxford University Press

G

Gary B. Born, “International Commercial Arbitration, Volume-1”, Wolters Kluwer Law &

Business.

J

J. Beatson, A. Burrows, J. Cartwright, “Anson’sLaw od Contract”, 29th

edn.

L

Lord Mackay of Clashsern, “Halsbury’s Laws of England Volume-41 Sale of goods and

Supply of services”, 4th

edn., Lexis Nexis, Butterworths

P

P. RamanathaAiyar, “Advanced Law Lexicon, The Encyclopaedic Law Dictionary with Legal

Maxims, Latin Terms and Words & Phrases”, 3rd

edn., Lexis Nexis, ButterworthsWadhwa.


S

Stephen Mayson, Derek French & Christopher Ryan, “Company Law”, 23rd

edn., Oxford

University Press.

TREATIES

Analysis of Documents Concerning the Origin and the Formulation of the ICSID

Convention at pp34, 257-258

UK BIT, Art 1 of the Ecuador, (1994)

U.K. - Egypt BIT (1976), Art. 1 (a) (iii) United Nations Centre on Transnational

Corporation, Bilateral Investment Treaties 39 (1988)

US- Democratic Republic of the Congo BIT (1994)

Art. 1 (1) (b) Vienna Convention on the Law of Treaties,

Art. 31 Washington Convention,

Art. 25(1) North American Free Trade Agreement 1993


FACTS HIGHLIGHTS

INTRODUCTION: The Federal Republic of Asiania is a developing country which was

under colonization of Erlandia since 1604 AD. The country got independence to Asiania on

1st January, 1960. Faced with an acute balance of payment crisis in 1995, the Asiania

Government was forced to embark upon a programme of economic liberalization. Related

programs lubricated by a steady, even if initially hesitant, inflow of foreign direct

investments, the Asianian economy grew by an average of 19.5% per year. However, there

was a serious inadequacy of the infrastructure facilities in the country. One of the core

infrastructure facilities is the stable supply of power. The state of power generation and

supply in Asiania at the turn of 1990’s was abysmally low– just 20 % of all demand. While

small increases in power generation were possible to achieve, through coal-based thermal

power plants, these were not good enough.

EGTPC: It was at this juncture that the Europa-Global Traction and Power Corporation

(EGTPC) began taking interest in investing in Asiania. It did have some investments in an

Antarctic country. However, a socialist government came to power and expropriated the

assets of this company. EGTPC was set up in 1971 in Morosova, the capital city of Atlantis.

The majority of the share-holders have been Atlantisians, with some 20% being held by

Erlandians. During a visit of the Prime Minister of Asiania to Morosova in March 1997, the

Government of Atlantis showed intense interest in concluding a reciprocal Investment

Protection Treaty. The treaty was negotiated in right earnest and the Governments of both the

countries authorized their respective ambassadors to the United Nations to execute the treaty

on 27th December, 1997 at the UN and subsequently by an exchange of letters confirmed that

the treaty came into force from the date of its signature. Soon after the return to Atlantis of

the EGTPC delegation, the company made an investment proposal to Asiania. According to

the proposal, EGTPC will, subject to the provision by the Province of Narnia, invest in

setting up two power plants in Narnia, one at Nonbay and the other at Domgiri.

NONBAY PLANT: The Nonbay plant would produce electricity by using liquefied natural

gas, the supply of which was to be contracted by the company with certain OPECs in West

Asia (EGTPC was already facing claims from these countries for breach of contract). The

Narnia Electricity Supply Board (NESB) would then buy this electricity at a stipulated rate

(double the rate for the current thermal power generated electricity). However, in this


arrangement, the plant would have joint ownership of both EGTPC and NESB at the ratio of

60:40.

DOMGIRI PLANT: The Domgiri Project was to be tripartite – between EGTPC, NESB and

Nuclear Power Corporation of Asiania (NPCA). Under this arrangement too, the nuclear

power plant would have joint ownership of EGTPC 60% and NPCA and NESB 40%. The

agreement would be in force for a period of 20 years, at the end of which period NESB could

buy up the entire equity by paying up the initial capital invested by EGTPC, namely US

$2650 million, plus the value of any additional funds invested in the plant.

PROPOSAL: The EGTPC proposal further revealed that the company would be raising the

above initial amounts (US $750 million + 2650 million) from a consortium of nine banks led

by Europa-Global Bank, an associate of the group of which EGTPC is a part. The cost of

servicing this loan would be added on to the liabilities of the above two plants. The loan

documentation would indicate not only EGTPC, but also NESB and NPCA as co-debtors.

The documents detailing these transactions would be as follows:

i. A Memorandum of Understanding between EGTPC and the Government of Asiania;

ii. An investment agreement in respect of Nonbay Plant and Domgiri Plant.

iii. An Indemnity and Guarantee by the Governments of Narnia and Asiania;

iv. A loan agreement between the Consortium of banks on the one side, and EGTPC, the

Governments of Asiania and Narnia on the other side.

v. An agreement between EGTPC and NESB, and another between the company and

NESB and NPCA on the modalities of reversion of full ownership to the plants upon

expiry of 20 years.

vi. An overarching agreement for notice to cure defaults.

After detailed discussion among the delegation of the company, and the Governments of

Asiania, Narnia and Atlantis, the proposal was accepted, despite the reservations expressed

by a World Bank expert group which evaluated the project proposal and concluded that it was

“not economically viable, and thus could not be financed by the Bank.”

ENVIRONMENTAL CONCERNS: However, there was unrest among the citizens

regarding this plant, in order the assuage the feelings of the general public, the National

Nuclear Regulatory Commission of Asiania made a special study.The Asiania Ministry of

Environment also cleared both the Plants after public hearings and extensive examination by


experts. EGTPC’s proposal was finally accepted. Even as the deal with EGTPC was being

considered, several NGOs began protesting against it. The Centre for Environmental

Litigation, a prominent NGO filed public interest litigation before the High Court of Narnia.

The High Court dismissed the petition as too premature.

DEFAULTS: Nonbay, its Phase I began producing electricity by 1st July, 2002, and its

Phase II was completed in 2005. The Domgiri Plant was declared critical on 25th March

2010, and soon began supplying power to NESB. However, trouble began with Domgiri Plant

from the month of May 2010, when the initial production in March-April itself was at least

25% short of the optimum promised by the company. The company replied that there was

nothing technically wrong with the centrifuge or the technology employed for the plant

however when the Nuclear Regulatory Commission of the Federation of Asiania gave its

considered view in November that the Centrifuge did not function or was not restored to the

standards originally contracted and that the company had breached its warranty as to fitness

of the Plant.

