TEAM SKOTNIKOV, MEMORIAL FOR CLAIMANT … · FOREIGN DIRECT INVESTMENT INTERNATIONAL ARBITRATION MOOT, 2017 V MEMORIAL FOR CLAIMANT 19 Loewen V USA Loewen Group, Inc. v. United States

TEAM SKOTNIKOV, MEMORIAL FOR CLAIMANT

FOREIGN DIRECT INVESTMENT INTERNATIONAL ARBITRATION MOOT 2ND -5TH NOVEMBER 2017

___________________________________________________________________________

PERMANENT COURT OF ARBITRATION

In the Proceeding Between

ATTON BORO LIMTED (Claimant)

Vs

REPUBLIC OF MERCURIA (Respondent)

MEMORIAL FOR CLAIMANT

FOREIGN DIRECT INVESTMENT INTERNATIONAL ARBITRATION MOOT, 2017

I MEMORIAL FOR CLAIMANT

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................................................................... I

TABLE OF AUTHORITIES ........................................................................................................................................ III

I. CASES: ............................................................................................................................... III

II. BOOKS, ARTICLES AND REPORTS ....................................................................... VIII

STATEMENT OF FACTS ....................................................................................................................................... - 1 -

ARGUMENTS ...................................................................................................................................................... - 3 -

I. PART 1: JURISDICTION ............................................................................................. - 3 -

A. The tribunal has jurisdiction rationae materiae in the dispute ............................................................... - 3 -

B. The respondent State has NOT rightfully denied the benefits of this BIT to the investors under Article 2 of

the BIT .............................................................................................................................................................. - 5 - i. The Respondent has not exercised its right to deny the benefits of this BIT in a timely manner. ........................ - 6 -

a. The invocation of the Denial of Benefits Clause at the time of the Response to the Notice of Arbitration is in

violation of the established principles of international law. ..................................................................................... - 6 - b. The invocation of the Clause is in violation of the legitimate expectations of the investor. ........................... - 7 - c. The retrospective application of the Denial of Benefits Clause is violative of the objects and purposes of the

BIT. - 8 - ii. The objective requirements for the exercise of the Denial of Benefits Clause have not been satisfied in the

instant case. ................................................................................................................................................................... - 9 - a. The investor is not owned and controlled by nationals of a third State. ....................................................... - 10 - b. The Claimant undertakes substantial business activities in its State of incorporation i.e., Basheera. ........... - 11 -

iii. The burden of proving the satisfaction of the rationae materiae and rationae temporis requirements lay upon

the Respondent. ........................................................................................................................................................... - 12 -

II. PART 2: MERITS ........................................................................................................ - 12 -

A. RESPONDENT HAS UNLAWFULLY EXPROPRIATED CLAIMANT’S PROPERTY .......................................... - 12 - i. Respondent’s issuance of a compulsory license constitutes an Indirect expropriation under the BIT ............... - 13 -

a. Respondent’s compulsory license amounts to taking.................................................................................... - 13 - 1. Respondent’s grant of compulsory license substantially deprives Claimant of the use, enjoyment, and

control of its patent. ........................................................................................................................................... - 14 - 2. Respondent’s grant of Compulsory license adversely effects the economic benefits and economic value of

Claimant’s patent................................................................................................................................................ - 15 - 3. Claimant’s reasonable and legitimate expectation for the investment from the patent regime has been

violated ............................................................................................................................................................... - 15 - ii. The Compulsory license issued by the Respondent amounts to unlawful indirect expropriation ...................... - 17 -

a. The issuance of compulsory license does not serve the objective of public welfare ..................................... - 17 - b. The issuance of compulsory license is not in accordance with the legal provisions and procedures of the

Respondent ............................................................................................................................................................. - 18 - c. The compensation offered by the Respondent is no adequate ..................................................................... - 20 -

iii. RESPONDENT HAS BREACHED ITS OBLIGATIONS UNDER ITNERNATIONAL LAW ............................................... - 21 - a. The Respondent did not comply with Article 31(b) ....................................................................................... - 21 - b. The Respondent did not comply with Article 31(c) ........................................................................................ - 21 -


II MEMORIAL FOR CLAIMANT

c. The Respondent did not comply with Article 31(g) ....................................................................................... - 21 - d. The Respondent did not comply with Article 31(h) ....................................................................................... - 22 -

iv. RESPONDENT FAILED TO PROVIDE A FAIR AND EQUITABLE STANDARD OF TREATMENT TO THE INVESTMENTS OF

THE CLAIMANT ............................................................................................................................................................. - 22 - a. The actions of the Respondent was “arbitrary, grossly unfair, unjust and idiosyncratic” ............................. - 24 -

v. Respondent has failed to provide due process to an extent which amounts to arbitrariness. .......................... - 24 - vi. Regulatory Measure by the State does not fall under the Police Powers Doctrine ............................................ - 25 -

B. Mercuria has breached its obligations under international law ........................................................... - 25 - i. Mercuria has committed an Internationally Wrongful Act ................................................................................. - 26 - ii. Art. 3 of the BIT ................................................................................................................................................... - 26 - iii. Violation of the Basic International Law Standard: ............................................................................................ - 27 - iv. Violation of the ‘Effective Means’ Standard: ...................................................................................................... - 28 - v. Violation of the New York Convention ............................................................................................................... - 29 - vi. Breach of the International Obligation by the Judiciary is attributable to the State .......................................... - 30 -

C. The Umbrella Clause can be invoked, elevating the claim of Atton Boro to a treaty claim. ................. - 31 - i. THE TRIBUNAL MUST ADOPT THE BROAD INTERPRETAION OF THE UMBRELLA CLAUSE IN ARTICLE 3(3) ......... - 31 - ii. The Claimants submit that the acts of the NHA are indeed attributable to the Republic of Mercuria. ............. - 33 -

a. The NHA was indeed empowered to exercise elements of governmental authority. ................................... - 33 - b. The NHA, in terminating the LTA, violated its international obligations. ....................................................... - 36 -

EXHIBIT- I ......................................................................................................................................................... - 37 -


III MEMORIAL FOR CLAIMANT

TABLE OF AUTHORITIES

I. CASES:

S. No. Cited as Full Citation

1 DRC v Belgium Case Concerning the Arrest Warrant of 11 April 2000 (Democratic

Republic of the Congo v. Belgium), 14 February 2002, I.C.J.

Reports 2002

2 Nicaragua v USA Military and Paramilitary Activities in and against Nicaragua

(Nicaragua v. United States of America), Merits, I.C.J. Reports

1986

3 Hungary v Slovakia G kovo-Nagymaros Project (Hungary/Slovakia), I.C.J. Reports

1997

4 ELSI Elettronica Sicula SpA (ELSI) (U.S. v. Italy), ICJ Judgment, 1989

I.C.J. Reports 15 (20 Jul. 1989).

5 Amco v Indonesia, Amco Asia Corp. et al. v Indonesia, ICSID Case No. ARB/81/1,

Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports

392-397

6 Plama v Bulgaria Plama Consortium Ltd v Bulgaria, ICSID No. ARB/03/24,

Decision on Jurisdiction, 8 February 2005

7 Siemens v Argentina Siemens A.G. v Argentina, ICSID Case No. ARB/02/8, Decision

on Jurisdiction, 3 August 2004

8 Tecmed v Mexico Tecnicas Medioambientes S.A. v The United Mexican States,

Award, 43 I.L.M. 133 (2004), 29 May 2003

9 Tokios Tokeles v Ukraine Tokios Tokeles v Ukraine, ICSID No. ARB/02/18, Decision on

Jurisdiction, 29 April


IV MEMORIAL FOR CLAIMANT

2004

10 Pac Rim v El Salvador Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No.

ARB/09/12, Decision on the Respondent‟s Prelimin ry O jections

under CAFTA Articles 10.20.4 and 10.20.5, 2 August 2010

11 Vivendi v Argentina Compania de Aguas del Aconquija S.A. and Vivendi Universal

S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Decision

on Jurisdiction, 14 November 2005

12

Generation Ukraine v

Ukraine.

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

Award, 15 September 2003.

13 LETCO v Liberia Liberian Eastern Timber Corporation v. Republic of Liberia,

ICSID Case No. ARB/83/2, Award, 31 March 1986

14 Saipem V Bangladesh Saipem v. Bangladesh, ICSID Case No. ARB/05/07, Decision on

Jurisdiction and Recommendation on Provisional Measures

(March 21, 2007);

15 GEA V Ukraine GEA v. Ukraine, ICSID Case No. ARB/08/16, Award (March 28,

2011).

16 Salini V Morocco Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of

Morocco, Decision on Jurisdiction, ICSID Case No. ARB/00/4 (23

July, 2001)

17 Duke energy v Ecuador, Duke Energy v. Ecu dor, ICSID C se No ARB/04/19 Aw rd,

(August 18, 2008).

18 Azinian V United Mexican

State

Azinian v. United Mexican State, ICSID Case No. ARB(AF)/97/2,

Award, 1 November 1999


V MEMORIAL FOR CLAIMANT

19 Loewen V USA Loewen Group, Inc. v. United States (ICSID Case No.

ARB(AF)/98/3), Award, 26 Jun. 2003

20 Pey Casado v Chile Victor Pey Casado and President Allende Foundation v. Republic

of Chile; ICSID CaseNo.ARB/98/2.

21 SGS v. Philippines SGS Société Générale de Surveillance S.A. v. Republic of the

Philippines, (ICSID Case No. ARB/02/6), Award

22 SGS v. Pakistan SGS Société Générale de Surveillance S.A. v. Islamic Republic of

Pakistan, (ICSID Case No. ARB/01/13), Award

23 Eureko v. Poland Eureko B.V. v. Republic of Poland, Partial Award

24 Noble Ventures Noble Ventures, Inc. v. Romania, (ICSID Case No. ARB/01/11),

Award

25 El Paso v. Argentina

El Paso Energy International Company v. Argentine Republic

(ICSID Case No. ARB/03/15)

26 CMS v. Argentina CMS Gas Transmission Company v. The Argentine Republic

(ICSID Case No. ARB/01/8)

27 Toto v. Lebanon Toto Costruzioni Generali S.p.A. v. Republic of Lebanon (ICSID

Case No. ARB/07/12)

28 Sempra v. Argentina Sempra Energy International v Argentine Republic, (ICSID Case

No ARB/02/16)

29 Maffezini v Spain Emilio Agustin Maffezini v. The Kingdom of Spain, ICSID Case

No. ARB/97/7, Decision of the Tribunal on Objections to

Jurisdiction, 25 January 2000.


VI MEMORIAL FOR CLAIMANT

30 Jan De Nul v Egypt Jan de Nul N.V. and Dredging International N.V. v. Arab Republic

of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008

31 Thunderbird v Mexico International Thunderbird Gaming Corporation v United Mexican

States, Ad hoc UNCITRAL Arbitration, Award, IIC 136 (2006

32 White Industries v India White Industries Australia Limited v. The Republic of India,

Award, UNCITRAL (30 November, 2011)

33 Mytilineous Holdings v

Serbia

Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and

Republic of Serbia, Partial Award on Jurisdiction, UNCITRAL

Arbitration Proceedings (8 September, 2006)

34 GAI v Bolivia. Guaracachi America, Inc. v. The Plurinational State Of Bolivia,

PCA Case No. 2011-17, Award, 31 January 2014

35 Yukos v Russia. Yukos Universal Limited (Isle Of Man) v. The Russian Federation,

PCA Case No. AA 227, Interim Award on Jurisdiction and

Admissibility, 30 November 2009.

