THE 2015 FOREIGN DIRECT INVESTMENT INTERNATIONAL … · DTC Double Taxation Convention EC European Commission ECJ European Court of Justice ECR European Court Reports edn Edition

Team Guerrero

THE 2015 FOREIGN DIRECT INVESTMENT INTERNATIONAL

MOOT COURT COMPETITION

VASIUKI LLC

-CLAIMANT-

v.

THE REPUBLIC OF BARANCASIA

-RESPONDENT-

Arbitration Pursuant to the Rules of Arbitration of

The London Court of International Arbitration

LCIA Case No: 00/2014

29th of October – 1st of November

Memorandum on behalf of the Claimant

19th of September 2015

Word Count: 11,944

ii

TABLE OF CONTENTS

List of Abbreviations ...................................................................................... iv

List of Authorities ............................................................................................ v

Statement of Facts ............................................................................................ 1

Summary of Pleadings ..................................................................................... 3

Pleadings for the Jurisdictional Phase ........................................................... 4

I. THE DISPUTE FALLS WITHIN THE JURISDICTION OF THE

TRIBUNAL ........................................................................................................... 4

A. Applicable Law and its Interpretation................................................ 4

B. The Tribunal has jurisdiction ratione personae. ................................ 4

C. The Tribunal has jurisdiction ratione materiae. ................................ 5

D. The Tribunal has jurisdiction ratione temporis. ................................ 6

i. The Respondent’s attempt to terminate the BIT within the initial

period of 10 years was unsuccessful. ..................................................... 6

ii. The BIT fails to be terminated on the basis of mutual consent. ..... 8

iii. EU law does not make the BIT obsolete. ....................................... 8

E. The claims are admissible to the Tribunal. ...................................... 12

i. The parties consented to the resolution of the dispute. ................ 12

ii. The jurisdiction of this tribunal does not undermine the authority

of the CJEU. ......................................................................................... 12

Pleadings for the Merits Phase ..................................................................... 13

II. THE RESPONDENT HAS BREACHED THE BIT. ................................. 13

A. The Respondent has breached the standard of FET owed to the

Claimant under Art 3 of the BIT. .................................................... 13

i. The autonomous treaty standard of FET should be adopted. ...... 13

ii. The autonomous treaty standard extends to actions which are

unfair, unreasonable or unequitable. ................................................... 14

B. The change in the feed-in tariff for the photovoltaic projects breached

the Claimant’s legitimate expectations. ........................................... 14

iii

C. The Claimant was arbitrarily denied a licence for the Alpha projec 16

D. There was a lack of transparency in the Respondent’s conduct that

breaches FET ................................................................................... 17

E. In any event the amendment to the LRE was an arbitrary measure. 19

F. The Respondent cannot rely on essential security interests under Art

11 BIT to escape its obligations. ..................................................... 20

III. THE RESPONDENT SHOULD EITHER REPEAL ART 4 OF THE LRE

OR CONTINUE TO PAY VASIUKI THE €0.44 FEED-IN TARIFF FOR 12

YEARS. ................................................... 21

A. The Respondent should be ordered to repeal Art 4 of the LRE. ...... 21

i. Restitution is the primary form of remedy in international law... 21

ii. Juridical Restitution is possible in the present circumstances. ... 21

iii. The Tribunal should order restitution on behalf of the Claimant.22

B. Or the Respondent should continue to pay the original tariff. ......... 23

C. The Respondent would not be breaching any EU anti-trust measure

by damages to the Claimant............................................................. 23

IV. IN THE ALTERNATIVE, THE CLAIMANT REQUESTS THE

TRIBUNAL TO ORDER THE RESPONDENT TO PAY DAMAGES TO

THE CLAIMANT FOR ITS LOSSES. .......................................................... 24

A. The amount of compensation should be assessed according to the fair

market value as of 1 January 2013. ................................................. 25

B. The Discounted Cash Flow (DCF) Method is the appropriate method

in the present case. ........................................................................... 26

Prayers for Relief ........................................................................................... 28

iv

List of Abbreviations

[x] Paragraph

Art (s) Article(s)

BEA Barancasia Energy Authority

BIT Bilateral Investment Treaty

CJEU Court of Justice of the European Union

Claimant Vaisuki LLC

Cogitatia The Federal Republic of Cogitatia

DCF Discounted Cash Flow

DTC Double Taxation Convention

EC European Commission

ECJ European Court of Justice

ECR European Court Reports

edn Edition

EU The European Union

FET Fair and Equitable Treatment

ibid. ibidem (again)

ICJ The International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

ILC The United Nations International Law Commission

ILR International Law Reports

kWh kilowatt-hour

LCIA London Court of International Arbitration

LRE Law on Renewable Energy

No. Number

p Page

PCIJ Permanent Court of International Justice

Problem Foreign Direct Investment International Arbitration Moot 2015

Case

Q Question

Rep Report

Respondent The Republic of Barancasia

RIAA Reports of International Arbitral Awards

SCC Stockholm Chamber of Commerce

UNCITRAL United Nations Commission on International Trade Law

v. versus (against)

WACC Weighted Average Cost of Capital

WTO World Trade Organization

v

List of Authorities

CITED AS FULL CITATION

ICSID Cases

ATA Construction v.

Jordan

ATA Construction, Industrial and Trading Company v. The

Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2,

(Award, 18 May 2010)

AES v. Hungary

AES Summit Generation Limited and AES-Tisza Erömü Kft v.

The Republic of Hungary, ICSID Case No. ARB/07/22, (Award,

23 September 2010)

ADC v. Hungary

Final Award

ADC Affiliate Ltd. v. Hungary, ICSID Case No. ARB/03/16,

(Final Award, 27th September 2006)

ADC v. Hungary 2006

Award

ADC Affiliate Limited and ADC & ADMC Management Limited

v. The Republic of Hungary, ICSID Case No. ARB/03/16,

(Award, 2 October 2006)

ADF ADF Group Inc. v. United States of America, ICSID Case No.

ARB (AF)/00/1, (Award, 9 January 2003)

Azurix Corp. v.

Argentina

Azurix Corp. v. Argentina, ICSID Case No. ARB/01/12,

(Annulment Proceeding, 1st September 2009)

Biwater Gauff (Tanz.)

Ltd. v. Tanzania

Biwater Gauff (Tanz.) Ltd. v. Tanzania, ICSID Case No.

ARB/05/22, (Award, 18th July 2008)

CMS CMS Gas Transmission Company v. Argentina, ICSID Case No.

ARB/01/8, (Award, 12 May 2005)

Continental Casualty

Company

Continental Casualty Company v. Argentine Republic, ICSID

Case No. ARB/03/9, (Award, 5 September 2008)

Consortium RFCC v.

Kingdom of Morocco

Consortium RFCC v. Kingdom of Morocco, ICSID Case No.

ARB/00/6, (Award, 22 December 2003)

Desert Line LLC v.

Yemen

Desert Line LLC v. Republic of Yemen, ICSID Case No.

ARB/05/17; IIC 319 (Award, 6 February 2008)

Duke Energy v.

Ecuador

Duke Energy Electroquil Partners & Electroquil S.A. v. Republic

of Ecuador, ICSID Case No. ARB/04/19, (Award, 18 August

2008)

vi

EDF v. Romania EDF (Services) Limited v. Romania, ICSID Case No.

ARB/05/13, (Award, 8 October 2009)

El Paso v. Argentina El Paso v. Argentine Republic, ICSID Case No. ARB/03/15,

(Award, 31 October 2011)

Electrabel v. Hungary Electrabel S.A. v. Republic of Hungary, ICSID Case No.

ARB/07/19 (Decision on Jurisdiction, 30 Nov. 2012)

Enron v. Argentina

Enron Creditors Recovery Corporation (formerly Enron

Corporation) and Ponderosa Assets, LP v. Argentine Republic,

ICSID Case No. ARB/01/3, (Award, 22 May 2007)

Feldman Karpa v.

Mexico

Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1;

(Award, 16 December 2002)

Genin v. Estonia

Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The

Republic of Estonia, ICSID Case No. ARB/99/2, (Award, 25

June 2001)

Goetz v. Burundi Antoine Goetz and others v. Republic of Burundi, ICSID Case

No. ARB/95/3; IIC 16 (Award, 10 February 1999)

Impregilo v. Argentina Impregilo S.p.A. v. Argentine Republic, ICSID Case No.