In early December, 2010 this “star-crossed” Plant (as described by the local Media) plunged

into further problems for a number of reasons. The supply of light water contracted by

EGTPC with the Nuclear Power Corporation of Atlantis was disrupted as a result of an earth

quake of high intensity in the latter’s light water plant. In March 2011 this brought the parties

opposing the EGTPC deal to power. They began clamouring for renegotiation of the entire

arrangement. Consequently, NESB began defaulting its payments to EGTPC for the power

supplied to it. Thirdly, there was a serious labour trouble in Nonbay Plant with a violent clash

of two powerful labour unions over the issue of underpayment. Finally, there was also a

change in the equity holding of EGTPC– 75% of the shares have now come to be acquired by

Erlandians.

THE SUIT: Not receiving the contracted supply of power from EGTPC, NESB went to court

seeking attachment before judgment. The attachment was ordered, the company went on

appeal to the High Court which was rejected. EGTPC complained of this to the Governments

of Atlantis and Asiania. EGTPC has now invoked the compromisory clause and The Court of

Arbitration, sitting in London taking into account of the convenience of the Parties, is now

ready to hear the parties.


QUESTIONS PRESENTED

1. WHETHER OR NOT THE COMPANY BREACHED THEIR WARRANTY AS TO

FITNESS SPECIFICALLY UNDERTAKEN THROUGH THE MEMORANDUM OF

UNDERSTANDING

2. WHETHER OR NOT THE EXPROPRIATION OF THE CLAIMANT COMPANY

THROUGH ATTACHMENT IS IN VIOLATION OF INTERNATIONAL LAW

3. WHETHER OR NOT THE FEDERAL REPUBLIC OF ASIANIA HAS FAILED TO

ACCORD “FAIR AND EQUITABLE TREATMENT TO THE CLAIMANTS”

INVESTMENT UNDER ARTICLE 2(3) OF THE TREATY IN NONBAY AND

DOMGIRI POWER PLANT PROJECT

4. WHETHER OR NOT THE EXTENT OF GOVERNMENT OF ASIANIA

RESPONSIBILITY FOR THE CONDUCT OF OTHER ORGANS AND ENTITIES

MAKES STATE LIABLE


SUMMARY OF ARGUMENTS

ISSUE 1: WHETHER OR NOT THE COMPANY BREACHED THEIR WARRANTY

AS TO FITNESS SPECIFICALLY UNDERTAKEN IN THE MEMORANDUM OF

UNDERSTANDING

Claimant has breached the condition of Warranty as to fitness as per the terms undertaken in

the MOU. The Memorandum of Understanding between The Federal Republic of Asiania and

EGTPC expressly mentions the liability of EGTPC on warranty as to fitness and quality of

the entire plant and its various components as an essential element of the contract between

them. The breach of warranty as to fitness and quality was a breach of essential element of

the contract between Asiania and EGTPC and in turn led to to the termination of the

Agreements.

ISSUE 2: WHETHER OR NOT THE GOVERNMENT OF ASIANIA HAS IN

VIOLATION OF ARTICLE 3 OF THE TREATY, EXPROPRIATED THE

CLAIMANT’S INVESTMENT IN THE NONBAY PLANT, OR SUBJECTED TO

MEASURES TANTAMOUNTING TO EXPROPRIATION

The claimants bear the general burden of proof in establishing that there has been a violation

of Asiania’s treaty obligations, as well as the particular burden of proof in relation to any

allegation of fact or assertions of law on which the claimants rely. In order to meet their

burden of proof, the claimant must establish the various elements of their case to standard of

‘reasonable probability’.

ISSUE 3: WHETHER OR NOT THE FEDERAL REPUBLIC OF ASIANIA HAS IN

VIOLATION OF ARTICLE 2(3) OF THE TREATY, FAILED TO ACCORD “FAIR

AND EQUITABLE TREATMENT TO THE CLAIMANTS” INVESTMENT IN

NONBAY AND DOMGIRI POWER PLANT PROJECT

Claimants bear the burden the proof in establishing that there has been a breach by the

Respondent Government of its Treaty Obligations, and that burden requires the Claimants to

establish the various elements of their case to a standard of ‘reasonable Probability’. The

‘measures ‘can be discerned in the circumstances of which the claimants complain, those

measures have to either discriminatory or arbitrary before any question arises of there being a


breach of Article 2(3). Here, the Respondent will refer only to the question of discriminatory

treatment.

ISSUE 4: WHETHER OR NOT THE EXTENT OF GOVERNMENT OF ASIANIA

RESPONSIBILITY FOR THE CONDUCT OF OTHER ORGANS AND ENTITIES

MAKES STATE LIABLE

The state responsibility cannot be applied in cases as it falls under the exception to this

principle. As the claimant’s conduct is not attributable to the respondent, claimant cannot be

considered organ of the state. It was not acting on behalf of the state, or exercising an official

public governmental role when performing acts whose attributability is in question. Nor was

claimant exercising elements of governmental authority or acting under the control or at the

direction of Government of Narnia or Government of Asiania when performing the relevant

acts.


ARGUMENTS ADVANCED

ISSUE 1

THE COMPANY BREACHED THEIR WARRANTY AS TO FITNESS

SPECIFICALLY UNDERTAKEN THROUGH THE MEMORANDUM OF

UNDERSTANDING

1.1 It is humbly submitted that the Claimant has breached the condition of Warranty as to

fitness as per the terms undertaken in the MOU. Under the principle of implied warranty,

products (goods or services) must be fit for the 'ordinary' use for which they are intended.

But where the manufacturer knows the buyer's particular use and the buyer relies on the

seller's expertise or judgment in choosing the product then an 'implied warranty for fitness

for a particular purpose' is created.1 In other words, the seller warranties that the product

will be fit for the buyer's specific use. In the present matter the production of the

promised amount of electricity was the need and any reason as to any deficiency in

production led to a breach in implied warranty for fitness for a particular purpose.

1.2 Here EGTPC was well aware of the amount of electricity to be produced and the non-

functioning of the centrifuge created a breach. The outcome should be no different where

the seller does not specifically make a promise or an affirmation of fact that the goods

being offered would be suitable for the buyer's particular needs so long as the trier of fact

can reasonably infer from the factual circumstances that the seller had reason to know of

the buyer's purpose in wanting to purchase them and that the buyer was relying on the

seller's skill or judgment to furnish such goods.

1.3 In virtually every case where a party sues for breach of implied warranty for a particular

purpose, the party should also assert a cause of action for breach of an express warranty

based on the seller's promise or affirmation inferred from the facts.2 The Memorandum of

Understanding between The Federal Republic of Asiania and EGTPC expressly mentions

the liability of EGTPC on warranty as to fitness and quality of the entire plant and its

1 U.C.C. § 2-315. The buyer, of course, must actually be relying on the seller.” (Official Comment 1 to § 2-

315)

2 Sometimes a party alleges only a claim for breach of an implied warranty of fitness for a particular purpose.

See Kokomo Opalescent Glass Co. v. Arthur W. Schmid Intern., Inc., 371 F.2d 208 (7th Cir. 1966);

Outlook Windows Partnership v. York Intern. Corp., 112 F. Supp. 2d 877, 43 U.C.C. Rep. Serv. 2d 546 (D.