36 Hulley v Russia. Hulley Enterprises Limited (Cyprus) v. The Russian Federation,

PCA Case No. AA 226, Interim Award on Jurisdiction and

Admissibility, 30 November 2009.

37 Ulysseas v Ecuador. Ulysseas, Inc. v. The Republic of Ecuador, Interim Award, 28

September 2010.

38 Chevron v Ecuador Chevron v. Ecuador, PCA Case No. 34877, Interim Award (Dec.

1, 2008)

39 LLC Amto v Ukraine Limited Liability Company Amto v. Ukraine, ARBITRATION №

080/2005, Final Award, 26 March 2008.


VII MEMORIAL FOR CLAIMANT

40 Salvador Salvador Commercial Company case, UNRIAA, vol. XV, p. 455

(1902)

41 Chattin Chattin case, UNRIAA, vol. IV, p. 282 (1927)

42 ITT v. Iran ITT Industries, Inc. v The Islamic Republic of Iran et al., Award of

26 May 1983, 2 Iran-US C.T.R. 348

43 Metalclad Metalclad Corp. v. United Mexican States, Award, 30 August

2000, 5 ICSID Reports (2002)

44 Occidental Exploration v.

Equador

Occidental Exploration and Production Co v. Republic of

Ecuador (Award) [2004] LCIA Case No UN 3467

(UNCITRAL)

45 SD Myers v Canada SD Myers Inc.v Government of Canada (Partial Award)

UNICTRAL Arbitration.

46 BG Group v. Argentina BG Group Plc v. The Republic of Argentina, UNCITRAL

(UK/Argentina BIT), Award, 24 December 2007

47 Santa Elena

Compafiia del Desarrollo de Santa Elena S.A. v. Republic of

Costa Rica, ICSID Case No ARB/96/1, Award (17 February

2000) (Fortier, Lauterpacht, Weil), Para 72

48 Saluka Saluka Investments BV v. Czech Republic (Partial Award),

[2006] UNCITRAL/PCA

49 Glamis

Glamis Gold, Ltd. v. The United States of America (Award),

[2009] UNCITRAL

50 Neer Neer v. Mexico, [1926] 4 R Int'l Arb Awards

51 Occidental Occidental Exploration and Production Co v. Republic of Ecuador

(Award) [2004] LCIA Case No UN 3467 (UNCITRAL)


VIII MEMORIAL FOR CLAIMANT

II. BOOKS, ARTICLES AND REPORTS

S. NO. Cited as Full citation

1 McLachlan, Shore&

Weiniger

Campbell McLachlan, Laurence Shore, and Matthew Weiniger,

International Investment Arbitration: Substantive Principles,

(Oxford University Press, 2007

2 Gibson Christopher Gibson, A Look at the Compulsory License in

Investment Arbitration: The Case of Indirect Expropriation,

American University International Law Review Vol. 25, Suffolk

University Law School Research Paper No. 09 – 32.

3 Paulsson & Douglas Jan Paulsson & Zachary Douglas, Indirect Expropriation in

Investment Treaty Arbitrations, in ARBITRATING FOREIGN

INVESTMENT DISPUTES 145, 145-46 (Norbert Horn & Stefan

Kröll eds., 2004)

4 Dolzer &Schreuer Rudolf Dolzer and Christoph Schreuer, Principles of International

Investment Law (Oxford University Press, 2008)

5 Zaveri N.B Zaveri, PATENTS FOR FUTURE, 1st ed. 2004

6 Carvalho Nuno Pires de Carvalho, THE TRIPS REGIME OF PATENT

RIGHTS, 2nd ed.2005

7 Abbott & Van

Puymbroeck

Frederick M. Abbott and Rudolf V. Van Puymbroeck,

Compulsory Licensing For Public Health: A Guide And Model

Documents For The Implementation Of Doha Declaration, World

Bank Working Paper no. 61.

8 Bronfman MK Bronfm n, „F ir nd Equitable Treatment: An Evolving

St nd rd‟(2005) 38 Estudios Internacionales

9 State Responsibility

Articles Commentary

Report of the International Law Commission on the work of its

Fifty-third session, Official Records of the General Assembly,


IX MEMORIAL FOR CLAIMANT

Fifty-sixth session, Supplement No. 10 (A/56/10), chp.IV.E.2,

Commentaries on the Draft Articles on Responsibility of States for

Internationally Wrongful Acts, November 2001.

10 Yannaca-Small Yannaca-Sm ll, K. (2006), “Interpret tion of the Um rell Cl use

in Investment Agreements”, OECD Working Papers on

International Investment, 2006/03, OECD Publishing.

http://dx.doi.org/10.1787/4154538145

11 Matthew Wedtlandt Matthew Wedtlandt, SGS v. Philippines and the Role of ICSID

Tribunals in Investor-State Contract Disputes , TILJ

12 Prosper Weil Prosper Weil, Recueil des Cours III 1969 pp. 132 et seq.

13 Dimitri Euler Dimitri Euler, Umbrella Clauses in Treaty-Based Investor-State

Arbitration: What is the Applicable Law on Obligations with

Regard to Investments?

14 OECD Draft Convention

on the Protection of

Foreign Property

OECD Draft Convention on the Protection of Foreign Property, 1967

15 Elvira Gadelshina Elvir R. G delshin , 'Burden of Proof Under the „Deni l-of- Benefits‟

Clause of the Energy Charter Treaty: Actori Incumbit Onus Probandi?',

Journal of International Arbitration, (© Kluwer Law International;

Kluwer Law International 2012, Volume 29 Issue 3)

16 Crina Baltag. Crina Baltag, The Energy Charter Treaty: The Notion of Investor,

Chapter 3- Natural Persons and Legal Entities as Investors Under the

ECT

17 Gardiner Richard Gardiner, Treaty Interpretation (Oxford, OUP, 2008)

18 Maximilian Maximilian Clasmeier , Arbitral Awards as Investments: Treaty

Interpretation and the Dynamics of International Investment Law,

International Arbitration Law Library

19 Jan Paulsson Jan Paulsson, Denial Of Justice In International Law 1 (Cambridge

http://dx.doi.org/10.1787/4154538145


X MEMORIAL FOR CLAIMANT

University Press, 2005)

20 Sattorova Mavluda Sattorova, Denial of justice disguised? Investment arbitration

and the protection of foreign investors from judicial misconduct,

I.C.L.Q. 236 (2012).

21 Malik, Practice Series Mahnaz Malik, Best Practices Series Bulletin #3: Fair and Equitable

Treatment (International Instituted for Sustainable Development,

September 2009), available at

http://www.iisd.org/pdf/2009/best_practices_bulletin_3.pdf.

22 Brofman, Evolving FET

Standards

MK Bronfm n, „F ir nd Equit le Tre tment: An Evolving

St nd rd‟(2005) 38 Estudios Internacionales

23 Schruer on Investment

Law

Rudolf Dolzer & Christopher Schreuer, Principles of International

Investment Law (first published 2008, OUP)


- 1 - MEMORIAL FOR CLAIMANT

STATEMENT OF FACTS

(¶ 1.) Atton Boro nd Comp ny is corpor tion org nized under the l ws of the People‟s

Repu lic of Reef (“Reef”) nd cts s the prim ry holding comp ny for Atton Boro Group,

leading drug discovery and development enterprise After years of intensive research, Atton Boro

Group synthesized a compound called Valtervite, aimed at the Greyscale patients. They also

obtained a patent for Valtervite.

(¶ 2.) In April 1998, Atton Boro Group incorporated a wholly owned subsidiary in Basheera,

Atton Boro Limited (“Atton Boro”), as a vehicle for carrying on business in South American and

Afric n countries. Atton Boro Group h d n est lished presence in B sheer ‟s ph rm ceutic l

market.

(¶ 3.) It entered the Mercurian market. The treatment available in Mercuria was only effective

if the infection was detected at very early stages, and even then, it required taking 5 to 7 pills

every d y. M ny p rts of the world h d moved to the novel fixed dose com in tions (“FDC”)

contained in a single pill.

(¶ 4.) In May 2004, the NHA wrote an invitation to Atton Boro to make an offer for supplying

its FDC drug, which it marketed under the brand name of Sanior. Following a protracted

negotiation process and evaluation of competing offers, the NHA and Atton Boro entered into a

Long-Term Agreement (“LTA”). Under the LTA, the NHA would purchase Sanior from Atton

Boro at a 25% discounted rate by periodically placing purchase orders. Clause 6 of the agreement

laid down that the agreement is valid for a period of ten years and can be terminated in case of

unsatisfactory performance of the supplier.

(¶ 5.) The NHA campaign involved actively conducting awareness workshops in educational

institutions and workplaces to encourage people to be tested regularly. The NHA annual report

2006 estimated that nearly 50% of all adults were getting themselves tested every six months, as

compared to just over 17% in 2003. The number of patients coming into care grew, the order

value for Sanior doubled with each quarter in 2007. Atton Boro reassured the NHA that it had

built capacity to meet the rising demand, and offered a further discount of 10% for the remaining

period of the LTA. The NHA rejected this offer, and demanded an additional discount of 40%,

stating that it would be compelled to terminate the agreement if its terms were not met.

(¶ 6.) On 10 June 2008, the NHA terminated the LTA, citing unsatisfactory performance by

Atton Boro. Atton Boro invoked arbitration against the NHA under the LTA. In January 2009, a



Tri un l se ted in Reef p ssed n w rd (the “Aw rd”) in f vour of the Cl im nt, finding that the

NHA had breached the LTA by terminating it prematurely.

(¶ 7.) On 3 March 2009, Atton Boro filed enforcement proceedings before the High Court of

Mercuria. The NHA filed its response in the matter, requesting the Court to decline enforcement

of the Award on the ground that it was contrary to public policy. The matter is still pending

before the court and the same has not even gone past the jurisdiction stage.

(¶ 8.) On 10 October 2009, the President of Mercuria promulgated National Legislation for its

Intellectual Property Law which introduced a provision allowing for the use of patented

inventions without the authorization of the owner. In November 2009, HG-Pharma, a Mercurian

generic drug manufacturer, filed an application before the High Court under the new provision,

seeking grant of a licence to manufacture Valtervite. The Court heard the matter through a fast-

tracked process and granted HG-Pharma a licence on 17 April of 2010 to manufacture Valtervite

until greyscale was no longer a threat to public health in Mercuria. The Court fixed the royalty to

be paid to Atton Boro at 1% of total earnings.

(¶ 9.) Three neighbouring States of Mercuria carried letters from their respective government

offices expressing gratitude for the greyscale medicines received in the form of humanitarian aid

from Mercuria. By 2014, Atton Boro had lost nearly two-thirds of its market share to the generic

FDC pill. AttonBoro has initiated arbitration under the Mercuria-Basheera BIT for violation of

various substantive rights therein.