ARB/07/17, (Award, 21st June 2011)

Kardassopoulos v.

Georgia

Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18,

ARB/07/15, (Award, 28th February 2010)

LG&E

LG&E Energy Corp, LG&E Capital Corp., and LG&E

International Inc. v. Argentina, ICSID Case No. ARB/02/1,

(Decision on Jurisdiction, 30 April 2004)

LETCO v. Liberia Liberian Eastern Timber Corporation (LETCO) v. Republic of

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

Maffezini v. Spain Emilio Agustín Maffezini v. Spain, ICSID Case No. ARB/97/7,

(Award, 13 November 2000)

Metaclad Metalclad Corporation v. The United Mexican States, ICSID

Case No. ARB(AF)/97/1, (Award, 20 August 2000)

Micula v. Romania

Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C.

Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID

Case No. ARB/05/20; IIC 339 (Decision on Jurisdiction and

Admissibility, 24 September 2008)

vii

MTD v. Chile MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Chile, ICSID Case

No. ARB/01/7, (Award, 25 May 2004)

Mondev Mondev International Ltd. v. United States, ICSID Case No.

ARB(AF)/99/2, (Award, 11 October 2002)

Parkerings v.

Lithuania

Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case

No. ARB/05/8, (Award, 11 September 2007)

Phoenix v. Czech

Republic

Phoenix Action, Ltd. v. The Czech Republic, ICSID Case No.

ARB/06/5, (Award, 15 April 2009)

PSEG Global Inc.

PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret

Limited Şirketi v. Turkey, ICSID Case No. ARB/02/5, (Award,

19 January 2007)

RSM v. Grenada

RSM Production Corporation v. Grenada, ICSID Case No.

ARB/05/14, (Order Of The Committee Discontinuing The

Proceeding and Decision on, 28 April 2011)

Rumeli Telekom AS v.

Kazakstan, Award

Rumeli Telekom AS and Telsim Mobil Telekomikasyon

Hizmetleri AS v. Kazakhstan, ICSID Case No. ARB/05/16;

(2008) IIC 344, (Award, 29 July 2008)

Rumeli Telekom AS v.

Kazakstan, Annulment

Application

Rumeli Telekom, A.S. v. Kazakhstan, ICSID Case No.

ARB/05/16, (Decision on Application for Annulment, 25 March

2010)

Saipem v. Bangladesh Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID

Case No. ARB/05/7, (2009) IIC 378 (Award, 30 June 2009)

Santa Elena v. Costa

Rica

Compañía del Desarrollo de Santa Elena SA v. Costa Rica,

ICSID Case No. ARB/96/1, (2000) IIC 73, (Final Award, 17

February 2000)

Sempra Sempra Energy International v. The Argentine Republic, ICSID

Case No. ARB/02/16, (Award, 28th September 2007)

Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No.

ARB/02/8, (Award, 6 February 2007)

SOABI v. Senegal Société Ouest Africa inedes Bétons Industriels (SOABI) v.

Senegal, ICSID Case No. ARB/82/1, (Award, 25 February1988)

Suez v. Argentina Suez, Sociedad General de Aguas de Barcelona S.A., and

InterAgua Servicios Integrales del Agua S.A. v. Argentina,

viii

ICSID Case No. ARB/03/17, (Decision on Jurisdiction, 16 May

2006)

Lowen v. USA

Loewen Group, Inc. and Raymond L. Loewen v. United States of

America, ICSID Case No. ARB(AF)/98/3, (Award, 26 June

2003)

Tecmed Técnicas Medioambientales Tecmed, S.A. v. The United Mexican

States, ICSID Case No. ARB(AF)/00/2, (Award, 29 May 2003)

Tokios v. Ukraine Tokios Tokelės v. Ukraine, ICSID Case No. ARB/02/18,

(Decision on Jurisdiction, 29 April 2004)

Toto v. Lebanon Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon,

ICSID Case No. ARB/07/12, (Award, 7 June 2012)

Vivendi v. Argentina

Compañiá de Aguas del Aconquija S.A. and Vivendi Universal

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

20 August 2007)

Waste Management II Waste Management, Inc. v. Mexico, ICSID Case No.

ARB(AF)/00/3, (Award, 30 April 2004)

ECJ Cases

ACT v.

Commissioners of

Inland Revenue

Test Claimants in Class IV of the ACT Group Litigation v.

Commissioners of Inland Revenue, Case C-374/04, Judgment of

the Court (Grand Chamber) of 12 December 2006

Asteris v. Hellenic

Republic & EEC

Asteris AE and others v. Hellenic Republic and European

Economic Community, Cases C-106 to 120/87, [1988] ECR 5515

Commission v. Air

France

Commission v. Air France, Case T-358/94, [1996] ECR II-2109;

Commission v. Austria

Commission of the European Communities v. Republic of

Austria, Case C-205/06, Judgment of the Court (Grand Chamber)

of 3 March 2009

Commission v.

Belgium & Forum 187

Commission v. Belgium and Forum 187, Cases C-182 and 217/03

[2006] ECR I-5479

Commission v.

Finland

Commission of the European Communities v. Republic of

Finland, Case C-118/07, Judgment of the Court (Second

ix

Chamber) of 19 November 2009

Commission v.

Germany, Netherlands

& Belgium

Commission v. Germany, Netherlands and Belgium, Cases C-67,

68 and 69/03, Commission Decision of 16 June 2004

Commission v.

Sweden

Commission v. Sweden, Case C-249/06, [2009] I-01335

Commission v. Van

der Kooy

Commission v. Van der Kooy, Cases C-67, 68 and 70/85, [1988]

ECR 219

D v. Heerlen

D. v. Inspecteur van de

Belastingdienst/Particulieren/Ondernemingen buitenland te

Heerlen, Case C-376/03, [2005] I-05821

FENIN v. Commission FENIN v. Commission. Case C-205/03, [2006] ECR I-06295

Stardust Marine France v. Commission (‘Stardust Marine’), Case C-482/99,

[2002] ECR I-4397

ICJ Cases

Avena & Other

Mexican Nationals

Case Concerning Avena and Other Mexican Nationals (Mexico

v. United States of America), Judgment, [2004] ICJ Rep 12

Barcelona Traction Barcelona Traction, Light and Power Company,

Limited (Belgium v. Spain) [1970] ICJ Rep 1

ELSI Elettronica Sicula S.p.A. (ELSI) (USA v. Italy) [1989] ICJ Rep

15

ELSI Verbatim Record

Elettronica Sicula S.p.A. (ELSI) (USA v. Italy) [1989] ICJ Rep

15 International Court of Justice Verbatim Record, C-3/CR 89/3

(15 February 1989) at 51

Gabcikovo

Nabymaros Project

Gabcikovo Nabymaros Project (Hungary v. Slovakia), Judgment,

[1997] ICJ Rep 7

LaGrand Case LaGrand Case (Germany v. United States of America), Merits,

Judgment, [2001] ICJ Rep 466

Legality of Nuclear

Weapons Advisory

Opinion

Legality of the Use by a State of Nuclear Weapons in Armed

Conflict, Advisory Opinion, [1996] ICJ Rep 226

x

Legality of Use of

Force

Case Concerning the Legality of Use of Force (Serbia and

Montenegro v. Belgium) (Preliminary Objections) [2004] ICJ

Rep 279

Namibia

Advisory Opinion on the Legal Consequences for States of the

Continued Presence of South Africa in Namibia [1971] ICJ Rep

16

Tehran Hostages United States Diplomatic and Consular Staff in Tehran (United

States v. Iran) [1980] ICJ 1

Temple of Preah

Vihear

Temple of Preah Vihear (Merits) (Cambodia v. Thailand) [1962]

ICJ Rep 6

PCIJ Cases

Factory at Chorzów Factory at Chorzów (Indemnities, Merits) (Germany v. Poland)

[1928] PCIJ (ser. A) No. 17

Free Zones of Upper

Savoy

Free Zones of Upper Savoy and the District of Gex Case (France

v. Switzerland) (1932) PCIJ (ser. A/B) No. 46

The Peter Pázmány

University

Appeal from a Judgment of the Hungaro/Czecoslovak Mixed

Arbitral Tribunal (The Peter Pázmány University case) (1933)

PCIJ (ser. A/B) No. 61

RIAA Cases

Beaumont Case Beaumont Case (the Eilenroc II) (1965) 14 UNRIAA 174

Forests of Central

Rhodope

Forests of Central Rhodope (Greece v. Bulgaria) (1933) 3

UNRIAA 1405

Expropriated

Religious Property

Religious Property Expropriated by Portugal (Spain, France,

and Great Britain v. Portugal) (1920) 1 RIAA 7

Lebas de Courmont Heirs of Lebas de Courmont (1957) 13 RIAA 761

Neer L. F. H. Neer and Pauline Neer (USA) v. United Mexican States

(1926) 4 UNRIAA 60

Radio East Radio East Case (Levant States under French Mandate against

Egypt) (1940) 3 UNRIAA 1871

Rainbow Warrior

Affair

Case Concerning the Rainbow Warrior Affair (New Zealand v.