Neb. 2000); Circle Land and Cattle Corp. v. Amoco Oil Co., 232 Kan. 482, 657 P.2d 532, 35 U.C.C. Rep.

Serv. 403 (1983); Handy v. Holland Furnace Co., 11 Wis. 2d 151, 105 N.W.2d 299 (1960); Frisken v. Art

Strand Floor Coverings, 47 Wash. 2d 587, 288 P.2d 1087 (1955)


various components as an essential element of the contract between them.3 The non

restoration of the centrifuge to the original standards and short production of electricity

was an express breach of the contract. Even though a notice period was provided for

rectifying the problem, EGTPC couldn’t rectify the same.4 Thus, agreement between

EGTPC and Asiania stands terminated.

1.4 The breach of warranty as to fitness and quality was a breach of essential element of the

contract between Asiania and EGTPC. Article I (2) of Agreement Concerning the

Requirements of Notice to Cure Defaults and Settlement of Disputes defines “Serious

default” or “Grave Default” as the violation of an essential element of the contract5, and

in the present fact and circumstances the defaulting of the warranty as to fitness and

quality by EGTPC is expressly mentioned to be an essential element under the MOU.

1.5 Also, Article II of Agreement Concerning the Requirements of Notice to Cure Defaults

and Settlement of Disputes6 provides that in case of any “Serious Breach” the agreement

stands terminated and any further obligation or liability arising from contract stands

terminated.

3 Annexure 3 ¶ 33(3): An investment agreement in respect of Domgiri Plant between the company, NESB and

NPCA, with the Governments of Narnia and Asiania underwriting it: the agreement shall stipulate that

NESB shall purchase electric power solely from this plant and Domgiri Plant at a specified rates, to the

exclusion of any other sources of power in Asiania or elsewhere and that EGTPC shall undertake to assure

the warranty as to quality and fitness of the entire Plant and its various components, as an essential element

of the contract;

4 ¶ 22 of the compromis

5 Article I (2) “Serious default” or “grave breach” includes violation of an essential element of contract in

respect of and in the context of each such agreement.

6 Article II“Serious default” or “grave breach” includes violation of an essential element of contractin respect

of and in the context of each such agreement


ISSUE 2

THE GOVERNMENT OF ASIANIA HAS NOT, IN VIOLATION OF ARTICLE 3 OF

THE TREATY, EXPROPRIATED THE CLAIMANT’S INVESTMENT IN THE

NONBAY PLANT, OR SUBJECTED TO MEASURES AMOUNTING TO

EXPROPRIATION

A. The claimants carry the burden of proof

2.1 The claimants bear the general burden of proof in establishing that there has been a

violation of Asiania’s treaty obligations, as well as the particular burden of proof in

relation to any allegation of fact or assertions of law on which the claimants rely.

2.2 In order to meet their burden of proof, the claimant must establish the various elements of

their case to standard of ‘reasonable probability’.

2.3 In this general context, the Respondent recalls that the general presumption of good faith

implies for the benefit of the host state as much as the benefit of the investor. In any

particular case, it is for the party seeking to overturn that presumption and asserting that

there has been a lack of good faith to prove its assertions. Bad faith- particularly on the

part of the state-is a serious allegation to make, and the burden of establishing that the

allegation is true is a heavy one.

B. Loss of or Damage to an Investment Does not of Itself mean that there has been a

Violation of an International Obligations

2.4 Investing in a foreign country is a commercial act. The investing company seeks its own

advantage, usually in the form of profits, and knowingly incurs certain commercial risks.

The mere fact that the advantages which were foreseen have not in fact materialised, or

have materialised to a lesser extent than was expected, does not in and of itself mean that

anything wrongful has occurred, either in terms of the applicable local law or in terms of

a Treaty designed to protect foreign investments. By undertaking commercial operations,

the foreign investor knows that it runs various risks, and it has no grounds for complaint

just because those risks have become reality. The possibility of loss is the inevitable

downside of the prospect of commercial profit.


2.5 Thus in Case Concerning The Barcelona Traction, Light and Power Company, Limited

(Second Phase)7, where the Court, in particular the position of prejudice suffered by the

shareholders through loss and damage to the assets of the company in which they held

shares, observed that:

“Persons suffer damage or harm in most varied circumstances. This in itself does not

involve the obligation to make reparation.”8

2.6 In Azinian v. United Mexican States9 an ICSID Tribunal was called upon to consider the

operation of the investment protection provisions of the North American Free Trade

Agreement (‘NAFTA”). The Tribunal noted that:

“a foreign investor entitled in principle to protection under NAFTA may enter into

contractual relations with a public authority, and may suffer a breach by the authority,

and still not be in a position to state a claim under NAFTA. It is fact of life everywhere

that individuals may be disappointed in their dealings with public authorities, and

disappointed yet again when national courts reject their complaints.”10

2.7 The rejection of claim, like a loss of property, is not necessarily and in itself a breach of a

treaty provision designed to protect a foreign investor’s property.

2.8 Similarly in Waste Management v. Mexico11

the Tribunal noted that:

“It is not the function of the International law of expropriation as reflected in [the

applicable non-expropriation treaty article] to eliminate the normal commercial risks f a

foreign investor, or to place on Mexico the burden of compensating for the failure of a

business plan which was, in the circumstances, founded on too narrow a client base and

dependent for its success on unsustainable about customer uptake and contractual

performance. A failing enterprise is not expropriated just because debts are not paid or

other contractual obligations are not fulfilled.”12

Lack of commercial success is not

tantamount to expropriation.

7 1970 ICJ. Rep. No. 3,

8 Ibid.,page 37, paragraph 46.

9 ICSID Case No. ARB(AF)/97/2

10 Ibid., page 23, paragraph 83, emphasis is original.

11 ICSID Case No. RB(AF)/00/3

12 Ibid., page 67, paragraph 177.


C. Article 3 of the Treaty

2.9 The substantive provision in the agreement which seeks to protect foreign investors from

being deprived of their investment by the host State is the first sentence of paragraph 1 of

Article 3 of the Treaty. This reads:

“Investments shall not be expropriated or nationalized either directly or indirectly

through measures tantamount to expropriation or nationalization ("expropriation")

except (1)for a public purpose;(2) in a non-discriminatory manner; (3) upon payment of

appropriate compensation; and (4) in accordance with due process of law and the

general principles of treatment provided for in Article II(3).”

2.10 The rest of that paragraph (1) deals with the assessment of compensation. Paragraph

(2) of Article 3 provides that an investor affected by the expropriation has a right to a

review of his or its case by an independent authority. None of these provisions is directly

relevant to the principal obligation not to nationalize or expropriate foreign investments

2.11 The claimants do not allege any nationalization of their investment, nor has been of

any such nationalization. No question of nationalization therefore arises in this

arbitration. The claimants’ allegations relate solely to expropriation. The claimants do not

allege any direct or express formal expropriation of their investment, nor has there been

any such expropriation. No question of direct or express formal expropriation therefore

arises in this arbitration.