ARGUMENTS

I. PART 1: JURISDICTION

(¶ 1.) The Claimant has instituted arbitration in front of the present Tribunal against the

Respondent y issuing Notice of Ar itr tion d ted Novem er 7, 2016 (“Notice”) pursu nt to

Article 3 of the PCA Ar itr tion Rules 2012 (“PCA Rules”).

(¶ 2.) It is submitted that the tribunal has jurisdiction rationae materiae to hear the dispute. The

arbitral award constitutes an investment and therefore qualifies for the invocation of the BIT. It is

also submitted that the denial of benefits clause has been invoked in a timely manner and all the

objective criteria has been met.

A. THE TRIBUNAL HAS JURISDICTION RATIONAE MATERIAE IN THE DISPUTE

Arbitral award falls within the definition of Investment under the BIT

(¶ 3.) The arbitral award falls under the definition of investment under article 1 of the BIT.1

Ordinary meaning is to be given to the terms of the treaty in their context and in the light of its

object and purpose. 2 This provision is based on the idea that the interpretation of a treaty must be

based above all on its text, r ther th n the “intention of the p rties” to it, s the text is presumed in

international law to be the most faithful expression of the common intention of the parties.3 The

Vienna Rules on Treaty Interpretation aim to establish the true meaning of the text of the treaty.

In order to find this meaning, it is necessary, nevertheless, to read the provisions of the two BITs

as a whole, having recourse to the context and purpose of the treaty. The tribunal is thus,

respectfully requested to take into account in its interpretation, the purpose of the BIT, which is to

“protect” nd “promote” investments etween the two countries.

(¶ 4.) The Ar itr l w rd f lls under the he d of “Cl ims to money” under 1(c) of the BIT. In

Saipem v. Bangladesh4, the tribunal considered that an award falls squarely within the coverage

of „credits for sums of money‟ since the prev iling p rty undoubtedly has a credit for a sum of

1PO1 Annex-1, BIT, Article 1, Page 32 2 Article 31, VCLT 3 Gardiner, 4 Saipem V Bangladesh



money in the amount of the award. The main question of whether an arbitral award can fit any

version of the definition of „investment‟ would necess rily rise in c ses where the host st te h s

interfered with an arbitral award held by a foreign investor, rather than with the underlying

economic activity which constitutes the subject-matter of the award – for instance, non-

enforcement or annulment of the award. 5

(¶ 5.) In arbitral practice, an award has been found to constitute a continuation of an original

investment. An arbitral award is a crystallization of rights under the underlying contract. Due to

this fact, the award becomes part of the original investment.6 The process of crystallization results

in the transformation of an aggregate state. The contractual rights that constitute an investment

have thus transformed into a new occurrence. It was highlighted by the tribunal7 though that this

new occurrence remained in close connection with the original investment, as it considered it to

still form p rt of the over ll oper tion th t is found to e n investment. The “over ll oper tion”

theory that was propounded in the Saipem Case was continued in the cases that followed.

Chevron Corporation and Anr. v. The Republic of Ecuador8 classified lawsuits that arose out of

an underlying contract to fall within the definition of investment. According to the case, an

investment, once established, continues to exist until its ultimate disposal. Moreover, the BIT also

categorically states that a change in form of the investment does not affect the character of the

investment 9 This clause specifically postulates that an investment may change its form, without

having an impact on its characterization as such. In other words, as long as an original investment

has existed, its transformation even into something new does not deprive it of its investment

quality. In analyzing a particular transaction, it will thus be sufficient for tribunals to establish

that an investment exists or has existed and that the transaction in question is somehow related to

it. This ro d protection is in line with the BIT‟s o ject nd purpose of fully protecting foreign

investments in order to stimulate business according to its preamble.10

(¶ 6.) In the instance case, the LTA was terminated prematurely and the investor resorted to the

available remedy under the LTA. The award obtained has been arrived upon based on the terms

of the LTA and all factors considered. Thus, the award is the crystallization of the rights under

5 Ibid

6 White Industries V Australia 7 Supra Note 2 8 Chevron v. Ecuador 9 Po1 Annex-1, BIT, Article 1(1), Page 33 10 Maximilian, pp. 53 142



the investment made. Even as the arbitral award is squarely falling under the claims to money, the

same can be considered part of the investment as it remains closely linked to the underlying

contract as its origin which does constitute an investment.

(¶ 7.) The underlying contract which is the LTA for the supply of Valtervite can be considered

to be an investment under the BIT. It was entered into after the coming into force of the BIT.

Patents fall under intellectual property right which is protected within the definition of

Investment.

(¶ 8.) Lastly, when there is no ambiguity with regard to the plain and ordinary meaning of the

treaty, subsidiary means of interpretation need not be looked at. The meaning that was intended

by the parties is clear. The list is indicative and as argued earlier, arbitral awards can be

considered to fall under claims to money as provided for under 1(c) of the BIT. It is humbly

submitted that the arbitral award falls under the definition under the BIT and thus need not satisfy

any other additional criteria. The rules differ from the ICSID in the sense that while in the former,

the definition of investment as under the BIT only needs to be satisfied while in the latter, the

definition of investment under the BIT must be satisfied alongside that under the ICSID

Convention. The tribunal in Mytilineos Holdings SA v. The State Union of Serbia and

Montenegro and the Republic of Serbia11, refuting the use of the test as prescribed by the ICSID

tribunal in Salini v. Kingdom of Morocco12, stated that the test for the existence of an investment

in the sense of Art. 25 of the ICSID Convention were one that was specific to the ICSID only and

one that did not apply to the ad hoc tribunal arbitrations.

B. THE RESPONDENT STATE HAS NOT RIGHTFULLY DENIED THE BENEFITS OF THIS

BIT TO THE INVESTORS UNDER ARTICLE 2 OF THE BIT

(¶ 9.) The Claimant submits that the Respondent State of Mercuria has not rightfully nor has it

successfully denied the benefits of this BIT to the Claimant13.

(¶ 10.) Firstly, the Respondent‟s invoc tion of the deni l of enefits is indic tive of its intention

to deny to the investor, recourse to the Dispute Settlement Forum as well14 as the same constitutes

11 Mytilineous Holdings v Serbia, 12 Salini V Morocco, Jurisdiction 13 PO 1, Annex 1, BIT, Article 2, Pg. 33 14 Pac Rim v El Salvador, para 4.4



part of the protections offered to investors under a BIT15. As such, the question before the Arbitral

Tribunal would be in relation to the jurisdiction of the Tribunal.

(¶ 11.) Under Article 2 of the BIT, the host state reserves its right to deny the benefits of this

BIT to the investments of an investor. This clause, in order to be effected, requires the exercise by

the host State16.

(¶ 12.) In order to gauge whether the Clause was indeed exercised rightfully and successfully by

the Respondent, the Respondent would therefore be required to satisfy both the rationae temporis

and the rationae materiae requirements, or that the Clause was exercised in a timely manner by

the Respondent (i) and that the objective requirements for the exercise of the same have not been

satisfied in the instant case (ii)17. Further, the burden of proving the satisfaction of this assertion

lay upon the Respondent (iii).

i. The Respondent has not exercised its right to deny the benefits of this BIT in a timely

manner.

(¶ 13.) The Respondent has not exercised the Denial of Benefits Clause in a timely manner. Its

invocation of the same in the Response to the Notice of Arbitration 18 is in violation of the

established principles of international law (a), the legitimate expectations of the investor (b) and

Article 3(3) of the BIT, and the objects and purposes of the BIT (c).

a. The invocation of the Denial of Benefits Clause at the time of the Response to the Notice of

Arbitration is in violation of the established principles of international law.

(¶ 14.) The PCA Arbitration Rules merely impose a procedural deadline beyond which

jurisdictional objections may not be entertained by the Tribunal in its determination on

jurisdiction19. The Rules however do not address the deadline for the creation of facts that lead to

the lack of jurisdiction. Such a deadline is governed under the principles of international law20.

15 Siemens v Argentina, para 102 16 Plama v Bulgaria, para 43 17 GAI v Bolivia, para 367 18 Response to Notice of Arbitration, Objections, para 5, Pg. 16 19 Permanent Court of Arbitration, Arbitration Rules 2012, Article 23(2) 20 Vivendi v Argentina, para 62, 63



(¶ 15.) It is an established principle of international law that the jurisdiction of an arbitral

tribunal is determined in light of the facts and circumstances as they exist on the date of the

institution of the judicial principles. Once established, the jurisdiction of the tribunal is not

swayed by subsequently occurring events21.

(¶ 16.) The governing law of the dispute is the Mercuria Basheera BIT read with the applicable

rules of international law22. As such, the rationae temporis requirement under Article 2 of the BIT

need be read along with such established principles of international law.

(¶ 17.) The exercise by the Respondent of the Denial of Benefits may therefore not result in the

disqualification of the jurisdiction of the arbitral tribunal to hear the current matter as this fact that

leads to a lack of jurisdiction arose after the institution of proceedings by the Claimant through

the Notice of Arbitration, in the Response to the Notice of Arbitration.

b. The invocation of the Clause is in violation of the legitimate expectations of the investor.

(¶ 18.) The host state, under Article 2 of the BIT, merely reserves the right to exercise its right to

deny the benefits of this BIT to the investor. As such, the exercise of the same requires a positive

action on the part of the host State doing so23.

(¶ 19.) Retrospective application of the Denial of Benefits Clause by the host State would create

an air of ambiguity around the investment24. The investors making the investment would, where a

retrospective application of this Clause is permitted, be perpetually unsure as to the position of its

investment in the host state with respect to the benefits to which it is entitled under the BIT25. It is

furthermore, the duty of a host State under international law, to avoid ambiguity towards the

investors nd to t ke into ccount the investor‟s need for predict ility in government l conduct26.

The foreign investor legitimately expects the host State to act in a manner free from ambiguity27.

As such, a retrospective exercise of this Clause would be untenable for the purposes of this

principle.

21 Vivendi v Argentina, para 62, 63; DRC v Belgium, para 26; GAI v Bolivia, para 219 22 PO 1, Applicable Law and Arbitration Rules, para 11, Pg. 26 23 Yukos v Russia, para 456 24 Plama v Bulgaria, para 157 25 Plama v Bulgaria, para 163. 26 Intl. Thunderbird Corp. v Mexico, Separate Opinion of Thomas Walde, para 21 27 Tecmed v Mexico, para 155



(¶ 20.) Furthermore, the Claimant submits that the investor does indeed enjoy the benefits

guaranteed under the BIT until such a Clause has been exercised by the host State28. A putative

covered investor has legitimate expectations of the exercise of the benefits under this BIT until

the Respondent‟s exercise of its right to deny the enefits29. The primary purpose of a Denial of

Benefits Clause is to give the host State an opportunity to alert the investors in advance that they

would no longer be receiving the benefits under the BIT, thereby protecting the legitimate

expectations of the investors while doing so30. The investor would therefore typically require a

reasonable notice before making any or continuing the investment as to whether or not the host

State, here the Respondent, has indeed exercised such a denial of benefits31.

(¶ 21.) Weighing the interests and legitimate expectations of the investor with the interests of the

host State, it is crucial to determine what outcome is most undesirable. Taking into account the

weaker standing of an investor under international law and the fungible character of foreign

c pit l in terms of contri ution to the host St te‟s economy, ny dou t must e resolved in f vor

of the investor32.