France) (1990) 19 RIAA 216

xi

Spanish Zone of

Morocco Claims

British Claims in the Spanish Zone of Morocco (Great Britain v.

Spain) (1924 ) 2 RIAA 615

Walter Smith case Walter Fletcher Smith case (USA v. Cuba) (1929) 2 RIAA 913

SCC Cases

Bogdanov v. Moldova

Iurii Bogdanov, Agurdino-Invest Ltd. and Agurdino-Chimia JSC

v. Republic of Moldova, SCC (Arbitral Award, 22 September

2005)

Eastern Sugar v.

Czech Republic

Eastern Sugar B.V. (Netherlands) v. The Czech Republic, SCC

Case No. 088/2004, (Partial Award, 27 March 2007)

Nykomb Synergetics v.

Latvia

Nykomb Synergetics Technology Holding AB v. The Republic of

Latvia, SCC Case No. 118/2001, IIC 182 (Arbitral Award, 16

December 2003)

Petrobart Petrobart Limited v. The Kyrgyz Republic, SCC Case No.

126/2003, (Arbitral Award, 29 March 2005)

RosInvest Ltd v.

Russian Federation

RosInvest Co. U.K. Ltd. v. Russian Federation, SCC Case No.

V079/2005, (Final Award, 12 September 2010)

UNCITRAL CASES

Alps Finance v.

Slovak Republic

Alps Finance and Trade AG v. The Slovak Republic,

UNCITRAL, Case No. IIC 489 (Award, 5 March 2011)

BG v. Argentina BG Group plc v. Argentina, UNCITRAL, (Final Award, 24

December 2007)

Canfor v. USA

Canfor Corporation v. United States and Terminal Forest

Products Ltd, UNCITRAL, (Decision on Preliminary Question, 6

Jun. 2006)

Eureko v. Slovak

Republic

Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No.

2008-13 (formerly Eureko B.V. v. The Slovak Republic), (Award

on Jurisdiction, Arbitrability and Suspension, 26 October 2010)

Gallo v. Canada Vito G. Gallo v. Canada, UNCITRAL, PCA Case No. 55798

(Statement of Claim, 23 June 2008)

GAMI GAMI Investments, Inc. v. Mexico, UNCITRAL (Final Award,

15 November 2004)

Glamis Gold v. USA Glamis Gold Ltd v. The United States of America, UNCITRAL,

(Award, 8 June 2009)

xii

Himpurna v.

Indonesia

Himpurna Cal. Energy Ltd v. PT (Persero) Persusahaan Listruik

Negara (Indonesia), UNCITRAL (Final Award, 4 May 1999)

International

Thunderbird

International Thunderbird Gaming Corporation v. The United

Mexican States, UNCITRAL, (Separate Opinion (of Thomas

Wälde), 1st December 2005)

Lauder v. Czech

Republic

Lauder v. Czech Republic, UNCITRAL (Final Award, 3

September 2001)

Merrill & Ring Merrill & Ring Forestry LP v. Canada, UNCITRAL, (2010) IIC

427 (Award by Ad Hoc Tribunal, 31 March 2010)

National Grid v.

Argentine

National Grid plc v. Argentine Republic, UNCITRAL, Case

1:09-cv-00248-RBW (Award, 3 November 2008)

Pope & Talbot,

Damages award

Pope & Talbot Inc v. Canada, UNCITRAL, (Award in Respect

of Damages, 31 May 2002)

Pope & Talbot, Merits

award

Pope & Talbot Inc v. Canada, UNCITRAL, (Award on the

Merits of Phase 2, 10 April 2001)

Saluka Saluka Investments BV v. Czech Republic, UNCITRAL, (Partial

Award, 17 March 2006)

UPS v. Canada United Parcel Services of America Inc v. Canada,

UNCITRAL, (Award on Jurisdiction, 22 November 2002)

WTO Cases

Argentina Textiles and

Apparel

Argentina — Measures Affecting Imports of Footwear, Textiles,

Apparel and other Items (1998) WT/DS56/AB/R

India Patent (US) India — Patent Protection for Pharmaceutical and Agricultural

Chemical Products (1997) WT/DS50/R

US Carbon Steel

United States — Countervailing Duties on Certain Corrosion-

Resistant Carbon Steel Flat Products from Germany (2002)

WT/DS213/AB/R

US Continued Zeroing United States — Continued Existence and Application of Zeroing

Methodology (2009) WT/DS350/AB/R

US Gasoline United States – Standards for Reformulated and Conventional

Gasoline (1996) WT/DS2/AB/R

Ad Hoc Tribunals

xiii

LIAMCO Libyan American Oil Company (LIAMCO) v. The Government

of the Libyan Arab Republic (1977) 62 ILR 140

Sapphire v. National

Iranian Oil Co

Sapphire International Petroleum Ltd. v. National Iranian Oil

Co, Ad hoc Tribunal, Arbitral Award (15 March 1963), 35 ILR

136, 187-88

Other CASES and awards

Amoco v. Iran Iran-US Claims Tribunal, Amoco Int‘l Finance Corp. v. Iran,

(1987) 15 CTR 112

Martini Case Italy v. Venezuela (1931) 25 AJIL 556

Pezoldova v. Czech

Republic

Pezoldova v. Czech Republic, Merits, UN Doc

CPR/C/76/D/757/1997

TOPCO Texaco Overseas Petroleum Company/California Asiatic Oil

Company (TOPCO) v. Libya, Merits (1979) 53 ILR 389

LCIA CASES

Occidental Occidental Exploration and Production Company v. Ecuador,

LCIA Case No. UN3467, (Final Award, 1 July 2004)

TREATIES

GATT

General Agreement on Tariffs and Trade, (adopted 30 October

1947, entered into force provisionally on 1 January 1948) 55

UNTS 187

ICJ Statute Statute of the International Court of Justice, (adopted 26 June

1945, entered into force 24 October 1945) 145 BSP 832

NAFTA

The North American Free Trade Agreement (adopted 17

December 1992, entered into force 1 January 1994) 32 ILM 289,

605

New York Convention

Convention on the Recognition and Enforcement of Foreign

Arbitral Awards (adopted 10 June 1958, entered into force 7 June

1959) 330 UNTS 3

xiv

VCLT Vienna Convention on The Law Of Treaties (adopted 23 May

1969, entered into force 27 January 1980) 1155 UNTS 331

LEGISLATION

ALI Restatement of

Foreign Relations

Law

The American Law Institute's Restatement (Third) of the Foreign

Relations Law of the United States (American Law Institute

Publishers, 1987)

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Warner (eds), Investment Treaty Law, Current Issues II (BIICL

2007)

Schreuer Schreuer, C. ‘Fair and Equitable Treatment in Arbitral Practice’

(2005) 6 JWIT 357

Thomas

Thomas, J.C. ‘Reflections on Article 1105 of NAFTA: History,

State Practice and the Influence of Commentators’ (2002) 17

ICSID Rev 21

Tietje

Tiejte, C. ‘Bilaterale Investitionsschutzvertrage zwischen EU-

Mitgliedstaaten (Intra-EU-BITs) als Herausforderung im

Mehrebenensystem des Rechts’ in Matthias Lehmann (ed),

xvii

Beiträge zum Transnationalen Wirtschaftsrecht (Transnational

Economic Law Research Center (TELC) -Institut für

Wirtschaftsrecht, Issue 104, 2011).