D. The law related to a foreign investment being subjected to measures tantamount to

expropriation

2.12 “Taking of property” has been defined by in paragraph 3 of article 10 of the Draft

Convention on the Responsibility of States for Injuries to Aliens13

(And does not define

“expropriation” as asserted by the claimants).

13

See Revised Draft: International Responsibility of the State for Injuries caused in its Territory to the Person

and Property of Alians, Arts. 12-14, U.N. Doc. 1/CN.4/34/Add. 1 (1961); Roberto Ago, Third Report on

State Responsibility, ¶¶ 175, 176, U.N. Doc. A/CN.4/246 and Add. 1-3 (1971); Draft Articles on State

Responsibility of 1980, Arts. 7-8, Y.B. Int’l L. Comm’n, vol. II, 30 (1980); Draft Articles on State

Responsibility of 1996, Art. 5, Y.B. Int’l L. Comm’n, vol. II, part 2, 58 (1996); International Law

Commission, Commentaries to the Draft Articles on Responsibility of States for Internationally Wrongful

Acts, at 84-92, U.N. GAOR, 56th

Sess.,Supp. No. 10, UN. Doc. A/56/10, chp.IV.E.2 (2001). The Articles

on Responsibility of Sates for Internationally Wrongful Acts, with their commentaries, were finally adopted

by the International Law Commission on August 9, 2001. James Crawford, International Law


“Not only an outright taking of property but also may such unreasonable interference

wiith the use, enjoyment, or disposal of property as to justify an inference that the owner

thereof will not be able to use, enjoy, or dispose of the property within a reasonable

period of time after the inception of such inference”.14

2.13 The Draft does not provide that all the interference constitute a taking of property, but

only those which are “unreasonable”: in the Explanatory Note accompanying Article 10

the authors state that:

“The unreasonable of an interference with the use, enjoyment, or disposal of property

must be determined in conformity with the general principles of law recognized by the

principal legal systems of the world. No attempt has been made to popularize on the

expression used in the text, since the matter seems one best worked out by international

tribunals.”15

2.14 By referring only to “unreasonable” interference with the use, etc. of property, the

Draft acknowledges that even where loss is caused; if it is the result of reasonable

interference it will not constitute expropriation.

2.15 In S.D.Myers v. Canada16

, The Tribunal said:

“The term “expropriation” in Article 1110 must be interpreted in light of the whole body

of state practice, treaties and judicial interpretations of that term in International law

cases. In general, the term “expropriation” carries with it the condition of a “taking” by a

governmental-type authority of person’s “property” with a view to transferring

ownership of the property to another person, usually the authority that exercised its de

jure de facto power to the “taking”…The general body of precedent usually does not

treat regulatory action as amounting to expropriation. Expropriations tend to involve the

deprivation of ownership rights, regulations a lesser interference. The distinction

between expropriation and regulation screens out most potential cases of complaints

concerning economic intervention by a state and reduces the risk that governments will

be subject to claims as they go about business of managing public affairs.”17

Commission’s Articles on State Responsibity: Introduction and Commentaries, at IX-X (Cambridge Univ.

Press 2002)

14 Ibid, page 553

15 Ibid, page 559

16 UNCITRAL Arbitration (Nov. 13, 2000), 40 I.L.M. 1408 (2001) 17

Ibid ¶ 280, 69


2.16 In the recent award in Waste Management v. Mexico18

the tribunal considered

whether the conduct of Mexican authorities was tantamount to expropriation of the

investor’s interprise as such. It held that it was not. Even though the city had failed to

make available land needed for the full operation of the enterprise,“…a failure by a State

to provide its own land to an enterprise for some purpose is not converted into an

expropriation of the interprise just because the failure involves a breach of contract”.

2.17 The Tribunal appears to have treated expropriation as requiring something like an

“arbitrary intervention by the state amounting to a virtual taking or sterilising of the

enterprise”19

or the “outright repudiation of the transactions”20

- “arbitrary” and

“outright repudiation” are the tests, and both exclude effects upon an investment which

result from reasonable measures taken by the governmental authorities within the law.

2.18 It is thus clearly established that the mere fact that loss has been suffered by a foreign

investor does not mean that the investment has been expropriated.In the present case,

Asiania has not expropriated EGTPC’S investment. It attached the assets of the company

as compensation for not providing the required amount of power. This act of the company

was in accordance with the law.

E. The Claimant’s Claim to Compensation

2.19 The claimants assert that Asiania’s expropriatory actions have resulted in the total loss

of value of the claimants’ investments, but that no compensation has been paid, provided

for or offered, contrary to the requirements of Article 3(1) of the Treaty.

2.20 For the reasons set out earlier, The Respondent denies that conduct for which the

Government of Asiania is responsible has involved any measures that tantamount to

expropriation, and accordingly no question of the payment of compensation under Article

3(1)21

arises. Moreover, the Respondent denies that the Claimants have suffered a total

loss of the value of their investments, as asserted by the Claimants.

18

ICSID Case No. ARB(AF)/00/3

19 Page 60, paragraph 160.

20 Ibid.

21 Treaty, Art 3


ISSUE 3

THE FEDERAL REPUBLIC OF ASIANIA HAS NOT, IN VIOLATION OF ARTICLE

2(3) OF THE TREATY, FAILED TO ACCORD “FAIR AND EQUITABLE

TREATMENT TO THE CLAIMANTS” INVESTMENT IN NONBAY AND

DOMGIRI POWER PLANT PROJECT

3.1 In this case, the Claimants bear the burden the proof in establishing that there has been a

breach by the Respondent Government of its Treaty Obligations, and that burden requires

the Claimants to establish the various elements of their case to a standard of ‘reasonable

Probability’. The general Presumption is that the Respondent has acted in good faith and

in so far as the claimants seek to deny the Presumption, the burden of doing so rests with

the Claimants. The loss or damage to Investments does not of itself mean there has been a

violation of international obligation.

ARTICLE 2(3)

3.2 The Primary treaty obligation in the present context is Article 2(3) of the treaty. This

reads “Investment shall at times be accorded fair and equitable treatment; shall enjoy full

protection and security and shall in no case be accorded treatment less than that required

by international law.

(a) Neither Party shall in any way impair or impede by arbitrary or discriminatory

measures the management, operation, maintenance, use, enjoyment, acquisition,

expansion or disposal of investment.”

3.3 It is first to be noted that this provision is in two parts.

(i) The First sentence requires investments and returns of investors to be “accorded

fair and equitable treatment”

(ii) The second sentence , which is not expressed to exemplify ‘Fair and equitable

treatment’ sets out a separate obligation not to impair or impede the management

etc.., of investments, but limits this degree of protection to the application of

arbitrary or discriminatory measures”

A. Unreasonable or Discriminatory Measures


3.4 The Claimants case does not fall in this context because their investment was subject to

measures as mentioned under Article 3(1) of the Treaty.