(¶ 22.) As such, the Claimants submit that any retrospective application would be violative of the

legitimate expectations of the investor. The exercise of the Denial of Benefits Clause by the

Respondent in its Response to the Notice of Arbitration would be untenable under international

law and the BIT between Mercuria and Basheera, both of which for part of the governing law of

this Arbitral Tribunal33.

c. The retrospective application of the Denial of Benefits Clause is violative of the objects and

purposes of the BIT.

(¶ 23.) Article 2 of this BIT need be read in in its ordinary meaning in light of the context in

which it was drafted and in accordance with the objects and purpose of the BIT34. These objects

and purposes include generating greater economic co-operation35 and according such treatment to

the investors that would stimulate the flow of capital and the economic development of the

28 Hulley v Russia, para 447 29 Hulley v Russia, para 449 30 GAI v Bolivia, para 216 31 Plama v Bulgaria, para 159 32 Elvira Gadelshina, Pg. 277-284 33 PO 1, Applicable Law and Arbitration Rules, para 11, Pg. 26 34 VCLT, Article 31(1) 35 PO 1, Annex 1, BIT, Preamblatory Clause 1, Pg. 32



Contracting Parties36. The same may also be gleaned from the title of Article 3 of the BIT which

is aimed at promoting and protecting the investments of the investor37.

(¶ 24.) Furthermore, to place upon an individual investor the task of obtaining express

assurances as to the extension of advantages would change a BIT from a general framework for

investments to an invitation to establish, case-by-case, bilateral relations between investors and

the host State38. This cannot be the intention of the parties behind the drafting of a Treaty39 nor

can it be the object and purpose of such a Treaty itself.

(¶ 25.) A retrospective application of this Clause would therefore be in direct violation of these

objects and purposes of the BIT. The Tribunal need interpret Article 2 in such a way so as to give

effect to these objects and purposes40. It is therefore evident from the text of the Article read in

light of the objects and purposes of this BIT that the Denial of Benefits Clause may not be

retrospectively exercised by the host state.

ii. The objective requirements for the exercise of the Denial of Benefits Clause have not

been satisfied in the instant case.

(¶ 26.) The Respondent, in order to successfully exercise the Denial of Benefits Clause, need

satisfy both the objective requirements for the same. An ordinary construction of the relevant

Clause as necessitated by the VCLT41 shows that both the requirements of Article 2(1) need be

s tisfied for the successful exercise, due especi lly to the use of the conjunctive term „ nd‟42.

(¶ 27.) Therefore, the Respondent need satisfy that the investor (Claimant) is owned or

controlled by nationals of a third State (a) and that it does not undertake substantial business

activities in its place of incorporation i.e., the Kingdom of Basheera43 44 (b), both of which, the

Claimant submits have not been satisfied.

36 PO 1, Annex 1, BIT, Preamblatory Clause 2, Pg. 32 37 PO 1, Annex 1, BIT, Article 3, Pg. 33 38 Hulley v Russia, para 447 (Expert Opinion of James Crawford) 39 VCLT, Article 31(4) 40 VCLT, Article 31(1) 41 VCLT, Article 31(1) 42 Plama v Bulgaria, para 143; GAI v Bolivia, para 373 43 PO 1, Statement of Uncontested Facts, para 4, Pg. 28 44 PO 1, Annex 1, BIT, Article 2(1), Pg. 33



a. The investor is not owned and controlled by nationals of a third State.

(¶ 28.) The Claimant contends that through an ordinary interpretation, the Tribunal, for the

purposes of this objective requirement need merely be concerned with the entity that immediately

or directly owns the purported investor and not the entity that indirectly owns or controls the

same.

(¶ 29.) Secondly, the Claimant submits that it is established jurisprudence that arbitral tribunals

only pierce the corporate veil to the extent that to which it is necessary to establish the standing of

the investor to bring the Treaty claim. Once a juridical entity with standing to bring forth the

claim is identified, tribunals accept that the formal requirements for nationality have indeed been

satisfied. Tribunals usually do not determine any further if the entity with standing is itself owned

or controlled by entities that also have the standing to bring the claim45.

(¶ 30.) In the instant case, the entity which owns 100% or all of the shares of the purported

investor, Atton Boro are the affiliates of the Atton Boro Group46. Therefore, in order to identify if

the first objective requirement has indeed been satisfied, the Tribunal need analyze the nationality

or the place of incorporation of the affiliates of the Atton Boro Group. The facts of the case are

however silent as to the same.

(¶ 31.) Due to the burden of proving the satisfaction of the objective requirements being upon

the entity making such assertions under the principle of actori incumbit onus probandi47, the

Respondent being the party making the assertion would be unable to evidence the same. The third

State ownership requirement may therefore not be satisfied by the Respondent in the instant case.

With respect to third State control, the Claimant submits that such complete ownership of the

shares of an entity by another entity is indicative of legal control by such an entity as well48. Such

complete ownership of the shares of the purported investor, Atton Boro, by the affiliates of the

Atton Boro Group therefore shows their complete legal control over the investor49.

(¶ 32.) In light of these submissions, the Claimant submits that the Respondent has been unable

to satisfy the first objective requirement of ownership or control of the investor by nationals of a

third State.

45 Amco v Indonesia, Tokios Tokeles v Ukraine 46 Exhibit 1 47 Elvira Gadelshina, Pg. 271; Permanent Court of Arbitration, Arbitration Rules 2012, Article 27(1) 48 Amco v Indonesia, LETCO v Liberia; Generation Ukraine v Ukraine, para 15.9 49 Exhibit 1



b. The Claimant undertakes substantial business activities in its State of incorporation i.e.,

Basheera.

(¶ 33.) The Claimant was incorporated in the Kingdom of Basheera. The BIT does not define the

term „su st nti l usiness ctivities‟. As such, the me ning of the s me term must e identified

on the basis of its ordinary meaning in light of the objects and purposes of the BIT and the

Clause. Seeing as the object and purpose behind the Clause is to deny the benefits of this BIT to

those entities which employ a nationality of convenience, the term must be interpreted as

me ning „of su st nce nd not of form‟, th t the word „su st nti l‟ ddresses the m teri lity

rather than the magnitude of the activity50. The plain meaning would suggest that the entity be

more than a mere façade incorporated in the territory of the Contracting Party for other purposes

than doing business51. The question would therefore be one of economic benefit52.

(¶ 34.) In the instant case, the investor, Atton Boro had an established presence within the

territory of Basheera in the form of an office space, a bank account53 and permanent employees54.

Atton Boro performed numerous support services for the Atton Boro Group affiliates and

managed its vast portfolio of investments in South America and Africa, all for economic benefit55.

(¶ 35.) Furthermore, Atton Boro‟s principle de lings involved long term pu lic-private

collaborations for the manufacture and supply of essential medicines56, all of which it was indeed

undertaking from its offices in Basheera.

(¶ 36.) As such, the Claimant submits that it is evident that Atton Boro did indeed undertake

support services, management of its patents and long-term public private collaborations, all with

an established legal as well as physical presence within Basheera. It must therefore be determined

by the Tribunal that the investor does indeed undertake substantial business activities within the

territory of Basheera.

50 LLC Amto v Ukraine, para 69 51 Crina Baltag, pg. 162 52 Ulysseas v Ecuador, para 123 53 PO 1, Statement of Uncontested Facts, para 4, Pg. 28 54 PO 2, Denial of Benefits, Pg. 48 55 PO 2, Denial of Benefits, Pg. 48 56 PO 1, Statement of Uncontested Fact, para 5, Pg.28



iii. The burden of proving the satisfaction of the rationae materiae and rationae temporis

requirements lay upon the Respondent.

(¶ 37.) As per the legal maxim, actori incumbit onus probandi57, the burden of proving an

assertion lay with the party making such an assertion. Furthermore, as per the PCA Arbitration

Rules, 2012, each party shall have the burden of proving the facts relied on to support its claim or

defence58.

(¶ 38.) As such, since the claim as to the Denial of benefits to the investor has been, in the

instant case, made by the Respondent, the complete burden to prove the same also lay with the

Respondent.

(¶ 39.) In light of the above submissions, the Claimant requests the Tribunal to find that the

Respondent did not invoke the Denial of Benefits Clause under Article 2 of the BIT in a timely

manner nor have the objective requirements for the rightful exercise of the same been satisfied.

As such, the Claimant requests the Court to dismiss this jurisdictional objection of the

Respondent for lack of foundation.

II. PART 2: MERITS

A. RESPONDENT HAS UNLAWFULLY EXPROPRIATED CLAIMANT’S

PROPERTY

(¶ 40.) The issuance of the compulsory license by the Respondent constitutes an indirect

expropriation under Article 6(2) of the Mercuria-Basheera BIT (i). Firstly, the measure taken by

the Respondent mounts to indirect expropri tion s it „su st nti lly deprived‟ the Cl im nt from

the use nd enjoyment of its property, which mounts to „t king‟ of Cl im nt‟s property (a).

Secondly, this taking rises to the level of expropriation by reference to relevant treaty standards

(b).

(¶ 41.) The Mercuria-Basheera BIT provides in Article 6(4) th t „non-discrimin tory me sures‟,

„design ted nd pplied to protect legitim te pu lic welf re o jectives, such s pu lic he lth‟ nd

57 Elvira Gadelshina, Pg. 271; Permanent Court of Arbitration, Arbitration Rules 2012, Article 27(1) 58 Permanent Court of Arbitration, Arbitration Rules 2012, Article 27(1)



„s fety‟ do not constitute n indirect expropri tion under the BIT. However, the compulsory

license issued by the Respondent amounts to unlawful indirect expropriation (ii), as the

Respondent has failed to satisfy these three criteria namely, measure not in compliance with the

applicable law (a), requirement of a public welfare objective (b) prompt, adequate & effective

compensation not made (c). Hence, the compulsory license issued by the Respondent amounts to

unlawful indirect expropriation.

i. Respondent‟s issuance of a compulsory license constitutes an Indirect expropriation

under the BIT

(¶ 42.) Article 6(2) of the Mercuria-B sheer BIT provides th t „investments of investors‟ „sh ll

not e directly or indirectly expropri ted‟, except for pu lic purposes, or n tion l interest, g inst

full and effective compensation provided such a measure is non-discriminatory in nature and in

conformity with all legal provisions and procedures.59

(¶ 43.) According to Paulsson & Douglas there are two primary stages of analysis for an indirect

expropri tion: First, “the n ture or m gnitude of the interference to the investor‟s property” y

the host st te‟s ction which mounts to t king.60Second, whether this taking rises to the level of

indirect expropriation, with reference to the relevant treaty standard.61

a. Respondent‟s compulsory license amounts to taking.

(¶ 44.) Although, the Claimant acknowledges that a compulsory license does not result in a de-

jure transfer of the legal title.62 However, expropriation under international law encompasses any

“unreasonable interference with the use, enjoyment or disposal of property so 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 interference.”63

(¶ 45.) Indirect expropriation focuses on the measures which fall short of an actual taking. The

key here is to n lyse “the c p ility of com in tion of rights in commerci l nd corpor te

59 Mercuria-Basheera BIT, Art. 6(2). 60 Paulsson & Douglas, page 148. 61 Id. at 148 62 Gibson, at 18. 63 Baxter & Sohn



setting under regul tory regime to e rn commerci l r te of return” 64 The factors to be

considered are “su st nti l depriv tion” ( ), “ dverse effect on economic v lue” of the property

( ) nd investor‟s legitim te expect tion from the p tent regime which forms the sis for

investment (c).