UNCTAD on FET

United Nations Conference on Trade and Development, ‘Fair and

Equitable Treatment: A Sequel’, UNCTAD Series on Issues in

International Investment Agreements II (2012)

WTO Working Group

WTO, Working Group on the Relationship between Trade and

Investment, ‘Transparency’, Note by Secretariat,

WT/WGTI/W/109 (27 March 2002)

1

Statement of Facts

Legal development in Barancasia

On 31 December 1998, the Republic of Barancasia (“Barancasia”) and the

Federal Republic of Cogitatia (“Cogitatia”) concluded a BIT. It entered into force on

the 1 August 2002.

On 1 May 2004, both states joined the European Union (the “EU”). After this,

Barancasia’s Government reviewed its Intra-European Union BITs and concluded that

they had become obsolete. As a result, on 29 June 2007 the Federal Republic of

Cogitatia notified Barancasia that it intended to immediately terminate the BIT, to

which the Minister of Foreign Affairs of Cogitatia replied on 28 September 2007.

After 1 August 2012, the parties were entitled to unilaterally terminate the BIT. In

an interview dated 5 May 2012, the Prime Minister of Barancasia mentioned

Barancasia’s further informal attempts to terminate the BIT.

In May 2010, Barancasia adopted the LRE, which was aimed at encouraging

the further development and introduction of renewable energy technology until the

share of electricity generated from renewable sources amounts to no less than 20

percent as compared with the country’s gross consumption of energy; a target it has yet

to reach to date.

The LRE provided that this would be encouraged by fixing general feed-in tariffs

for those who receive a license from the BEA. The tariff would be applicable for 12

years from the time of the issuance of a license. On 1 July 2010 the BEA announced

publicly the fixed feed-in tariff: 0.44 EUR/kWh.

During 2011, ground-breaking technology was developed which reduced the costs

of development. From the beginning of 2012, it became apparent to the Government of

Barancasia that the whole renewable energy support scheme was unsustainable and

maintaining it would result in exceeding its budget. In November 2012, private

hearings took place before the Barancasian Parliamentary Energy Committee, in which

only specially invited representatives of the industry and certain stakeholder groups

were called to present testimony. Subsequently, the BEA amended the LRE and

announced the new fixed feed-in tariffs, which was significantly reduced to 0.15

EUR/kWh, and retroactively applied from 1 January 2013.

2

The activities of the investor

Vaisuki had been engaged in the development of small scale fossil fuel and wind

turbine generation facilities in Cogitatia and elsewhere in the region. In May 2009,

Vasiuki purchased land plots in Barancasia and decided to launch an experimental solar

project Alfa which was 1 January 2010 connected to the grid.

Vasiuki applied for a license for the Alfa project, but the BEA denied this request

on 25 August 2010 because a fixed feed-in tariffs would only be available for new

projects, not for existing ones. .

On that same date, Vasiuki successfully obtained a license for 12 years with a

guaranteed 0.44 EUR/kWh tariff for its second photovoltaic project, Beta, which

became operational on 30 January 2011. Vasiuki also decided, building on its efforts

from the Alpha and Beta projects, to launch 12 more photovoltaic projects using the

new and cheaper technology. Vasiuki obtained all the necessary resources including

money, several plots of land and obtained construction permits.

On 1 July 2012, Vasiuki obtained licenses from the BEA for the development of

12 photovoltaic power plants with an approved 0.44 EUR/kWh feed-in tariff. Thus it

started the construction of photovoltaic power plants based on the new technology.

By that time Vasiuki had made considerable investments of its own.

3

Summary of Pleadings

I. The Claimant submits that the Tribunal has jurisdiction over the

dispute.

A. The Claimant is an investor for the purposes of Art 1(1) of the BIT

and their photovoltaic solar projects and licenses in respect of it

constitute investments to be protected under Art. 1(2) BIT because

they both satisfy the criteria in the BIT.

B. The investments were made while the BIT was in force because the

Respondent failed to provide valid notification to terminate and the

Lisbon Treaty did not replace the BIT.

C. The claims are admissible before the Tribunal, as there is consent to

arbitration by both parties, which cannot be struck out on the basis

of the authority of the CJEU, which lacks jurisdiction to hear

investor-state disputes.

II. The Respondent has breached the standard of FET under the Art 3

BIT.

A. The Claimant submits that a wide interpretation of FET, as an

autonomous treaty standard, is the proper construction of Article.

B. The Claimant submits that the Respondent has breached this

standard because its amendment to the LRE and feed-in tariffs were

arbitrary, opaque and breached legitimate expectations.

III. The Claimant submits that the Tribunal should order the Respondent

to repeal the amended Art 4 of the LRE.

A. The Claimant contends that restitution is the primary form of remedy

for this Tribunal as dictated by customary international law.

B. The Claimant further submits that this order would not breach any

other EU obligations due to its involuntary nature.

IV. In the alternative, the Claimant submits that the Tribunal should

require the Respondent to compensate for the Claimant’s losses.

A. The Claimant submits that the compensation should be calculated

according to the DCF method in addition to the sunk costs in starting

up the investments.

4

Pleadings for the Jurisdictional Phase

I. THE DISPUTE FALLS WITHIN THE JURISDICTION OF THE TRIBUNAL

A. Applicable Law and its Interpretation

Whilst treaty and customary obligations exist independently of each other, the

BIT must be interpreted in light of relevant rules of international law applicable

between the parties.1 Art 31 of the VCLT, which contains the general rules of treaty

interpretation, applies because it is representative of customary international law.2 Art

31(3)(c) provides that in addition to considering the context, Tribunals may look to

relevant rules of international law. Therefore, decisions of international courts and

tribunals constitute “subsidiary means”3 for determining rules of international law and

can be used to provide guidance on the interpretation of the terms within the BIT. In

addition to this, the decisions of other Arbitral Tribunals form a body of jurisprudence,

which may be considered by this Tribunal.

B. The Tribunal has jurisdiction ratione personae.

The Claimant is an investor as defined under Art 1(2)(b) of the BIT and so the

BIT applies to afford protection to their investments.4 The BIT requires incorporation

and a permanent seat in the territory of the Contracting Party. The Claimant is a Limited

Liability Company, incorporated under the laws of Cogitatia.5 The permanent seat of a

legal person is determined by the location of its main activities or management.6 The

Claimant’s correspondences were completed through it’s headquarter in Cogitatia7 thus

1 Article 31(3)(c) VCLT. 2 US Gasoline, p17 and p3 at [16]; India Patent (US), [46]; Argentina Textiles and Apparel, [42]; US

Carbon Steel, [61]–[62]; US Continued Zeroing, [268]; Villiger, Art. 31 [37-8]; Legality of Use of Force,

[100]; LaGrand Case, [99]; Legality of Nuclear Weapons Advisory Opinion, [19]. 3 Art 31(3)(c) VCLT; Art 38(1)(d) ICJ Statute. 4 Art 12 BIT. 5 Problem, Statement of Uncontested Facts, p20 [3]. 6 Tokios Tokelės v. Ukraine, p43. 7 Alps Finance v. The Slovak Republic, p88.

5

suggesting that Cogitatia is the location of its permanent seat. Therefore, the Claimant

is an investor for the purposes of the BIT.

C. The Tribunal has jurisdiction ratione materiae.

The Claimant’s photovoltaic solar projects constitute an investment, as defined

under Art 1(1) of the BIT thus the BIT applies.8 The investment must be in the territory

of the Respondent according to its laws and regulations, and in connection with

economic activities.

Art 1 of the BIT requires the investment to be made in connection with

economic activities. However, it does not provide a definition. Thus the ECT offers

guidance for what constitutes economic activity in an energy dispute that this case is.

The definition for economic activity within the energy sector in Art 5(1) of the ECT

includes the production and trade of energy9. This attributes to the activities conducted

by the Claimant and hence Claimant’s investment was done in connection with an

economic activity.

The projects were built in line with the Clean Energy targets which the

Respondent set for itself, in line with the EU, to support both economic and ecological

development of its country. Further the lack of profitability is to be attributed to the

Respondent’s actions as the Respondent did not grant the tariffs available to all the

other projects. The Tribunal in Phoenix v Czech Republic had to evaluate a situation

where there had been no commercial activity apart from the acquisition because the

Respondent had frozen assets of the Claimant in connection with legal proceedings

against it. Nonetheless, the Tribunal accepted the operations by the Claimant as an

investment for the purpose of the BIT because a denial would have misinterpreted aims

of the BIT.10

8 Art 12 BIT. 9 FENIN v. Commission, [25]. 10 Phoenix v. Czech Republic, [133].

6

The Tribunal in Phoenix v Czech Republic uses the construction and operation

of energy plants as the most undisputable example of an investment.11 As was the case

in Phoenix v Czech Republic the Tribunal in the present case should find that the

Claimant’s solar projects constitute an investment for the purposes of the BIT.