3.5 The ‘measures ‘can be discerned in the circumstances of which the claimants complain,

those measures have to either discriminatory or arbitrary before any question arises of

there being a breach of Article 2(3). Here, the Respondent will refer only to the question

of discriminatory treatment.

B. Fair and Equitable Treatment

Treaty Interpretation

3.6 Since the requirement to accord ‘Fair and Equitable Treatment’ is set out in the treaty, the

meaning to be given to those terms is determined in accordance with the rules of

international law governing the interpretation of treaties.

3.7 The basic, general rule (which is also a rule of customary international law) is set out in

Article 31 (1) of the Vienna Convention on the law of treaties 1969. It 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”

3.8 Article 31 (2) elaborates on what is meant by the context of a treaty and Article 31(3)

sets out certain other matters which are to be taken into account together with the context.

Article 31(4) refers to the special meanings given to a term if parties so intended.

3.9 These various provisions do not in practice, and for present purposes, contribute

substantially to discerning in a manner which can be applied practically, the meaning to

be given to the terms “Fair and Equitable” beyond the requirement that those terms must

be understood in their ordinary meaning.

C. Importance of Surrounding Circumstances

3.10 What seems beyond question is that in any given case that meaning is heavily

circumstance-specific and fact-specific, and allows for a large measure of objective

appreciation of the relevant facts. Moreover, ‘fair and equitable’ both when taken together

and when considered individually, is a relative notion rather than an absolute one. The

notion of fair and equitable implies a relationship between the treatment accorded and

external factors. What is a fair or equitable will be affected by the surrounding

circumstances.


3.11 To similar effect an UNCITRAL Tribunal, in its Award of 3rd

September 2001 in

Lauder V. Czech Republic, said

“In the context of bilateral investment treaties, the fair and equitable standard is

subjective and heavily depends on a factual context.”22

3.12 As it was put by a NAFTA Tribunal, in its award of 11 October 2002 in Mondev v.

United states of America:“A Judgment of what is fair and equitable cannot be reached in

the abstract; it must depend on the facts of the particular case. It is a essential business of

courts and tribunals to make judgment such as these.”23

D. Loss Per Se, and Simple Wrongfulness, Do not establish that Treatment is Unfair and

Inequitable

3.13 It is also apparent that treatment is not unfair or inequitable for the sole reason that it

has occasioned some loss to an affected person. Loss by itself does not make the

treatment occasioning the loss unfair or inequitable.

3.14 As with the expropriation, so too in the present context it has to be recalled that “as

investment tribunals have repeatedly said, ‘Investment Treaties are not insurance policies

against bad business judgments.”24

3.15 It is particularly the case that loss does not in itself amount to unfair and inequitable

treatment where the treatment involves no wrongful conducts on the part of the Host

State. Even where wrongful or otherwise improper conduct is in the issue, what may be

termed ‘ordinary’ impropriety of treatment does not make it a breach of the obligation to

accord fair and equitable treatment; to reach the threshold some degree of particular

gravity in the impropriety is called for.

E. Decisions of international tribunals

3.16 Certain decisions of international tribunals are indicative of the sort of treatment

which has been held would not transgress the “fair and equitable” standard. In

UNCITRAL Tribunal, in its award of 3rd

September 2001 in Lauder v. Czech

22

UNCITRAL Arbitration (3rd

September 2001), page 67, paragraph 292, Respondents Legal Authorities M.

23 ARB(AF)-99-2 (Oct 11, 2002) , 42 I.L.M. 85 (2003)

24 Waste Management v. Mexico.


Republic25

,was called upon to consider, in the light of the treaty obligation to afford fair

and equitable treatment, the circumstances surrounding the conduct of the Czech

Authorities (primarily the media council) in relation to the grant and withdrawal of

certain exclusive rights to engage in media activities. The tribunal, in holding that there

had been no failure to accord fair and equitable treatment, took the existence or otherwise

of “inconsistent conduct” on the part of the media council as the touchstone for

determining whether there had been fair and equitable treatment, and found no such

inconsistent conduct to have been established; there had been, in the tribunal’s view,

objective and reasonable grounds for the various actions or inactions of the media council

of which complaint was made.

3.17 Essentially the same set of circumstances gave rise to an opposite conclusion a few

days late by another UNCITRAL tribunal in its partial award of 13th

September 2001 in

CME Czech Republic B. v. Czech Republic. The tribunal found that the media Council

had intentionally undermined the claimants investment it had “breached its obligations of

fair and equitable treatment by evisceration of the arrangements in reliance upon with

the foreign investor was induced to invest.” The tribunal did not, however, explain in any

detail how it had reached this conclusion, having previously set out all the facts at length

in considering the principal claim of expropriation. In relation to fair and equitable

treatment the tribunal would have relied upon the media council having acted

intentionally to achieve a wrongful purpose.

3.18 The allegation that the Project was cancelled without justification has already been

addressed and shown to be itself unjustified. There were good grounds for the recession

of PPA, turning in particular on the conduct of the EGTPC. While the Claimants do not

consider the recession was lawful, the relevant Asiania Parties take a different View of

the legal position; and the issue has been submitted to the relevant Asiania’s Tribunals. It

is with respect, not for this tribunal to decide the merits of that dispute as to the meaning

and effects of the relevant laws. The Point for this tribunal to determine (apart from any

relevant question from attributality) is whether the Asiania Parties, by holding different

views from those of claimants were, by the fact alone, acting in any unfairly or

inequitably. The Respondent Government submits that a host respondent government

does not act unfairly or inequitably simply by holding legal view which differs from those

of the investor, and taking such action is appropriate to maintain its views.

25

Lauder v. Czech Republic (Partial Award) on 3rd September, 2001


3.19 There was also an ill intention on the part of EGTPC. The Contract made by them

with the Govt of Asiania was also based on unfair and inequitable terms. The Investment

is said to be genuine when the investor also takes risk but in this all the amount of loan is

to be repaid by the Govt. of Asiania and Narnia and if any defaults it is to be charged first

on their assets. Moreover, if any losses suffered by the EGTPC and there was an

indemnity and guarantee by the Govt. of Asiania and Narnia.

F. Denial of Justice

3.20 As previously noted, the Claimants choose to bring into their claims of alleged

expropriation the quite separate question of the alleged denial of justice to which they had

been subjected.

3.21 There can never be complaint against the Respondent for the denial of justice just

because there under Article 6 it has been expressly mentioned that any of the parties can

resort to the local remedies and this has been in this case and the decisions of the local

remedies or local tribunals if not in their favor then it cannot be regarded be the decision

of the tribunal unfair and inequitable.

3.22 In relation to denial of justice generally in international law, three things are clear,

i. International tribunals are not courts of appeal from decisions of local courts; as it was

put in Waste Management v. Mexico, the tribunal was “not a forum for the resolution

of contractual disputes” and “is not a further a court of appeal”. And in Azinian v.