1. Respondent’s grant of compulsory license substantially deprives Claimant of the use, enjoyment,

and control of its patent.

(¶ 46.) The ICSID tribunal in CMS v. Argentina endorsed the concept of “su st nti l

depriv tion” 65 as a determining factor to establish whether the taking constituted indirect

expropri tion. The determin tion w s sed on question “whether the enjoyment of the property

h s een effectively neutr lised.”66

(¶ 47.) In ITT Industries v Iran the Iran-US claims tribunal held that if an interference by the

government denies the property owners its fundamental rights of ownership, use, enjoyment or

management of business it may amount to expropriation.67

(¶ 48.) Patent rights creates an exclusive legal monopoly with respect to the invention, “which

support the commercial leverage necessary to exploit the invention as an integral part of an

investment in the foreign m rket.”68The Respondent by way of issuance of compulsory license,

and subsequent grant of license to HG Pharma, a generic drug manufacturer, partly government

owned, has forced the Claimant to grant use of its patent. This deprives the Claimant of its patent

and the exclusive rights attached thereto.69Moreover, the Government is conferring this advantage

and also reaping the profits without paying adequate compensation and are affecting the sales of

Sanior in three neighboring States which have granted IP protection for Valtervite.

64 Paulsson & Douglas, supra note 76, at 152-53 65 CMS v. Argentina, Award, para 262

66 Id. 67 ITT v. Iran, Award of 26 May 1983, 2 Iran-US C.T.R. 348

68 Gibson, pg 383

69 Uncontested Facts, Para 20 & 21, Case



(¶ 49.) Therefore, the Respondent‟s gr nt of Compulsory license su st ntially deprives the

Cl im nt‟s right to own, use, enjoy nd control its p tent.

2. Respondent’s grant of Compulsory license adversely effects the economic benefits and economic

value of Claimant’s patent

(¶ 50.) The degree of interference caused by the Compulsory license will be directly dependent

upon certain factors, including the scope and duration of the license and the remuneration paid to

the patent holder.70

(¶ 51.) In the present case, the Respondent has issued a compulsory licence to the generic drug

manufacturer until greyscale is no longer a threat to the public health. 71Greyscale is a chronic

epidemic which in incurable in nature. Under the guise of threat to public health, Respondent has

granted the license for an indefinite period of time. As a result of compulsory license the

Claimant lost nearly two third of the market share to the Generic Drug Manufacturer by 2014,

eventually forcing the Claimant to quit the market in that segment.

(¶ 52.) The imp ct of the compulsory license not only undermined Cl im nt‟s ility to earn

certain level of return from the investment made in the market but also diminishes the market

value of the investment. The overall value of the Claimant Company depreciates as a result of

compulsory license.

(¶ 53.) Therefore, for the reasons above, the Respondent‟s gr nt of compulsory license h s n

dverse effect on the economic enefits nd v lue of the Cl im nt‟s p tent

3. Claimant’s reasonable and legitimate expectation for the investment from the patent regime has

been violated

(¶ 54.) In International Thunder Bird Gaming Corporation v. Mexico, the UNCITRAL Tribunal

g ve n el or te nd comprehensive definition of „legitim te expect tion‟ s st ted: “The

concept of “legitimate expectations” relates to a situation where a contracting party’s conduct

creates reasonable and justifiable expectations on the part of the investor to act in reliance on

70 Ibid 71 Uncontested Facts, Para 21, Case



said conduct, such that a failure to honour those expectations could cause the investor to suffer

damages.”72

(¶ 55.) The grant of Patent No. 0187204 to Claimant qualifies as a conduct, which created

reasonable and justifiable expectation for the Claimant. It was implicit that the Claimant would

have the right to exclusively economically exploit its patent for a period of the patent term. This

term is 20 years for the countries that are members of WTO.73Unlike other areas of law such as

t x regimes, the scope of P tent rem ins unch nged. This serves to fortify Cl im nt‟s reli nce

upon domestic patent regimes.74

(¶ 56.) Existence of a compulsory license provision in the host state, prior to the application

made for a patent, would ideally require the applicant to be vary of the associated effects of

making such an investment in the host state. However, in the absence of any compulsory license

regime in the host state would not warrant such an exercise of caution. In the present case, the

Respondent by way of amendment to the IP Regime in its state has substantially deviated from

the standard of protection it granted the Claimant in 1998.

(¶ 57.) A regulatory framework in a country should be stable and predict le from the investor‟s

side.75Although a leeway is provided to the host countries to make certain regulatory changes,

they must not ffect the „ sic expect tion‟ of the investor.

(¶ 58.) The Respondent during the course of the existence of Cl im nt‟s p tent made several

specific and general representations to the Claimant. These include, the Long Term Agreement

whereas the Claimant was to supply drugs to the NHA for a period of 10 years. However, the

NHA prematurely terminated the agreement violating the legitimate expectation of the Claimant.

Furthermore, the President of Mercuri m de gener l represent tion vi tweet “to do w y with

red t pe nd roll out red c rpet for the investors”.76 Similarly the Minister of Health of the State

reaffirmed its commitments to “empower nd eng ge rights holders” r ther “th n ridge these

rights”. These specific nd gener l represent tion further olstered nd steered the legitim te

expect tion of the Cl im nt‟s in n upw rd tr jectory.

(¶ 59.) The tribunals in Metalclad77 & Revere78 relied upon the specific representation made by

the government to the Claimants to find substantive violation of the treaty. Hence, the Claimant

72 Thunderbird, at ¶147. 73 Article 33 of TRIPS 74 Gibson, at 27 75 Occidental Exploration v. Equador 76 Uncontested Facts, Para 29, Case 77 Metalclad , at ¶107.



w s re son ly entitled to rely upon Respondent‟s consistent pr ctise. Therefore the devi tion

from the basic expectation of the Claimant would amount to violation of its legitimate

expectations.

ii. The Compulsory license issued by the Respondent amounts to unlawful indirect

expropriation

(¶ 60.) Respondent‟s expropri tion is unl wful s it does not meet the exceptions listed under

Article 6(2) & 6(4) of the Mercuria-Basheera BIT. Firstly, (a) the measure does not serve the

objective of public welfare. Secondly (b) the measure is not in compliance with the applicable

law, amounting to a discriminatory measure, and thirdly (c) adequate compensation has not been

paid.

a. The issuance of compulsory license does not serve the objective of public welfare

(¶ 61.) The Cl im nt‟s su mit th t the Respondent h s f iled to satisfy the public welfare

objective while issuing a compulsory license. Firstly, the Respondent does not provide any

cl rific tion s to wh t constitutes „pu lic welf re o jective‟ or „pu lic he lth‟ crisis, therefore

international agreements such as the WTO and TRIPS can be relied upon.

(¶ 62.) It is of utmost importance to gauge the purpose behind the issuance of a compulsory

license by the Respondent. Purpose is particularly germane to compulsory licenses, as the

governments, can authorise them for diverse reasons.79 As such there is no clarification given by

the Respondent as to on what grounds the Compulsory license was issued. However, the TRIPS

Agreement, lists grounds that may be relied upon for issuance of a compulsory license, including

circumstances of „n tion l emergency‟ or „extreme urgency‟.80

(¶ 63.) The Cl im nt‟s su mit th t the Respondent w s motiv ted y economic consider tion

and acted accordingly. Firstly, the situation was not beyond the control of the Respondent. In the

present case, the Respondent unilaterally terminated the Long Term Agreement when the

Claimant refused to budge to the demands of the Respondent.81Thereby, leaving the citizens with

no effective Greyscale treatment, this aggravated the situation for a period of over a year.

Arguendo, no reasonable government during a crisis situation would take such an action of

78 Revere, at 271. 79 Gibson, page 390 80 Article 31(b) TRIPS Agreement 81 Uncontested facts, Para 15, Case



unilaterally terminated a contract of supply of essential medicines, as such an action would

aggravate an existing crisis and would not serve the objective of public welfare. The actions of

the Respondent clearly suggest that, the government was motivated solely by economic

consideration rather than public health benefits.

(¶ 64.) The text of the Doha declaration on the TRIPS Agreement and Public Health provides a

clarification of the circumstances in which a state may issue a compulsory license.82 Both the

Cl im nt‟s nd Respondent re mem ers of the WTO, therefore ll the covered greements,

including the TRIPS Agreement would be binding upon both the parties.

(¶ 65.) Paragraph 5(b) of the Doha Declaration states that members have a right to grant and

issue a compulsory licence. However, such a right is limited in nature. Paragraph 5(c) of the Doha

Decl r tion lists, “HIV/AIDS, tu erculosis nd m l ri nd other epidemics” s ex mples of wh t

constitutes a public health crisis. Greyscale is a chronic, non-fatal and incurable

disease.83Although, the declaration makes it clear that the list of epidemics in non-exhaustive in

nature.84 Reading Paragraph 5(c) of the Doha Declaration in light of Article 31 of VCLT85 would

suggest that the drafters wanted only fatal diseases to be included within the ambit of national

emergency due to public health. The underlying common criteria amongst the listed examples is

that, all these diseases are fatal in nature. Therefore, it is difficult to classify Greyscale as an

epidemic.

(¶ 66.) Arguendo, the issuance of the compulsory licence will not solve the public health crisis at

hand as the patent drug only mutes the symptoms for the initial few years and does not cure it as

such.86The Respondent‟s ction is ill directed s Greysc le s crisis would persist for very

long time in the state of Mercuria. Furthermore, by way of abruptly issuing a compulsory license

nd not respecting the p tent rights of the Cl im nt‟s, the Respondent is discouraging any

possible future investment and possible cure of the disease in the state of Mercuria thereby further

endangering the lives of its people.

b. The issuance of compulsory license is not in accordance with the legal provisions and

procedures of the Respondent

82 Doha Declaration on TRIPS 83 Annexure No. 3, Chapter VII-GREYSCALE, Case 84 Doha Declaration 5(d) 85 Article 31 (1) VCLT 86 Annexure No. 3, Chapter VII- GREYSCALE, Case



(¶ 67.) Section 23 C (4) (d) of the amended IP Act of the Respondent lays down an obligation

upon the applicant to make efforts to obtain a license from the patentee on reasonable terms and

conditions, within a reasonable period of time. In a clarification paragraph such a requirement is

w ived off during situ tion of „n tion l emergency‟ or „extreme urgency‟. Therefore,

compulsory license shall not be granted unless a prospective licensee has not sought a voluntary

license on reasonable commercial terms within a reasonable period of time first. Similar

requirements are laid down under Article 31(b) of the TRIPS Agreement.87

(¶ 68.) In the present case, the GDM never made any attempts to seek the license to manufacture

the patented drug by Claimant‟s consent. This mounts to viol tion of oth the domestic l w s

well as the international law.