Furthermore, the guaranteed feed-in tariff for licensed projects granted under

the BEA constitute an investment under the non-exhaustive list of examples of

investments provided under Art 1(1)(e) of the BIT. This was frequently applied by other

tribunals.12 As such the right to the fixed feed-in tariff of 0.44EUR/kwH13 for the Beta

and twelve other projects constitute a protected investment under the BIT.

Therefore, all of the Claimant’s solar projects constitute an investment for the

purposes of the BIT and should be afforded protection under the BIT.

D. The Tribunal has jurisdiction ratione temporis.

The Claimant submits that all investments were made while the BIT was still in

force. The Respondent’s attempts to unilaterally terminate the BIT and the parties’

accession to the EU, does not result in a valid termination of the treaty before the

investments were made.

i. The Respondent’s attempt to terminate the BIT within

the initial period of 10 years was unsuccessful.

In considering the procedures for termination of the BIT, provisions within the

BIT are the lex specialis and the VCLT forms the lex generalis14, as Barancasia and

Cogitatia are parties to the VCLT.15 Art 13 (2) BIT prescribes a period of 10 years

before the treaty can be unilaterally terminated. Art 13(1) BIT states that the BIT enters

into force on the date of the last written notification through diplomatic channels, which

11 Phoenix v Czech Republic, [79]. 12 RMS v Grenada, p30; LG&E, p82. 13 Problem, Statement of Uncontested Facts, p22 [16-7]. 14 Amoco v Iran, p112. 15 Problem, Procedural Order No 2, p58 Q5.

7

occurred on 1 August 2002.16 As confirmed in Art 24(1) VCLT, the BIT enters into

force in the manner and on the date agreed by the parties. Therefore the BIT may be

unilaterally terminated on 1 August 2012.

The Respondent first stated its intent to terminate the treaty on 29 June 2007.17

The termination should occur on 30 June 2008 when Resolution No. 1800, enacted by

the Respondent, takes effect.18 Both dates fall within the 10 year period in which the

BIT cannot be terminated. The Respondent failed to comply with the exact procedures,

it had itself put in place for the termination of the BIT hence the Respondent’s attempt

to terminate the BIT is invalid.

In the alternative, Art 65(1) VCLT requires a procedure to be followed with

respect to the termination of a treaty.19 Art 65(1) requires notification of the reasons

and measures for termination of the treaty. 20 Neither the Respondent’s notification of

termination, nor the Resolution No.1800 that it refers to, indicate a clear reason as to

why it wishes to terminate the BIT. Therefore, the notification to terminate is invalid

for the time after the initial period and does not follow the required procedures under

the VCLT.

The Claimant further submits that all other attempts do not qualify as a valid

termination. Firstly, the notifications were made informally21 and therefore do not

constitute “written notification through diplomatic channels”, as prescribed by Art

13(2) BIT. Secondly, the notifications did not indicate the reasons for the termination

for the purposes of Art 65(1) VCLT.

16 Problem, Procedural Order No 2, p57 Q1. 17 Problem, Statement of Uncontested Facts, p21 [9], p38. 18 Problem, Appendix to the Government Resolution, p38. 19 Art 54 VCLT. 20 Krieger, p1145. 21 Problem, Statement of Uncontested Facts, p22 [24].

8

ii. The BIT fails to be terminated on the basis of mutual

consent.

Art 54(b) VCLT allows for the immediate termination of a treaty when there is

mutual consent. The notice of delivery of receipt of the Respondent’s notification on

29 June 2007 does not demonstrate any intention by the Cogitatia to terminate the

treaty.22 Cogitatia has in any way demonstrated consent through any of its actions, such

as the exchange of instruments, ratification, accession or signing of any documents.

Furthermore, there have been no consultations between the parties regarding the

termination of the BIT.23 The lack of response to the informal notifications24 cannot be

treated as consent because the Claimant was not required to respond to communication

that is invalid under international law.25 Cogitatia has not expressed any clear consent

to termination, and therefore, the treaty cannot be terminated on the basis of mutual

consent.

iii. EU law does not make the BIT obsolete.

The accession of both states to the EU does not make the treaty obsolete as the

BIT was already in force.26 Art 59 VCLT allows for the termination of a treaty implied

by the conclusion of a latter treaty, which Respondent argues to be the Lisbon Treaty.

Respondent incorrectly applies this provision and fails to fulfil the requirements under

this provision, therefore all investments are protected under the treaty as it remains in

force.

Art 59(1) VLCT requires the later treaty to govern the same subject matter. The

Treaty of Lisbon, as an amending treaty to the Treaty on European Union and the Treaty

Establishing the European Community, does not provide for a dispute settlement

procedure for an investor or the detailed investment protections that a BIT offers.27 This

view was confirmed by the tribunal in Eureko v Slovak Republic, which discussed the

22 Problem, Statement of Uncontested Facts, p21 [10], p39. 23 Art 54 VCLT. 24 Problem, Problem, Statement of Uncontested Facts, p22 [24]. 25 Behrens, p23. 26 Problem, Procedural Order No 2, p57 Q1; Art 13(1) BIT. 27 Tiejte, pp12-5.

9

same legal issues as in the present case. 28 The Tribunal described the protection

mechanisms for investors under EU law to “narrower and more loosely defined”.29

Further, even within the EU law there is no indication that it is aimed to replace any

standards of protection within BITs.30 The key aim of EU law in this area is to protect

investment mobility, whilst BITs are designed for protecting investment security.31

The second requirement under Art 59 VCLT is that it must be clear form the

parties’ intention that the matter should be governed by the latter treaty 32 or the

provisions are so far incompatible that they cannot be applied simultaneously.33

Under Art 59(1)(a) VCLT, although the Respondent’ intent to terminate the

treaty is clear,34 the Claimant’s home state has not indicated any such intention, nor

have they indicated that they consider the BIT to be obsolete. Academic commentary

expresses the need to establish intention beyond reasonable doubt.35 There are no

precedents where the single act of accession to the EU has been recognised as

sufficiently clear intention to have their investment protection being guided solely by

EU law. Since Cogitatia has not demonstrated a clear intention for their investment

protection to be guided under EU law instead of the BIT, the BIT may not be terminated

on the basis of Art 59(1)(b).

Art 59 (1)(b) VCLT requires the latter treaty to be incompatible with the BIT.

The Claimant submits that the treaties are not so far incompatible that they may not

coexist. In the alternative, the Claimant submits that this limb of the provision is

ultimately linked to the intention of the parties and a clear lack of intention on the

parties should negate the operation of this provision36.

28 Eureko v Slovak Republic, p252. 29 ibid. 30 ibid. 31 Strik, p249. 32 Art 59(1)(a) VCLT. 33 Art 59(1)(b) VCLT. 34 Problem, Statement of Uncontested Facts, p20 [6], p36, p21 [9]&[11], p38. 35 Krieger, p1017. 36 Electrabel v. Hungary, [5.32].

10

The BIT and EU law are not incompatible as the laws on free transfer of capital,

the right to a fair treatment and the jurisdiction of the CJEU are not in conflict with the

provisions of BIT. The authority of the EU to restrict the free movement of capital37

only applies to non-member states under Art. 64, 66 and 75 TFEU. 38 In one of its

rulings against Finland, the CJEU confirmed that this EU freedom did not conflict with

the relevant BIT because the guarantee of this freedom only applies to members of the

EU. Therefore, with regard to an Intra-European BIT, such conflict would not arise. 39

Furthermore, the prohibition of discrimination under Art 18 TFEU does not

conflict with the access to arbitration for investors of a certain member state under a

BIT because this advantage cannot be conferred to other members of the EU. The CJEU

regards certain rights such as taxation privileges of DTCs as inherent to bilateral

agreements.40 These rights cannot be separated from the BIT therefore they cannot be

conferred to states who are not parties to the treaty. An investor outside of the two

contracting countries is not in a comparable situation according to the CJEU because

their home state did not sign the treaty and thus the rights cannot be conferred to him.

Similarly, the Tribunal should recognise the nature of Art 8 BIT, which allows an

investor to submit disputes before a Tribunal. This right cannot be conferred to

investors of other states under this specific BIT, therefore it does not conflict with the

prohibition of discrimination under EU laws.