Mexico26

, the tribunal said that

“The Possibility of holding a state internationally liable for judicial decisions does

not, however entitles a claimant to seek international review of the national court

decisions as though the international jurisdiction seized has plenary appellate

jurisdiction. This is not true generally, and it is not true for NAFTA” 27

ii. The mere fact that the local courts find against a foreign investor does not constitute a

denial of justice;

iii. There is similarity no denial of justice in the mere fact that the local courts might have

come to a decision which, in its terms of the local law which they were applying, was

arguably or even certainly wrong. This is apparent from the Judgment of a chamber of

26

ICSID Case No. ARB(AF)/97/2 (Nov. 1, 1999)

27 Ibid.,Page 29 , Paragraph 29


the ICJ in the Electronica Sicula28

case. In that case although the initial requisition of

the foreign investor’s property by the Mayor had been held by the Italian courts to

have been ultra vires as a matter of Italian Law, this was held not to have made the

conduct of the Italian Authorities Internationally wrongful. To similar Effect was the

finding of the tribunal in ADF Group v. United States of America29

that showing an

act to be ultra vires under the internal law of the state

“…by itself does not necessarily render the measures grossly unfair or inequitable

under the customary international law standard of treatment embodied in Article

1105(1)….Something more than Simple illegality or lack of authority under the

domestic law of a state is necessary”30

3.23 What is needed if a denial of justice is to be established is that the behavior of the

local courts demonstrates serious inadequacies in the administration of justice, or that

there has been obvious and malicious misapplication of the law by those courts, or (where

there has been an erroneous application of the law by the local courts) the result

constitutes either a breach of a treaty obligation or, possibly, a result so manifestly unjust

as to offend against the standards of justice recognized by civilized nations. Many

decisions testify to these requirements which have to be satisfied before a claim of denial

of Justice can be upheld.

3.24 In Mondev v. United States31

a NAFTA tribunal formulated the test to be applied in

the context of denial of Justice arising from decisions of Domestic Courts as follows:

“The test is not whether a particular result is surprising, but whether the shock or surprise

occasioned to an impartial leads, on reflection to justified concerns as to the judicial

propriety of the outcome, bearing in mind on the one hand that international tribunals are

not courts of appeal, and on the other hand that Chapter 11 of NAFTA( like other treaties

for the protection of investments) is intended to provide a real measure of protection. In

the end the question is whether, at an international level and having regard to generally

accepted standards of the administration of justice a tribunal can conclude in the light of

all the available facts that the impugned decision was clearly improper and discreditable,

28

1989 I.C.J. Rep 15 (July 20)

29 (ICSID Case No. ARB(AF)/00/1)

30 Ibid, Page 282, Paragraph 190

31 ICSID Case No. ARB(AF)/99/2 (Oct. 11, 2002), 42 I.L.M. 85 (2003)


with the result that the investment has been subjected to unfair and inequitable

treatment.”32

3.25 It can from nowhere be proved that the judicial System to which they had recourse

was so defective as to result in a denial of justice in violation of international law. It can

be from nowhere proved that the particular decision reached by the local Tribunals,

whose standing and independence is beyond question, have in those proceedings

demonstrated serious inadequacies in the administration of justice, or that they have

obviously and maliciously misapplied the law, or that they have erroneously applied the

law, or that their decisions have led to a result so manifestly unjust as to offend against

the standards of justice. The decisions of Asiania Courts are correct as a matter of

Asiania Law.

32

Ibid.,Page 110, paragraph 127


ISSUE 4

THE EXTENT OF GOVERNMENT OF ASIANIA RESPONSIBILITY FOR THE

CONDUCT OF OTHER ORGANS AND ENTITIES MAKES STATE LIABLE

4.1 It is humbly submitted that the Government of Asiania will not be held responsible for the

acts of NESB, NNPC and Government of Narnia. At the level of international law, the

question at issue is treated as one of determining whose conduct is to be attributed to a

State for the purposes of engaging its international responsibility. That question of

attributability is one of customary international law, there being no governing general

treaty on the same.

4.2 Consideration of the current state of customary international law may conveniently begin

with the Articles on State Responsibility adopted by the International Law Commission33

(“ILC”) in 2001 and taken note of by the United Nations General Assembly in Resolution

56/83 of 12 December 2001. Those Articles are not a treaty, and although they were

‘taken note of by the General Assembly, they were not formally adopted or approved by

the Assembly. The terms of the Articles accordingly are useful guide to the present state

of customary international law, but are not a definitive statement of it.

4.3 In the commentary this is amplified as requiring “that in each case the entity is

empowered by the law of the State to exercise functions of a public character normally

exercised by State organs”34

. As the ILC further explained, the decisive feature in such

33

International Law Commission’s Articles on State Responsibility: Introduction and Commentaries

(Cambridge Univ. Press 2002)

34

313 See Revised Draft: International Responsibility of the State for Injuries caused in its Territory to the

Person and Property of Aliens, Arts. 12-14, U.N. Doc. 1/CN.4/34/Add. 1 (1961); Roberto Ago, Third

Report on State Responsibility, ¶¶ 175, 176, U.N. Doc. A/CN.4/246 and Add. 1-3 (1971); Draft Articles on

State Responsibility of 1980, Arts. 7-8, Y.B. Int’l L. Comm’n, vol. II, 30 (1980); Draft Articles on State



Acts, at 84-92, U.N. GAOR, 56th Sess.,Supp. No. 10, UN. Doc. A/56/10, chp.IV.E.2 (2001). The Articles



Commission’s Articles on State Responsibility: Introduction and Commentaries, at IX-X (Cambridge Univ.

Press 2002) 313 See Revised Draft: International Responsibility of the State for Injuries caused in its

Territory to the Person and Property of Aliens, Arts. 12-14, U.N. Doc. 1/CN.4/34/Add. 1 (1961); Roberto

Ago, Third Report on State Responsibility, ¶¶ 175, 176, U.N. Doc. A/CN.4/246 and Add. 1-3 (1971); Draft

Articles on State Responsibility of 1980, Arts. 7-8, Y.B. Int’l L. Comm’n, vol. II, 30 (1980); Draft Articles

on State Responsibility of 1996, Art. 5, Y.B. Int’l L. Comm’n, vol. II, part 2, 58 (1996); International Law


Acts, at 84-92, U.N. GAOR, 56th Sess.,Supp. No. 10, UN. Doc. A/56/10, chp.IV.E.2 (2001). The Articles




cases is “that these entities are empowered, if only to a limited extent or in a specific

context, to exercise specified elements of governmental authority.”35

Moreover, “the

conduct of an entity must accordingly concern governmental activity and not other

private or commercial activity in which the entity may engage”36

. The example then given

illustrates clearly the distinction which has to be drawn:

“Thus, for example, the conduct of a railway company to which certain police powers

have been granted will be regarded as an act of the State under international law if it

concerns the exercise of those powers, but not if it concerns other activities (e.g. the sale

of tickets or the purchase of rolling-stock).