87 Article 31(b), TRIPS Agreement



c. The compensation offered by the Respondent is no adequate

(¶ 69.) The expropri tion of Cl im nt‟s investment does not fall within the exception provided

under Article 6(2). The compensation offered by the Respondent is not adequate and does not

satisfy Article 6(2) & Article 6(3) of the Mercuria-Basheera BIT.

(¶ 70.) “Prompt, dequ te & effective” compens tion is endorsed y m ny schol rs88 and arbitral

tribunals. In the present case these three requirements were not met as the compensation offered

by Respondent was neither, prompt, adequate nor effective. Also the compensation is to be

equivalent to the value of the property on the date prior to the actual or threatened expropriation.

(¶ 71.) Article 31 (h) of the TRIPS Agreement, as supported by paragraph 3 of the Paragraph 6

Decision, st tes th t “the right holder sh ll e p id dequ te remuner tion in the circumst nces of

each case, taking into account the economic value of the uthoris tion”89

(¶ 72.) Prompt me ns th t “interests sh ll ccrue from the d te of the expropri tion nd sh ll e

included in ny greement, or ny r itr l w rd, concerning the mount of compens tion.”90In

the present case, following the issuance of the compulsory license, the High Court of the

Respondent fixed the amount of the royalty at 1% of the total earning of the GDM.

(¶ 73.) The value of the royalties has been fixed arbitrarily by the High Court of the Respondent

without giving any due to the factors upon which it was to be decided, the practice of Mercuria to

fix royalty between 0.5%- 3% is still on the lower end of even this arbitrary scale. In any

situation, this royalty will never be adequate to compensate for the losses suffered by the

Cl im nt‟s. Therefore, the Respondent stands in violation of its obligations under Article 6(2) &

Article 6(3) of the BIT.

88 Dolzer & Schreuer, page 90 89 Article 31(h) of TRIPS 90 Lowenfeld, page 565



iii. RESPONDENT HAS BREACHED ITS OBLIGATIONS UNDER ITNERNATIONAL

LAW

(¶ 74.) Article 31 of TRIPS is the applicable law in accordance with Article 11 of the Mercuria-

Basheera BIT; which states the following:

“If the provisions of law of either Contracting Party or obligations under international law existing at

present or established hereafter between the Contracting Parties in addition to the present Agreement

contain rules, whether general or specific, entitling investments by investors of the other Contracting

Party to a treatment more favourable than is provided for by this Agreement, such rules shall to the extent

that they are more favourable prevail over this Agreement”

a. The Respondent did not comply with Article 31(b)

(¶ 75.) This requires that the rights holder is first approached for his authorisation for the

intended use intended use rring exceptions of “n tion l emergency”, “extreme emergency”, nd

“pu lic non-commerci l use”. The obligation of previously seeking a voluntary license is waived

when circumstance lead to the conclusion that such an exercise would necessarily impair the

desired outcome of the compulsory license91, however the one year gap and no effective treatment

for the citizens during such time should be taken into account.

(¶ 76.) Arguendo, th t out re k of “Greysc le” w s indeed n tion l emergency nd there w s

no need for prior authorisation by the government or third party, but it is clearly mentioned under

Article 31(b) of the TRIPS Agreement that the patent holder should be notified about the issuance

of a compulsory license as soon as practicable. In the present case, no such notification was made

to the Claimant.

b. The Respondent did not comply with Article 31(c)

(¶ 77.) The duration of the compulsory license should be limited to the purpose for which it was

authorised. But in the present case the compulsory license was granted beyond the requirement of

the Respondent. Furthermore, the Respondent was in a position to give humanitarian aid to the

neighbouring countries, suggesting that the situation was stable in Mercuria.

c. The Respondent did not comply with Article 31(g)

(¶ 78.) Compulsory licenses are not supposed to have the same duration as patent terms; their

purpose is to attend situations which tend to be temporary.92But in the present case the High

91 Zaveri, p.316. 92 Carvalho, p.365.



Court of Mercuria granted the compulsory license to the Generic Drug Manufacturer for, until

“Greysc le” is no longer thre t to pu lic he lth. However, considering “Greysc le” is chronic

disease, it will always be a threat to public health, thereby granting the compulsory license for an

indefinite period of time.

d. The Respondent did not comply with Article 31(h)

(¶ 79.) This provision says that the right holder must be paid adequate remuneration taking into

account the economic value of authorisation.93Although the word adequate has not been defined

anywhere it generally means satisfactory or acceptable. In the present case, the royalty paid is

inadequate. Hence Article 31(h) has been violated.

iv. RESPONDENT FAILED TO PROVIDE A FAIR AND EQUITABLE STANDARD

OF TREATMENT TO THE INVESTMENTS OF THE CLAIMANT

(¶ 80.) Broadly, the FET standard contemplates certainty and predictability in the actions of the

host state.94 Fair and equitable treatment and full protection and security are generally recognised

as “ solute” nd “o jective” protections.

(¶ 81.) In SD Myers,95 the tribunal noted that a breach occurs when it is shown that an investor

h s een tre ted in “such an unjust or arbitrary manner that the treatment rises to the level that is

unacceptable from the international perspective”. Some tre ties refer to “fair and equitable”

treatment simpliciter,96 cert in others qu lify the words with reference of “international law”97

or “customary international law”. Art 3(2) of the BIT entitles the Cl im nt to full protection of its

investments, explicitly providing th t those investments “sh ll t ll times e ccorded f ir nd

equit le tre tment nd full protection nd security in the territory of the other contr cting p rty.”

(¶ 82.) Art 3(2) of the BIT does not refer to international law or customary international law. If

there is no reference to the customary minimum standard of treatment in the BIT, investment

tribunals have held that the FET standard is a separate and independent standard. 98 In fact, in

93 Abbott & Van Puymbroeck, Working Paper no. 61. 94Occidental Exploration v. Equador, Award 95 SD Myers Inc.v Government of Canada 96 For example: The India-Netherlands BIT; Ecuador-Canada BIT (arbitrated in the Occidental case); Netherlands-

Czech Republic BIT (arbitrated in the CME case). 97 For example: Art 1105 of the North American Free Trade Agreement (NAFTA) 98 United Nations Conference on Trade and Development (UNCTAD), Fair and Equitable Treatment UNCTAD

Series on Issues in International Investment Agreements II



contrast to Art 3(2) of the BIT, several BITs include explicit references to the customary

minimum standard.99 To avoid uncertainty about the interpretation of the FET standard, these

BITs even expressly provide that FET does not require treatment beyond what is required by that

of the customary minimum standard.100 Professors Dolzer nd Schreuer re of the opinion “the

fact that parties to BITs have considered it necessary to stipulate this standard as an express

obligation is evidence of a self-contained standard.”101 Since Art 3(2) does not contain any

express reference to the customary minimum standard, it must be considered a stand-alone

standard.

(¶ 83.) In light of the conclusion that Art 3(2) is a stand-alone standard, scholars and investment

tribunals interpret FET to impose broad limits on state authority when a treaty omits an express

reference to the customary minimum. Notably, Professor F.A. Mann has argued that an

utonomous nd independent FET st nd rd h s more “f r re ching” me ning th t exceeds the

customary minimum st nd rd nd “envis ges conduct which goes f r eyond” th t minimum.102

(¶ 84.) In light of such interpretation the Claimant submits that the acts of Respondent are

contrary to the principle of FET as required under Article 3(2) of the Mercuria-Basheera BIT,

n mely “ r itr ry, grossly unf ir, unjust or idiosyncr tic;”103 conduct (1) and due process.

(¶ 85.) It is humbly contended that the instant case involves a standalone, broad fair and

equitable treatment standard and that the narrow definition provided by the Neer and Glamis Gold

tribunals are unreliable.104 Cl im nt need not demonstr te th t the Respondent‟s ctions were

“egregious” or “shocking,”105 yet the Neer and Glamis Gold understanding of FET may be useful

since the protection provided by the customary minimum standard is “floor,” not “ceiling.”106

Nonetheless, the Saluka Tribunal and other arbitral decisions outside the context of NAFTA give

99 For example: Art 14.5, Australia-Japan EPA; see also Art 8.5, Canada-Korea FTA. They include the wordings,

“in ccord nce with the custom ry intern tion l l w minimum st nd rd of tre tment of liens.” 100 Ibid 101 Dolzer & Schreuer 102 Bronfman, 101 103 BG Group, ¶ 292 (quoting Waste Management II, ¶ 98). 104 Neer v. Mexico 105 Ibid 106 Glamis Gold, Ltd. v. The United States of America



better guidance to the definition of FET, since those judgments were not bound by the customary

minimum standard.107

a. The actions of the Respondent was “arbitrary, grossly unfair, unjust and idiosyncratic”

(¶ 86.) The Respondent acted in an arbitrary manner when, the NHA unilaterally terminated the

Long Term Agreement without giving any valid reason. Similarly while issuing a compulsory

license the Claimants were never consulted and no attempt was made to seek the licence on

reasonable grounds by engaging in reasonable negotiations as is required under TRIPS

Agreement.

(¶ 87.) The issuance of compulsory license was idiosyncratic as the actions taken by the

Respondent does not correspond with the objective being sought after. The Respondent state

under the guise of economic consideration called the actions for public benefits. Moreover, the

Respondent could have engaged in other programmes which would have spread more awareness

out “Greysc le” to the popul tion thus, reducing the num er of c ses. Further, the d t

provided by several small-scale studies reach diverse conclusions on the percentage of patients

(between 20% and 80%).108 The Respondent state took a premature action without taking all the

aspects into considerations and solely relying upon the data by the state entity.

(¶ 88.) The NHA, indulged the Cl im nt‟s in unf ir negoti tions where s it dem nded 40%

additional discount on the already discounted drug, such a demand was strong arming by the

NHA and was not a discussion and limited the possibility of both parties reaching a consensus.

(¶ 89.) For all of the reasons stated above, the Respondent indulged in arbitrary, unfair, unjust

and idiosyncratic activities against the investments of the Claimants.

v. Respondent has failed to provide due process to an extent which amounts to

arbitrariness.

(¶ 90.) The Respondent state issued compulsory licenses for the exploitation of the patent

Valtervite indefinitely without prior consultation or negotiation with Claimant. The Claimant did

107 Saluka Investments BV v. Czech Republic 108 Procedural Order No 3, 1585



not have an opportunity to negotiate on the possibility of further reduction is prices as NHA

demanded an additional 40% deduction, such a demand was strong arming by the NHA and was

not a discussion and limited the possibility of both parties reaching a consensus.

vi. Regulatory Measure by the State does not fall under the Police Powers Doctrine

(¶ 91.) The Police Powers doctrine recognizes St te‟s sovereign right to m ke Regul tory

changes in certain circumstances and that a non- discriminatory taking without compensation can

be lawful if done for a legitimate Public Welfare reason. The lack of a consensus on this point led

the Saluka Tri un l to comment th t „intern tion l l w h s yet to identify in a comprehensive and

definitive f shion precisely wh t regul tions re considered “permissi le” nd “commonly

ccepted” s f lling within the police or regul tory power of St tes‟.109

(¶ 92.) The Arbitral Tribunals in Santa Elena v. Costa Rica held:

“Expropri tory me sures of the St te no m tter how l ud le nd enefici l to society s whole - the

st te's o lig tion to p y compens tion rem ins “110

(¶ 93.) This was reiterated in the case of MetaClad v. Mexico while affirming the sole- effects

doctrine stated that:

“If government l me sure effectively deprives the owner of control over his property or su st nti lly

affects its commercial value, compensation is required even if the State may purport to have adopted the

measure in the exercise of its police powers.”111

(¶ 94.) To determine if regulatory actions are to be characterized expropriatory, the tribunal

considered "whether such actions or measures are proportional to the public interest presumably

protected thereby and to the protection legally granted to investments, taking into account that the

signific nce of such imp ct h s key role upon deciding such proportion lity.”