Whilst Art 207 TFEU requires Member states to renegotiate their BITs with

non-Member States, Regulation No 1219/2012(15) exempts its application to intra-EU

BITs. Since the BITs are permitted to remain in force as an exemption, this suggests

that intra-EU BITs are compatible with the EU legal system. Furthermore, even extra-

EU BITs remain in force until an investment treaty between the third state and the EU

is completed according to the regulation.

In addition, Art. 351 TFEU confers the authority to its Member States to amend

treaties even after their accession to the EU to be in accordance with EU law. This

37 Steiner, p426. 38 Commission v. Finland, p38. 39 ibid. 40 D v. Heerlen, p61; ACT v. Commissioners of Inland Revenue, p91; Strik, pp224-9; and Tiejte, pp15-7.

11

proves that neither the conclusion of the Lisbon Treaty nor the accession to the

European Union can immediately terminate the BITs. This is in accordance with the

judgment in Eastern Sugar v Czech Republic when the Tribunal quoted the European

Commission Letter of January 13, 2006:

“[…] the effective prevalence of the EU acquis does not entail, at the

same time, the automatic termination of the concerned BITs... Without prejudice

to the primacy of Community law, to terminate these agreements, Member

States would have to strictly follow the relevant procedure provided for this in

regard in the agreements themselves.”41

In the alternative, the Claimant submits that the intention of the parties plays a

role in the operation of Art 59(b) VCLT and the lack of such intention means that the

treaty may not be terminated on this basis. Although this appears to be an objective

limb of the Art 59 VCLT, it “necessarily remain[s] intrinsically linked to the intention

of the parties”42 to replace the treaty.43 An incompatibility is considered to be a means

of establishing the intention to replace the previous treaty by making the latter

significantly different. A mere difference in the governance of the subject matter cannot

suffice to establish intention because it cannot be easily presumed.44 Otherwise, it

would leave a lacuna of protection for investors which cannot have been in the intention

of the parties because the stimulation of investments is a goal of the common

commercial policy of the EU.45 Therefore, Cogitatia’s lack of intention to terminate the

treaty on this basis should negate any possibility to terminate the treaty based on the

incompatibility of the provisions of the Lisbon Treaty and the BIT.

41 Eastern Sugar v. Czech Republic, p25. 42 Corten & Klein, p1341. 43 Krieger, p1019. 44 Dubuisson, p1341. 45 European Commission Communication.

12

E. The claims are admissible to the Tribunal.

i. The parties consented to the resolution of the dispute.

The consent to arbitration was given by both parties to the dispute. Art 8 BIT

manifests the Respondent’s unilateral offer to submit “any dispute which may arise

between an investor of one Contracting Party and the other Contracting Party in

connection with an investment in the territory of that other Contracting Party” before

a Tribunal if the dispute cannot be resolved by negotiations within six months.46 For

the reasons explained in (I)(A)-(C), the present case is a dispute of this nature, and the

Respondent has declined negotiations on 20 April 2014.47 The Respondent’s offer was

accepted when the Claimant submitted the Request for Arbitration.48 Therefore, the

Tribunal has jurisdiction over the dispute.

ii. The jurisdiction of this tribunal does not undermine the

authority of the CJEU.

The claim cannot be decided by the CJEU because Art 344 TFEU only allows

for disputes to be submitted by Member States and not by private individuals or entities.

The Tribunal in Eureko further explained that although provisions of EU law are

considered, this does not mean that the case should be referred to the CJEU instead

because it does not possess a monopoly over the interpretation of EU law.49 In the

present case, the Claimant asks for the Tribunal to decide on whether there is a breach

of the BIT in light of EU law, as opposed to deciding whether or not there has been a

breach of EU law itself. As such, the present claim is admissible before this Tribunal.

46 Schreuer, p830; Art 8(5) BIT. 47 Problem, Request for Arbitration, p3. 48 ibid, [3]. 49 ibid, [282].

13

Pleadings for the Merits Phase

II. THE RESPONDENT HAS BREACHED THE BIT.

A. The Respondent has breached the standard of FET owed to the

Claimant under Art 3 of the BIT.

The Claimant submits that it was not afforded Fair and Equitable Treatment by

the Respondent. The Respondent has taken measures that have had the effect of

systematically destroying the Claimant’s investment. The measure of particular interest

is the amendment to the LRE.50 This measure was arbitrary and instigated further

breaches of the BIT, such as the review and subsequent amendment of the feed-in tariff.

The Claimant seeks to rely on the elements of arbitrariness, transparency and the

protection of legitimate expectation to demonstrate that the Respondent has breached

the BIT.

i. The autonomous treaty standard of FET should be

adopted.

The BIT does not provide a definition of FET therefore the customary

international law rules on treaty interpretation are of use in informing the categories of

the substantive protection in question. Furthermore, the customary international law of

treaty interpretation is helpful in defining the scope of these categories. FET as an

autonomous treaty standard has found favour in numerous tribunal.51 It is generally

accepted that a minimum standard of treatment also exists in customary international

law52 and is constantly evolving.53 However, this is different from the autonomous

50 Problem, Statement of Uncontested Facts p24 [34], The Republic of Barancasia Regulaton on the

Support of Photovoltaic Sector, p34. 51 MTD v. Chile, [110-2]; Occidental, [188-90]; CMS, [282-84]; Saluka, [286-95]; LG&E, [125-31];

PSEG Global Inc, [239]; Siemens, [291-99]. 52 See: Barcelona Traction, p32; Merrill & Ring, [210]; Roth; Borchard; Brownlie, pp502-5;

Oppenheim's International Law, pp903-39; and Thomas, for a comprehensive discussion of authorities

on the minimum standard of treatment. 53 ADF, [179].

14

treaty standard54 and is not the standard that the Claimant seeks to apply in the present

case.

ii. The autonomous treaty standard extends to actions

which are unfair, unreasonable or unequitable.

The autonomous treaty standard, has evolved beyond the standard in the Neer55

case. A modern interpretation of the autonomous FET standard is broader and aligns

more with a teleological interpretation of unfairness or in-equitability.56 This includes

arbitrary conduct, discrimination, the frustration of legitimate expectations and a lack

of transparency. The claimant submits that the Respondent’s conduct was arbitrary,

opaque, and violated the Claimant’s legitimate expectations.

Although the word ‘treatment’ is not defined in the BIT, the customary

international law of treaty interpretation can be used to discern its meaning. The

meaning of treatment within the context of investment includes actions directed

towards investments which are protected under the BIT, and further obligations

imposed on such investments.57

B. The change in the feed-in tariff for the photovoltaic projects

breached the Claimant’s legitimate expectations.

FET has been interpreted to include procedural and substantive protections,

including the protection of legitimate expectations.58 This requires the host state to act

in a consistent and predictable manner, 59 especially when dealing with matters

54 UNCTAD on FET, p13. 55 Neer, pp60-6. 56 Pope & Talbot, Damages award, [57], [65]; Pope & Talbot, Merits award, [118]; ELSI, [128];

Mondev, at [114], [116] & [127]; UPS v. Canada , [96-7]; ADF, [181]; Waste Management II, [93],

[98]; GAMI, [95]; Genin v. Estonia, [289]; Saluka, [293]; ALI Restatement of Foreign Relations Law,

Section 172. 57 Suez v. Argentina, [55]. 58 El Paso v. Argentina, [348]; Tecmed, [154]; Metalclad, [89], [103]; EDF v. Romania, [216]; UNCTAD

on FET; Dolzer; Schreuer; Dolzer&Schreuer; Paradell, p117. 59 CMS [274], [275], [277]; Impregilo v. Argentina, [290], [291], [331]; Enron v. Argentina, [260].

15

concerning sovereign power.60 The review of the feed-in tariff was completed under

the sole discretion of the government.61 Since this was a unilateral modification, it

requires a high level of scrutiny.62

The Respondent’s measures were taken with the intent of attracting and

securing investments.63 The purpose for which the legislation as enacted must be

considered when determining when a legitimate expectation was created. 64 This

expectation would be reinforced if the Respondent made explicit guarantees to the

Claimant.65

The Claimant submits that the Respondent in this case should:

“be tied to the objective expectations that it creates in order to induce investment.