4.4 The ILC also addressed the issue in its Commentary to Draft Article 2 of its draft articles

on State Immunity, where the ILC observed that in its draft Articles on State

Responsibility it had taken the view that “government authority” meant the same as

prerogatives de la puissance publique de l’Etat37

. The respondent submits that

‘governmental’ in this respect concerns the act of governance and means ‘the exercise of

sovereign authority within the general administration of the affairs of the State and in

interests of the community as a whole and not primarily for commercial purposes.’

Governmental functions are those which require the backing of the sovereign power, and

are thus incapable of being performed by private person or entities. If the entities in

question are not ‘governmental’, or at least were not exercising ‘governmental’ powers,

they are not “State Organs” and their acts are not attributable to Government of Asiania.

A. Article 8 of the Articles on state Responsibility

4.5 Apart from such situations in which an entity has been empowered by the state to exercise

elements of governmental authority, Article 8 of the Articles of State Responsibility

envisages a further situation where the conduct of somebody which is not a “State Organ”

can be attributed to the state. Article 8 reads:

4.6 “Article 8 Conduct directed or controlled by a state


Press 2002) 35

Ibid.

36

Ibid.

37

YBILC (43rd

Session, 1991), vol. II, Chapter 2:See Article 2, Commentary, paragraph (12) footnote 36,

paragraphs (14)and (15)


The conduct of a person’s shall be considered an act of a state under international law if

the person or group of persons is in fact acting on the instructions of, or under the

directions or control of, that state is carrying out the conduct.”

4.7 The ILC’s Commentary on Article 8 makes several important elements:

1. “As a general principle, the conduct of private persons or entities is not attributable

to the state under international law”(Commentary, Page 103, Paragraph (1))

2. There is an exception to this general principle in two situations- “The first involves

private persons acting on the instructions of the state in carrying out the wrongful

conduct. The second deals with a more general situation where private persons act

under the state’s direction or control” ( Commentary, Page 104, Paragraph (1))

3. The first category is seen by the ILC involving primarily situations “where state

organs supplement their action by recruiting or instigating private persons or groups

who act as “auxiliaries” while remaining outside the official structure of the state” (

Commentary, Page 104, Paragraph (3))

4. The second category of act “ will be attributable to the state only if it is directed or

controlled the specific operation and the conduct complained of was an integral part

of the operation”

(Commentary, Page 104, Paragraph (4))

5. The ILC relied on the analysis of the matter by the ICJ in Military and Paramilitary

Activities in and against Nicaragua38

, in which the acts of the socio-called ‘contras’

were held not to be attributable to the United States, even though the United States

was found to have given support to them and was held responsible for its own support

to them and was held responsible for its own support for the ‘contras’ (Commentary,

Paragraph (4))

6. So far as concerns state-owned and controlled companies and enterprises, the ILC

noted, in paragraph (6) of the commentary on Article 8 that-

a. “international law acknowledges the general separateness of corporate entities at

the national level”

b. “the fact that state initially establishes a corporate entity, whether by a special

law or otherwise, is not sufficient basis for the attribution to the state of the

subsequent conduct of that entity”

38

(Nicaragua v. United States of America)(Merits), 1986 I.C.J. Rep. (June 27)


c. “Since corporate entities, although owned by and in that sense subject to the

control of the state, are considered to be separate, prima facie their conduct in

carrying out their activities is not attributable to the state”, i.e. the presumption is

one of non-attributality of conduct of the state;

d. But this is subject to “unless they are exercising elements of governmental

authority”: the example is given of conduct being attributed to a state in situations

in which “there was evidence that the corporation was exercising public powers

or that the State was using its ownership interest in or control of a corporation

specifically in order to achieve a particular result” i.e. the burden lies with the

party asserting that the exception to the general presumption applies;

e. The existence of the necessary degree of state authorization, control or direction is

a matter of fact, for which adequate evidence is necessary. “Each case will depend

on its facts, in particular those concerning the relationship between the

instructions given or direction or control exercised and the specific conduct

complained of….the instructions, direction or control must relate to the conduct

which is said to have amounted to an internationally wrongful act” (commentary,

Paragraph (7))

B. The law of State Immunity

4.8 The need for an entity, if its acts are to be attributable to the State, to have a close

connexion with the exercise of governmental authority in the State in respect of those

aspects of its conduct which are alleged to be wrongful is consistent with the law in the

analogous area of State immunity. Entities which are legally separate from the State may

in certain circumstances nevertheless be entitled to share in the jurisdictional immunity

which the States enjoys. The ILC adopted draft Articles on State Immunity in 1991.39

4.9 These have subsequently been considered and amended by the Ad Hoc Committee on

jurisdictional Immunities of States and Their Property of the UN General Assembly

which adopted them in March 2004. Article 2(1)(b) of the draft of the Convention as

adopted by the Ad Hoc Committee40

contains the following definition of “State”:

“(b) “State” means”

39

YBILC (1991) Volume II, Chapter 2.

40

UN Supplement No. 22 (A/59/22), page 5.


(i) The state and its various organs of government;

(ii) Constituent units of a federal State or political subdivisions of the State, which are

entitled to perform acts in the exercise of the sovereign authority, and are acting in

that capacity;

(iii) Agencies or instrumentalities of the State or other entities, to the extent that they

are entitled to perform and are actually performing acts in the exercise of

sovereign authority of the State;

(iv) Representatives of the state acting in the capacity;”

4.10 This definition shows that “organs of govt” (sub paragraph (i)) are essentially

different from agencies, instrumentalities or other entities (sub paragraph (iii)), and that

agencies, instrumentalities or other entities are only within definition of “State” in so far

as they are entitled to perform and are actually performing acts in the exercise of

sovereign authority of the State (a term which the ILC used as equivalent to prerogatives

de la puissance publique41

). The ILC’s Commentary to draft Article 2 makes it clear that

“State enterprises or other entities established by the State performing commercial

transactions…are presumed not to be entitled to perform governmental functions, and

accordingly, a rule, are not entitled to invoke immunity from jurisdiction of the courts of

another State” (paragraph (15)).

4.11 Since, as already noted, the ILC’s Articles on State Responsibility are not a definitive

statement of the present state of customary international law, it is helpful to refer to

certain other statements which also purport to reflect customary international law.

C. Decisions of International Courts and Tribunals

4.12 In AMCO Asia Corporation v. Republic of Indonesia42

the claimants contended that

the Respondent Government had, through a State organ or agency known as “PT Wisma”,

expropriated its investment in a hotel. PT Wisma had initially been established by the

Bank of Indonesia and an Indonesian private investor, but by the time material to the

dispute, had been wholly purchased by Inkopad, an army-based cooperative whose

purpose was to provide for the welfare of military personnel and their depedents. The

41

ILC Draft Articles on State Immunity, Article 2, Commentary, paragraph (12) footnote 36, paragraphs (12),

(14)and (15)

42

(Award, Supplemental Decisions and Rectification, Resubmitted case), ICSID Case No. ARB/81/1 (Oct.