B. MERCURIA HAS BREACHED ITS OBLIGATIONS UNDER INTERNATIONAL LAW

109 Saluka Investments BV (The Netherlands) v. The Czech Republic at [263] 110 Compafiia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, Para 72 111 Metalclad Corporation v. The United Mexican States, Para 85, 89, 103, 106-107 and 111.



i. Mercuria has committed an Internationally Wrongful Act

(¶ 95.) Under Customary International Law a State commits an Internationally wrongful act

when conduct consisting an action or omission:

a) Is attributable to the State under international law; and

b) Constitutes a breach of an international obligation of the State.112

(¶ 96.) The ICJ has relied on these criteria on several occasions while attributing state

responsibility, firstly it determined to what extent, legally, the acts in question may be regarded as

imputable to a State. Secondly, it considered their compatibility or incompatibility with the

obligations of that State under treaties in force or under any other rules of international law that

may be applicable.113 The Respondent State has failed to uphold its International Obligations

under Art. 3 of the BIT and the New York Convention.

ii. Art. 3 of the BIT

(¶ 97.) Art 3 provides for general security and protection to investors including cases where the

expectations and representations made towards an investment is protected and expectations met.

Art. 3(2) and Art. 3(4) of the Mercuria- Basheera BIT deal with fair and equitable treatment as

well as protection against discriminatory treatment which encompasses the expectation of finality

of judgment within a reasonable period of time.114 This can be inferred as:

(¶ 98.) The objects and purposes of the BIT state:

“Recognizing the importance of providing effective means of asserting claims and enforcing rights with

respect to investment under national law as well as through international arbitration.”

(¶ 99.) The objects of a Treaty are a key to the intention of the parties, this read in consonance

with the VCLT provides th t the „effective me ns‟ st nd rd s h s een developed in the re lm of

Investment Arbitration must be read in good faith and given its due weightage along with Art. 3.

(¶ 100.) The effective means clause is a positive embodiment of the obligation placed on the state

to recognize a standard of justice higher than the International Minimum standard of providing

decent justice to foreigners.115

112 Art 2 of ILC Article on Responsibility of States for Internationally Wrongful Acts. 113 Nicaragua v. United States of America, p. 14, at pp. 117-118, para. 226; Hungary v Slovakia, p. 7, at p. 54, para.

78. 114 Duke Energy v. Ecuador 115 Jan Paulsson, pg 6



(¶ 101.) The standard as set out in Robert Azinian v. Mexico is an embodiment of this

International Minimum standard with particular emphasis on the role of the state116, This standard

is a logical corollary to the standard mentioned in the ELSI Judgment by the ICJ which stated that

only „p rticul rly serious short coming‟ nd „egregious conduct y the host st te nd it‟s

judici l org ns‟ th t „shocks, or tle st suprises, sense of judici l propriety‟ would constitute

breach of this standard.117

(¶ 102.) This denial of justice must be a: manifest or gross unfairness; a flagrant and inexcusable

violation; a palpable violation exposing bad faith (and crucially, not mere judicial error) at its

core; or an undoubted mistake of substantive or procedural law prejudicing the investor,118 or an

underlying m licious em odiment of „the notion of “pretence of form” to m sk viol tion of

intern tion l l w.‟119

iii. Violation of the Basic International Law Standard:

The Mercurian Judiciary is at the very least to provide the same treatment to foreigners as it provides to

nationals of the State without prejudice.

(¶ 103.) The NHA expressly failed to show up to Court on several occasions and violated

Mercurian Procedural Law120 – On the 22nd Sept. 2009121, 15th Jan 2010122, 8th Nov. 2011123, 30th

April 2012124, 4th Sept. 2012125, 8th Nov. 2012126, 9th September 2014127.

(¶ 104.) This is a clear indication of the preferential outwardly biased nature of treatment towards

the NHA, which can be further ascertained by the statement made by the Judge on the 8th of Nov

2012:

116 Azinian v. Mexico, para. 102. 117 ELSI

118 Loewen v. US, para 130. 119 Azinian v. United Mexican States,Award, para 102- 103. 120 Notice of Arbitration, Exhibit 1: Timeline, page 7, Case 121 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 204, Case 122 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 207, Case 123 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 234, Case 124 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 251, Case 125 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 263, Case 126 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 271, Case 127 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 322, Case



“Private parties ought to be more accommodating of their public counterparts who have limited

resources at their disposal. A delay in service of one rejoinder will hardly run a billion dollar

corporation into the ground.”

(¶ 105.) Therefore even if the International law standard of providing decent justice to foreigners

is to be applied there is a clear manifest intention on the part of the judiciary to prolong and delay

the enforcement of the suit and has waived violations of Procedural laws on at least 7 different

occasions which clearly shows bias and this violates the denial of justice test128 as well as basic

principles of natural justice.

iv. Violation of the „Effective Means‟ Standard:

(¶ 106.) The effective means standard as illustrated in Chevron Case lays down criteria that

require a host state to establish a proper system of laws and institutions that work effectively in a

given case. It has consequently been recognized as a lex specialis.129 The parties may thus be

taken, to that extent, to have agreed to exclude the otherwise applicable rules of Customary

international law.130

(¶ 107.) The onus is not on the claimant to prove that the host state interfered in the judicial

proceedings, nor does it need to exhaust local remedies,131 the claimant must only Prove that it

adequately used the means available to it to assert claims and enforce rights,132 and even on doing

so it did not receive justice.

(¶ 108.) The Host state is to e held to n “o jective, intern tion l st nd rd” which ev lu tes only

“whether the system of l ws nd institutions work effectively t the time [when rights re

enforced or cl im is sserted].”133 As this standard is an objective one considerations such as the

over urdened/overworked n ture of the judici ry h s little e ring on the n ture of it‟s

functioning and should be disregarded on deciding if the courts had performed their functions as

expected. It is a guarantee against denial of justice and is understood to mean the state's

obligation to provide a fair and efficient system of justice, in explicating the need for finality of

judicial action.134

128 Pey Casado v Chile 129 White Industries v India, para 11.3.2. 130 Amoco International Finance Corporation v. Iran, para. 112. 131 Saipem v Bangladesh, para181–183. 132 White Industries v India, para 11.4.19 133 White Industries v India, para 11.3.2(f), 11.14.16. 134Sattorova, p. 7



(¶ 109.) The Mercurian courts were functioning and should have been capable of enforcing the

arbitral award of Reef. However, they chose not do so for over a period of 7 years (as of Nov.

2011). In White Industries the tri un l found th t the Indi n courts‟ f ilure to decide White

Industries‟ jurisdiction l o jection for more than nine years amounted to a violation of the

effective means standard.58 In th t c se „The re lity is‟ the Tri un l wrote „White‟s pplic tion

was being strenuously defended and the pleadings schedule was not exceptional, either in the

Indi n context or otherwise.‟135 In contr st the c se t h nd w s not eing „strenuously defended‟

as the NHA refused to show up and delayed the proceedings on several occasions by requesting

for more time to file replies. Further, the fact that the Tribunal held the pleading schedule was not

exceptional in the Indian Context showed that neither the complexity of the case nor the

considerations of the limitations of the Municipal Court had bearing on the decision of the

Tri un l in re ching it‟s fin l conclusion in holding that India had violated the effective means

standard. The same view must be taken in this matter as the municipal system of Mercuria as a

developing country is similar to that of India.

v. Violation of the New York Convention

(¶ 110.) The Convention on the Recognition and Enforcement of Foreign Arbitral Awards more

commonly known as the New York Convention is the international multilateral treaty to which

both the parties are signatories.136 The objectives of the New York Convention state:

“The Convention’s principal aim is that foreign and non-domestic arbitral awards will not be

discriminated against and it obliges Parties to ensure such awards are recognized and generally

capable of enforcement in their jurisdiction in the same way as domestic awards.”

(¶ 111.) This is the primary objective of the Convention and the above mentioned actions of the

Mercurian Judiciary show that the discriminatory actions of the courts and biased nature

precluded enforcement of the Award as an ordinary suit would be enforced under normal

circumstances.

(¶ 112.) The Convention provides for the set- up of a system for the enforcement of foreign

arbitral award, and that such a system should be stable and predictable so that on obtaining a

decision from an arbitral tribunal it does not face undue delay and hurdles in recognition and

implementation in the state.

135 White Industries v India, para 11.4.8. 136 Procedural Order No. 2, pg. 48, Case



(¶ 113.) However, the State of Mercuria did not have a well-defined system due to lack of clarity.

This can be inferred from the confusion over whether the Commercial Bench of the High Court

has exclusive jurisdiction to try cases on enforcement of arbitral awards. This was the position of

the law at the time Atton Boro requested transfer for transfer on 30th April 2012 which the court

agreed with,137 it was then stuck in limbo between that period to 20th February 2014 when it was

retransferred back to the regular bench of the High Court. This was a direct result of lack of

clarity in the Mercurian Law even after 50 years of the New York Convention. The transfer was

requested by Atton Boro but the reason for the transfer was because at that point of time the court

had already taken 3 years and was no closer to reaching a decision than it was on the date of the

first hearing.

(¶ 114.) This interim time period must therefore not be discredited under any circumstances when

calculating the period of delay.

(¶ 115.) Therefore the judicial Organ of the Respondent state stands liable for breach of Both the

BIT and the New York Convention and in turn breach of an International Legal Obligation.

vi. Breach of the International Obligation by the Judiciary is attributable to the State

(¶ 116.) Under customary international law138 governing state responsibility, a state is responsible

for all its organs.139 This principle applies to organs at all levels regardless of the position of the

organ in the state's administrative organization. This principle of attribution is set out in Article 4

of ILC's Articles on State Responsibility. Investment tribunals have followed this principle of

responsibility for all state organs and have applied it to the relationship of states with foreign

investors.140

(¶ 117.) Further, in the Salvador Commercial Company case, the Tribunal said that:

“A St te is responsi le for the cts of its rulers, whether they elong to the legisl tive, executive,

or judicial department of the Government, so f r s the cts re done in their offici l c p city.”141

It is irrelevant for the purposes of attribution that the conduct of a State organ may be classified as

“commerci l” or s “ ct iure gestionis”.142

137 Notice of Arbitration, Exhibit 1: Timeline, page 7, Line 251, Case 138 Annex A of 2004 US Model BIT available at http://www.state.gov/documents/organization/117601.pdf

139Schreuer, Available at http://www.univie.ac.at/intlaw/wordpress/pdf/investments_Int_Protection.pdf

140 Id, Para 96. 141 Salvador, at p. 477. Chattin case, at p. 285-86; 142 Articles on State Responsibility commentary (pg 30)

http://www.state.gov/documents/organization/117601.pdf

http://www.univie.ac.at/intlaw/wordpress/pdf/investments_Int_Protection.pdf



(¶ 118.) Therefore the State of Mercuria is responsible for the cts of it‟s judici l org n nd the

denial of Justice by Mercurian Court is an Internationally Wrongful Act

C. THE UMBRELLA CLAUSE CAN BE INVOKED, ELEVATING THE CLAIM OF ATTON

BORO TO A TREATY CLAIM.

i. THE TRIBUNAL MUST ADOPT THE BROAD INTERPRETAION OF THE

UMBRELLA CLAUSE IN ARTICLE 3(3)

(¶ 119.) As per Article 3 (3) of the Mercuria-Basheera BIT143,

“Each Contracting Party shall observe any obligation it may have entered into with regard to investments

of investors of the other Contracting Party.”