Such an upset of expectations thus requires something greater than mere

disappointment; it requires, as a threshold condition, the active inducement of a

quasi-contractual expectation.”66

The Respondent made representations to the Claimant in the LRE, which states

that the feed-in tariff, once agreed, will subsist for 12 years. 67 This is reinforced by the

Regulation supporting the LRE in which it specifically states that once a renewable

energy provider has obtained a licence, it “is entitled to the feed-in tariff calculated and

announced by the Barancasia Energy Authority for the duration of the period specified

by the Law on Renewable Energy”.68

In granting a licence for the Beta project, these feed-in tariff guarantees, which

were made to the public at large, became specific to the Claimant.69 The Claimant has

acted under the terms and conditions of the license for the first two years before the

60 Consortium RFCC v Kingdom of Morocco, [51]; Impregilo v. Argentina, [260]; Duke Energy v.

Ecuador, [343]; Toto v. Lebanon, [161]. 61 Problem, Statement of Uncontested Facts, p24 [34]. 62 Continental Casualty Company, [261]. 63 BIT preamble; Problem p22, Statement of Uncontested Facts [16]. 64 Sempra, [298]. 65 Parkerings v. Lithuania, [331]; El Paso v Argentina, [375–7]; International Thunderbird, [32]; ILC

First Report, [160–2]; Enron v. Argentina [265]. 66 Glamis Gold v. USA. 67 Article 4, LRE. 68 Problem, The Republic of Barancasia Law on the Amendment of Article 4 of the Law on Renewable

Energy, p35. 69 Problem, Statement of Uncontested Facts, p22 [23].

16

feed-in tariff was changed, without any issue. Furthermore, the Claimant made

substantial investments in reliance on the guaranteed tariff. 70 This reinforces the

Claimant’s expectation that the tariff would remain constant, especially as the project

commenced before the review process was implemented. 71 The Respondent also

promised that the feed-in tariff would remain until renewable energy constituted 20%

of their overall energy matrix.72 This was never reached.73 The Claimant is required to

act in reliance on the expectation74 and has done so when it made investments in the

Beta project and the strategic expansion in emulating its expertise in its clustered

windfarm projects into twelve other projects.75 This required substantial sunk costs.76

Therefore, the Respondent should be obligated to maintain the 12-year tariff at

the rate that was initially agreed upon.

C. The Claimant was arbitrarily denied a licence for the Alpha

project.

Firstly, arbitrary conduct breaches the autonomous FET standard.77 Secondly,

the Claimant submits that the Respondent’s conduct was arbitrary. Furthermore, there

is no requirement to act in bad faith, for there to be a finding of a breach of FET.78

Arbitrary conduct must be “clearly improper and discreditable, with the result

that the investment has been subjected to ‘unfair and inequitable treatment”.79 Such

conduct includes unfair and unreasonable exercises of governmental authority and

discretion.80 The Claimant’s investment must also have been treated unfairly.

70 Problem, Statement of Uncontested Facts, p24 [36]. 71 ibid [33] & [36]. 72 Problem, Statement of Uncontested Facts, p22 [15]. 73 Problem, Procedural Order No. 2, p58 Q10. 74 Metaclad [89]. 75 Problem, Statement of Uncontested Facts, p23 [27]. 76 Problem, Statement of Uncontested Facts , p24 [36]. 77 Lauder v. Czech Republic, [221]; CMS [290]; Waste Management II, [98]. 78 The Loewen v. USA. 79 Mondev, [127]. 80 ELSI (Verbatim Record), p51.

17

The Claimant recognises that the ELSI 81 case regards breaches of FET as

conduct that “shock[s] a sense of judicial propriety.”82 However, the Claimant submits

that the practice of investment arbitration has progressed since to include arbitrary and

discriminatory conduct. 83

The Regulation on the Support of Photovoltaic Sector refers to the obtaining of

a licence for the development of existing or new photovoltaic capacity. 84 This

demonstrates that the Respondent intended for licences to be available to existing

projects as well as new ones thus their reason for denying a licence to the Alpha project

was erroneous. This is exacerbated by the fact that the Respondent indicated that they

would continue to incentivise the development of renewable energy until it constituted

20% of their energy production. 85 This incentive is yet to be reached, 86 thus

exemplifying the unfair way in which the Respondent rejected granting of the license

for the Alpha project.

The combination of these two instances indicate that the treatment demonstrates

how the Respondent acted arbitrarily. This treatment is the principle basis for the harm

done to the Claimant87 and is the Respondent’s arbitrary conduct.88 Therefore, the

Respondent acted unfairly in denying a licence to the Claimant for the Alpha project

and breached Art 4 of the BIT.89

D. There was a lack of transparency in the Respondent’s conduct

that breaches FET

81 ELSI. 82 ELSI, [128]. 83 Waste Management II, [93]. 84 Problem, The Republic of Barancasia Regulation on the Support of Photovoltaic Sector, p33. 85 Problem. Statement of Uncontested Facts, p22 [15]; Art 2 LRE. 86 Problem, Procedural Order No 2, p58 Q10. 87 Occidental, [163]. 88 Metalclad, [92-3]. 89 Art 3 BIT.

18

A lack of transparency can amount to a violation of FET.90 The process by

which the Alpha project was denied a licence lacked transparency, as the Claimant

should have been made aware of all relevant legal rules for the purpose of initiating or

completing the contract.91 In applying for a licence for the Alpha project, the Claimant

was never made aware that the feed-in tariff would only be made available to new

projects. This was also not apparent in the LRE. 92 This requirement is a crucial

condition, as it is one of the basis under which licences are issued. Thus, it should have

been explicitly stated in either the legislation itself or in the communication between

the two parties. The Respondent’s failure to do this breaches the Claimant’s right to fair

and equitable treatment enshrined in Art 3 of the BIT. The way in which the Claimant

was treated was neither transparent nor sufficiently clear. In addition to this the

Respondent has not disclosed that criteria based on which it denied the licence.93

Furthermore, the Claimant should have been invited to the private hearing held

in November 2012.94 The Barancasian Parliament had broad discretion on whom they

chose to invite and made a point to invite both national and foreign investors. 95

However, the Claimant was never made aware of this.96

The Respondent’s frustration of the Claimant’s legitimate expectations

combined with its arbitrary conduct and apparent lack of transparency unequivocally

demonstrate that the Respondent has violated the standard of Fair and Equitable

Treatment owed to the Claimant.

90 Maffezini v. Spain, [83]; Waste Management II, [98]; Pope & Talbot, Merits Award, [177-79];

Petrobart, [25]; Tecmed, [162], Petrobart, [164]. 91 Metalclad, [76]; Tecmed, [154]. 92 Problem, Statement of Uncontested Facts, p22 [22]. 93 Problem, Procedural Order No. 2, p58 Q16. 94 Problem, Statement of Uncontested Facts, p24 [34]. 95 Problem, Procedural Order No. 3, p62 Q5. 96 ibid. Q6.

19

E. In any event the amendment to the LRE was an arbitrary

measure.

In the event that the Tribunal is not minded to apply the autonomous treaty

standard of FET it is the Claimant’s position that even by the yardstick of the

international minimum standard of treatment, the Respondent’s amendment was an

arbitrary measure.

For a measure to be arbitrary under the minimum standard, it must “shock or at

least surprise a sense of judicial propriety”,97 and has been equated to measures that

are “grossly unfair”.98 The retroactive amendment was ultra vires, as there are no

legislative provisions in Barancasian laws that allow for such effect.99 Combining this

with the fact that the process for adopting this amendment was opaque only serves to

demonstrate the idiosyncratic and capricious nature of this amendment.

The Claimant was not consulted on the implication of this amendment and the

Claimant submits that it should have at the least been notified of new laws and

provisions before they are adopted 100 so that he could have plan his investment

accordingly.101 However, on the facts, it is apparent this is not that case because by the

time of the amendment the Claimant had already obtained a licence 102 and made

substantial investments based on it.103 There is nothing to suggest that the Respondent

notified investors of the pending change in legislation before it was enacted.

97 ELSI, [128]. 98 Waste Management II, [98]. 99 Problem, Procedural Order No.2, p63 Q19. 100 WTO Working Group, p4. 101 Tecmed, [154]. 102 Problem, p24 [33]. 103 ibid, [36].

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F. The Respondent cannot rely on essential security interests under

Art 11 BIT to escape its obligations.