10,1990), 1 ICSID Rep. 569


respondent Government denied that PT Wisma’s acts could be attributed to it. In the

original award43

an ICSID Tribunal upheld the Respondent’s position. In doing so the

tribunal:

“Accepts that PT Wisma is registered as a limited liability company and that the acts of

such entities are not normally to be attributed to their shareholders.”

4.13 So far as PT Wisma’s activities were linked to the Indonesian army, the tribunal

acknowledged:

“That some economic activities which in some countries are taken care of by private or

public owned companies are run in Indonesia by people who belong to or are retired from

the military establishment. This fact cannot in the opinion of the Tribunal change the

legal evaluation that PT Wisma is an economic entity which has its own profit-seeking

goal. This goal is by nature not different from the objective of other private economic

entities, but is certainly very different from the normal purpose of a government: i.e.

public administration in its widest sense.”

4.14 The position is well illustrated by the decision of a NAFTA (ICSID- Additional

Facility) tribunal on 30 April 2004 in Waste Management Inc. v. United Mexican

States44

. The case involved a claim against Mexico based on the allegedly unlawful

conduct of the City of Acapulco, the State of Guerrero and a banking entity known as

Banobras. Mexico did not deny that the conduct of the first two was attributable to

Mexico, but the status of Banobras was more difficult. It was a development bank partly-

owned and substantially controlled by Mexican Government agencies, and had the

general objective of promoting and financing activities carried out by the Federal, State

and Municipal Governments of Mexico. Shares in Banobras were divided between the

public and private sector, with the former holding a minimum of 66%. The tribunal

concluded that “From the material available to the Tribunal it is doubtful whether

Banobras is an organ of the Mexican State within the meaning of Article 4 of the ILC’s

Articles on Responsibility of States for Internatinally Wrongful Acts…The mere fact that

a separate entity is majority owned or substantially controlled by the state does not make

it ipso facto an organ of the state. Nor it is clear that in its dealing with the City and the

43

The tribunal’s Award of 20 November 1984 was the subject of various consequent proceedings: ILR, vol.

89, pp. 514, 552, 580, 658. The holding of the original Award in relation to the status of PT Wisma was

expressly treated as “definitively determined” and as “res judicata” in the decision on Jurisdiction in the

resubmitted case.

44

ICSID Case No. ARB(AF)/00/3


State in terms of the line of credit it was exercising governmental authority within the

meaning of Article 5 of those Articles.”45

4.15 Although the tribunal was prepared to assume for purposes of argument that the

conduct of Banobras was attributable to Mexico, it made it clear that this was indeed

purely for the sake of argument (and thus not a decision reached by the tribunal), and in

the event the tribunal found that Banobras’ conduct did not involve any internationally

wrongful conduct. It may also be noted that the tribunal similarly found that Mexico’s

Permanent Commission of Commercial Arbitration of the National Chamber of

Commerce was not a State organ.

4.16 From the foregoing review of the law which determines whether an entity’s acts are

attributable to the state, the following elements can be seen of central importance.

1. The law of Asiania is relevant to, but not decisive as to entity’s status as an organ of

the state, its exercise of governmental authority and its subjection to the direction or

control of the state.

2. The fact that a state has established a separate company does b ot by itself mean that

its conduct is attributable to the state.

3. The conduct of state owned and state controlled companies with separate legal

personality is presumed not to be attributable to the state.

4. A private entity’s conduct is presumed not to be attributable to the state.

D. The status of the various entities

1. In the light of the legal requirements set out above the particular relationships

between the Government of Asiania and Government of Narnia on the other hand and

the various entities on the other, can be assessed.

45

See Revised Draft: International Responsibility of the State for Injuries caused in its Territory to the Person

and Property of Aliens, Arts. 12-14, U.N. Doc. 1/CN.4/34/Add. 1 (1961); Roberto Ago, Third Report on

State Responsibility, ¶¶ 175, 176, U.N. Doc. A/CN.4/246 and Add. 1-3 (1971); Draft Articles on State

Responsibility of 1980, Arts. 7-8, Y.B. Int’l L. Comm’n, vol. II, 30 (1980); Draft Articles on State



Acts, at 84-92, U.N. GAOR, 56th

Sess.,Supp. No. 10, UN. Doc. A/56/10, chp.IV.E.2 (2001). The Articles




Press 2002)


2. The Respondents contends that all the actions of Government of Asiania and

Government of Narnia in relation to their respective guarantees were clearly made in

the exercise of private and commercial functions rather than public or governmental

acts.

3. The relationships between Government of Asiania and Government of Narnia and the

relevant entities have to be considered on a case by case basis.

E. Narnia Electricity Supply Board

1. Most of NESB’s funding comes from the sale and distribution of electricity. NESB,

thus secures some of its funding from Government of Narnia but this is done by way

of loans at commercial rates of interest. These loans are repaid by NESB in

accordance with each loan’s terms and conditions and agreed tenure.

2. NESB operates independently of Government of Asiania although Government of

Asiania is entitled to give policy directions to NESB.

3. The acts of NESB which are relevant to this claim were purely commercial in nature

and were performed by NESB independently of Government of Asiania.

Accordingly, NESB conduct is not attributable to the respondent, NESB cannot be

considered organ of the state. It was not acting on behalf of the state, or exercising an

official public governmental role when performing acts whose attributability is in

question. Nor was NESB exercising elements of governmental authority or acting under

the control or at the direction of Government of Narnia or Government of Asiania when

performing the relevant acts.

F. National Nuclear Power Corporation of Asiania

1. NNPC is a public limited company and is not a state organ or a company carrying out

governmental functions. It was purely a commercial company. It’s main motive was

to make profit making.

2. The Government of Asiania did not have control over the functioning of NNPC

rather it had only control on policy matters

4.17Accordingly, NNPC conduct is not attributable to the respondent, NNPC cannot be

considered organ of the state. It was not acting on behalf of the state, or exercising an

official public governmental role when performing acts whose attributability is in


question. Nor was NNPC exercising elements of governmental authority or acting

under the control or at the direction of Government of Narnia or Government of

Asiania when performing the relevant acts


CONCLUSION AND PRAYER FOR RELIEF

In light of the facts of the case, issues raised, arguments advanced and authorities cited,

Counsel for Respondent respectfully requests the Tribunal to adjudge and declare that:

1) The claimants are not entitled for appropriation of the assets

2) The claimants are not entitled for the “Fair and Equitable Compensation” as there has

been no treaty violation in that respect by the respondent

3) The claimant are liable for breach of warranty as to fitness specifically undertaken

through the memorandum of understanding

4) The respondent are not liable for any breach as per the principle of state

responsibility

5) All other contracts and agreements with the claimant should be terminated owing to

the grave nature of the breach

All of which is respectfully affirmed and submitted

Counsel for Respondent