(¶ 120.) This is indicative of the intention of both parties to include an Umbrella Clause in the

BIT, for the purpose of protecting the investments of both parties. An Umbrella Clause is a clause

inserted to provide additional protection to investors and is directed at covering investment

agreements that host countries frequently conclude with foreign investors 144 . The Umbrella

Cl use is seen s “ n pplic tion of the gener l principle of pacta sunt servanda”.145 The very

frequent occurrence of the umbrella clause in modern investment treaties, and the different

language used in these treaties, leads to the question of why it is used in the first place. the treaty

interpreters shall interpret Article 12(2) in its plain meaning as according to Article 31 of VCLT. 146

The “ordin ry me ning” of provision prescri ing th t where “tre tment to e ccorded” y

“contr cting st te” to the investor “is more f vour le th n th t ccorded y the greement, the

more f vour le tre tment sh ll e ccorded” is not m iguous. The ph se “more favourable

tre tment sh ll e ccorded” in conson nce with the ph se “in ccord nce with its l ws &

regulations or other specific provisions or contracts" is imperative and rallies a duty upon the host

state with to respect its obligations with regard to investments of the investors. Also, it is one of

the cardinal rules of interpretation of international law and particularly by the PCIJ and ICJ, that

143 Mercuria-Basheera BIT, Page 34, Line 1033, Case 144 Yannaca-Small, K. Para 15-37 145 Article 2, 1967 OECD Draft Convention on the

Protection of Foreign Property 146 Eureko v Poland



treaties, and hence their clauses, are to be interpreted so as to render them effective rather than

ineffective. Hence, Article 3(3) qualifies as an umbrella clause.

(¶ 121.) In the Mercuria-Basheera BIT, a protectionist view of investments is seen in the preamble

of the BIT147, wherein emphasis has been placed on investments by nationals or corporations of

one party in the territory of the other party.148 In accordance with the view seen above, it is

evident that Article 3 (3) is intended to be an Umbrella Clause, which will elevate the breach of

contractual obligations by one party to the level of a treaty claim. 149 The two possible

interpret tions of the Um rell cl use re the „n rrow‟ nd „ ro d‟ interpret tions, which could

be seen in the two contrasting SGS Tribunal Awards.150

(¶ 122.) In the instant case, a broad interpretation of the Umbrella Clause must be adhered to by

the Tribunal. This is due to a multitude of factors.

(¶ 123.) In SGS v. Pakistan, the Tribunal found that the placement of the Umbrella Clause in the

provisions of the BIT shall be used as a tool to ascertain the intent of the parties of including such

a clause in the treaty. In the instant BIT, the Umbrella Clause is placed within the substantive

rights and protections guaranteed under Article 3 of the BIT. This, coupled with the use of

mandatory language are to be seen as aids to interpretation. The phrase, "shall observe" is

imper tive nd c tegoric l. "Any o lig tions” is c p cious; it me ns not only o lig tions of

certain type, but "any" - that is to say, all - obligations entered into with regard to investments of

investors of the other Contracting Party. 151 Furthermore, the intention of the parties can be

ascertained by the preamble of the BIT and the continued operations of Atton Boro in Mercuria,

even after the issuance of the compulsory license. The object and purpose rule also supports such

an interpretation. While it is not permissible, as is too often done regarding BITs, to interpret

clauses exclusively in favour of investors, here such an interpretation is justified. Considering,

that any other interpretation would deprive Art. 3 (3) of practical content 152 , reference has

necessarily to be made to the principle of effectiveness, also applied by other Tribunals in

interpreting BIT provisions. Furthermore, the duration of the Long-Term Agreement was set at 10

years, after the entering into force of the Mercuria-Basheera BIT, with a view to enjoy a long and

147 Mercuria-Basheera BIT, Page 32 , Case 148 Mercuria-Basheera BIT, Page 32, Lines 277-279, Case 149 Prosper Weil pp. 132 et seq 150 SGS v. Philippines & SGS v. Pakistan 151 Eureko v. Poland, 152 Noble Ventures v. Romania



prosperous, mutually beneficial relationship between the two parties. Thus, it can be ascertained

that both parties were intent on offering adequate protection to the investments in place.

(¶ 124.) In SGS v. Philippines, a test was identified for the purpose of determining whether the

contract is one which is entered into in relation to the investment and in the capacity of an

investor, or the is contract one entered into simply as a commercial contract without particular

focus on the investment itself. The former category will be governed under the scope of BIT

protection; while the latter will not. Thus, it is imperative for the State to have entered into the

contract in the capacity of the State and not in a mere commercial capacity. Since the NHA of

Mercuria was an instrumentality of the State, its actions could be attributable to that of the State.

This is a view further emphasized in the awards of future tribunals.153

(¶ 125.) In Toto v. Lebanon, the Tribunal upheld the view in SGS v. Philippines and reaffirmed

the broad interpretation of the Umbrella Clause. The same in applicable in the instant case

because the investments will be afforded an additional layer of protection, which is indicative of

the Parties wanting to continue in the spirit of the LTA. This view was further confirmed by the

st tement m de y the he d of Atton Boro‟s Mercuri division, which st ted th t the comp ny

shall continue “to benefit from its range of other health and lifestyle products”.

(¶ 126.) Thus, the Tri un l must find th t Atton Boro‟s cl im mounts to th t to th t of tre ty

claim by following the broad interpretation of the Umbrella Clause.

ii. The Claimants submit that the acts of the NHA are indeed attributable to the Republic

of Mercuria.

(¶ 127.) Under international law, a State may be attributable for the acts of other entities154, of

particular relevance to the instant matter, if it may be shown that the same acts were performed by

the entity in its exercise of elements of governmental authority155. In order for the same, it must

be shown firstly that the entity in question was authorized to exercise certain elements of

governmental authority (a) and secondly that the act in question occurred in the course of such

exercise (b).

a. The NHA was indeed empowered to exercise elements of governmental authority.

153 El Paso v. Argentina , CMS v. Argentina 154 Articles on State Responsibility, Article 2. 155 Articles on State Responsibility, Article 5.



(¶ 128.) The Claimant submits that a determination as to whether the NHA was empowered to

exercise elements of governmental authority may be determined based upon the formal or

structural composition of said entity and the functions which it is authorized to perform 156 .

Beyond cert in limit, wh t is reg rded s „government l‟ depends upon the p rticul r society,

its histories and traditions. Of particular importance will be not just the content of the powers, but

the way that they are conferred, the purposes for which they are to be exercised and the extent to

which the entity is accountable to the government for such exercise157. For the purposes of Article

5, an entity is covered even if its exercise of authority involves an independent discretion or

power to act. There is no need to show that the conduct was indeed carried out under the direction

or control of the State158.

(¶ 129.) From a formal or structural point of view, The NHA is a public entity, owned and

controlled by the State of Mercuria. It was set up by the Central Government in order to achieve

certain of its objectives159.

(¶ 130.) Furthermore, functionally, the NHA was set up in order to perform governmental

functions. It was set up for the sole purpose of assisting the Central Government in its quest to

fulfill its constitutional obligations to provide universal healthcare160. Therefore, the acts of the

NHA were solely for the purposes of fulfilling the very same obligations. As such, the NHA,

while entering into the public-private collaboration with the Claimant161, was indeed performing

elements of governmental authority which it was authorized to undertake.

(¶ 131.) As such, both the structural and functionality test laid down in Maffezini and followed by

numerous tribunals since have been fulfilled in the instant matter, giving rise to a strong

presumption as to the fact that the NHA was undertaking the collaboration in its exercise of

governmental authority162.

156 Maffezini v Spain, para 77; Jan De Nul v Egypt, para 168. 157 State Responsibility Articles Commentary, Article 5, para 6. 158 State Responsibility Articles Commentary, Article 5, para 7. 159 PO 1, Annex II, Statement by the Minister for Health Mr. Joseph Bell concerning the five-year health plan 1999-

2004, para 2, pg. 39. 160 PO 1, Annex II, Statement by the Minister for Health Mr. Joseph Bell concerning the five-year health plan 1999-

2004, para 2, pg. 39. 161 PO 1, Statement of Uncontested Facts, para 9, pg. 29. 162 Mafezzini v Spain, para 77.



(¶ 132.) Therefore, keeping in mind that the NHA was set up by the Central Government for the

sole purpose of undertaking governmental functions, all its acts may be deemed to be

governmental acts, as such attributing its acts to the Republic of Mercuria under international law.



b. The NHA, in terminating the LTA, violated its international obligations.

(¶ 133.) Clause 6 of the LTA allows for the premature termination of the LTA by the NHA only

upon the unsatisfactory performance of Atton Boro. The LTA does not allow for the termination

of the LTA for any other purposes163.

(¶ 134.) The facts of the dispute clearly show that the primary and sole reason for the termination

of the LTA by the NHA was the disagreement in the pricing of the drugs being purchased by the

NHA164.

(¶ 135.) Lastly, the existence of a breach on the part of the NHA in its termination of the LTA has

also been adjudicated upon by the Tribunal constituted pursuant to the Dispute Settlement Clause

in the LTA165.

(¶ 136.) Keeping in mind that pricing in no way is indicative of performance of Atton Boro in the

collaboration, the NHA unlawfully terminated the LTA, giving rise to a breach of its international

obligations166.

(¶ 137.) As such, the Cl im nt su mits th t the LTA m y e um rell ‟d in to the BIT to cre te n

international obligation on the part of the State of Mercuria. Such an international obligation was

breached by the NHA in its unlawful termination of the LTA and such breach is attributable to

the State of Mercuria. Therefore, the Claimant submits that the Tribunal must come to the finding

as to the commission of an internationally wrongful act by the State of Mercuria167.

163 PO 1, Statement of Uncontested Facts, para 10, pg. 29. 164 PO 1, Statement of Uncontested Facts, para 15, pg. 29-30. 165 PO 1, Statement of Uncontested Facts, para 17, pg. 30. 166 PO 1 Annex 1, BIT, Article 3(3), pg. 34. 167 Articles on State Responsibility, Article 2.



EXHIBIT- I

OWNERSHIP STRUCTURE

PARENT GROUP

PRIMARY HOLDING COMPANY

PRIMARY

COMPLETE OWNERSHIP OF

COMPLETE OWNERSHIP OF

ATTON BORO GROUP

ATTON BORO AND COMPANY

AFFIALIATES OF ATTON BORO GROUP

ATTON BORO LIMITED

(ATTON BORO)