First and foremost, the Claimant contends that the exception to obligations

derived from international arbitration agreements should be interpreted narrowly.104

Despite the fact that essential security interests have been considered to be broad

enough to include economic emergencies,105 it is the Claimant’s contention that the

circumstances in the present case are not comparable to the most severe cases of

violence and political turmoil such as in the Argentine economic crisis, where even

then, the Tribunals have held that it was insufficient to warrant action to protect its

essential security interests or to maintain international peace and security. This suggests

that the Tribunal would only accept the application of such a provision if the country is

experiencing the highest degree of public disorder to the extent that it threatens the

collapse of the government.106

The Respondent state has experienced nothing remotely analogous to these

circumstances. First of all there are no reports of violence.107 The protests were not

directed at the state of the economy, but for increased educational funding.108 Finally,

there is no evidence that the Respondent’s economy was on the verge of collapse as

there were only concerns that the state budget could not support the approval of all

applications.109 The Respondent has not even accepted every application it has received

under the LRE110 thus the concerns as to its capacity, should they all be accepted, are

rendered moot.

Therefore it is the Claimant’s position that the Respondent does not have

essential security interests which allow it to escape its obligations under the Art 11 BIT.

104 Canfor v. USA, [187]; Enron v. Argentina, [331]. 105 CMS, [359-66]; LG&E, [238]; Enron v. Argentina, [232]. 106 LG&E, [231]. 107 Problem, Procedural Order No.2, p63 Q17. 108 Problem, Statement of Uncontested Facts, p24 [32]. 109 Problem, Statement of Uncontested Facts, p23 [29]. 110 Problem, Procedural Order No.2, p62 Q13.

21

III. THE RESPONDENT SHOULD EITHER REPEAL ART 4 OF THE LRE OR

CONTINUE TO PAY VASIUKI THE €0.44 FEED-IN TARIFF FOR 12 YEARS.

A. The Respondent should be ordered to repeal Art 4 of the LRE.

i. Restitution is the primary form of remedy in

international law.

If the Tribunal finds a breach of the BIT, the Respondent must make full

reparations. Restitution is the primary form of reparation under/in international law.111

The essence of this principle is to eliminate the consequences of the illegal act and

restore the situation that would have existed, had the infringement not occurred.112 This

principle is limited insofar as it is not materially impossible or involves a burden which

is “out of all proportion” 113 to its benefit. Compensation should only be awarded if

restitution cannot be effected.

ii. Juridical Restitution is possible in the present

circumstances.

There are numerous decisions declaring the nullity of government measures and

ordering the restoration of a previous legal situation.114 Therefore, it is possible for a

Tribunal to restore the status quo ante by ordering the modification or removal of

previously implemented legislation in addition to restoring individual rights.

111 Art 34-5, ARSIWA; Factory at Chorzów, [29]; Oppenheim's International Law, p529. 112 Metalclad, [122]; Petrobart, p77-8; Avena & Other Mexican Nationals, [138]; Tehran Hostages, p3

[95]; Temple of Preah Vihear, pp36-7; ICJ Reports 2001, p466 [125]; The Peter Pázmány University),

pp208, 249. 113 Article 35(2), ARSIWA. 114 Micula v. Romania, [166–7]: Goetz v. Burundi; Saipem v. Bangladesh; ATA v. Jordan, [133];

Pezoldova v. Czech Republic; Commission v. Austria; Commission v. Sweden; Commission v. Finland;

Martini Case; Radio East; Free Zones of Upper Savoy.

22

iii. The Tribunal should order restitution on behalf of the

Claimant.

The actions taken by the BEA as a result of the LRE and its subsequent

amendments115 caused the loss to the Claimant.116 In order to restore the status quo, the

Claimant must be placed in the position it would have been in had the amendment and

subsequent revaluation, never been implemented. The Claimant submits that the

Tribunal should uphold the primacy of restitution as a remedy. The Tribunal should

only deviate from restitution when it is materially impossible to fulfil or involves a

burden out of all proportion to the benefit derived.117 Neither of those two bars are met

in this case.

Firstly, the repeal of this legislation is possible. The subject matter of the

dispute, such as the 0.44Eu/kW feed-in tariff under the license, has not been

destroyed,118 nor has a third party acquired rights to prevent any actions.119 In addition

a state is free to modify its own laws.

Secondly, it does not involve a burden out of all proportion to the benefit gained.

It is the Claimant’s position that:

‘the [R]espondent State is not entitled to invoke the political or administrative

obstacles resulting from its internal law as justification for the failure to provide

full reparation’.120

Therefore the Respondent cannot invoke any procedural or policy requirements

attached to changing its domestic legislation to preclude itself from making reparations

to the Claimant. Therefore, the Claimant submits that the repeal of the amendment to

115 Problem, Statement of Uncontested Facts, p24 [35]. 116 See: Problem, Annexes to Experts’ Reports, p51-9. This demonstrates that while the amount of loss

is under debate both experts acknowledged that loss has occurred. 117 Art 35 ARSIWA. 118 Tecmed [110–12]; Avena & Other Mexican Nationals, p12; Rainbow Warrior Affair, pp215-84;

Beaumont Case. 119 Forests of Central Rhodope. 120 Crawford, p216.

23

Art 4 of the LRE is impossible and does not impose a disproportionate burden on the

Respondent, thus it should be awarded in this case.

B. Or the Respondent should continue to pay the original tariff.

In the spirit of restitution, if the Tribunal is minded that it is not possible to order

the outright repeal of the offending legislation, the Claimant argues that restitution

should be in the form of specific performance. This would have the same effect of

reinstating the status quo ante.

Specific performance has been ordered and deemed to be appropriate by

international tribunals.121 In the present circumstances, the payment of the previously

agreed feed-in tariff is not only possible but also restores the Claimant’s position

without hindering the Respondent’s sovereignty. This is a monetary remedy in nature,

thus akin to compensation. The situation is by no means irreversible.122 The present

circumstances should be distinguished from the Libyan nationalisation cases123 because

of the different circumstances and the impossibility of restitution in those cases.

Therefore there the Tribunal should consider ordering specific performance if

it is not minded to grant restitution.

C. The Respondent would not be breaching any EU anti-trust

measure by damages to the Claimant.

Should the Tribunal find that the Respondent has breached the BIT, the

Claimant submits that the continued payment of the feed-in tariff constitutes

compensatory damages for the harm that the Respondent has caused.

121 Desert Line LLC v. Yemen, [205]; Nykomb Synergetics v. Latvia, [154]; Gabcikovo Nabymaros

Project. 122 See infra submission II(a)ii; TOPCO, p509. 123 LIAMCO; TOPCO.

24

The Claimant submits that only voluntary measures, which are imputable to the

state, are capable of qualifying as state aid and thus breaching Art 107 TFEU.124 The

nature of damages is intrinsically different from state aid.125 This is because they are

ordered by a Tribunal and the affected party has no discretion to pay, thus barring

exceptional circumstances. Thus the award of damages has no selective advantage as

long as its purpose is to compensate for loss.126

The Claimants’ position is that the payment of the feed-in tariff is merely to

rectify the harm that was caused by the Respondent. There is nothing to suggest that

this payment would have an anti-competitive effect as no complaints have been lodged

with the EC with regard to illegal state aid.127

IV. IN THE ALTERNATIVE, THE CLAIMANT REQUESTS THE TRIBUNAL TO

ORDER THE RESPONDENT TO PAY DAMAGES TO THE CLAIMANT FOR

ITS LOSSES.

Firstly, the valuation of damages is inherently uncertain and necessitates a case-

by-case analysis.128 However, the damages should eliminate the repercussions of the

illegal act. 129 The Claimant submits that this would cover “any damage, whether

material or moral, caused by the internationally wrongful act of a State”.130 Therefore,

any damage that resulted from the revaluation of the feed-in tariff should be paid. This

includes the potential profits that the Claimant has lost.131

With regard to the Claimant’s legitimate expectations, that compensation

124 Commission v. Van der Kooy; Commission v. Air France; Stardust Marine; Commission v. Belgium

& Forum 187; Bacon, p67–70. 125 Asteris v. Hellenic Republic & EEC, [22-3]. 126 Commission v. Germany, Netherlands & Belgium, [9]. 127 Problem, Procedural Order No.2, p63 Q 18. 128 Vivendi v. Argentina, [8.3.16]; Azurix Corp. v. Argentina, [351]; ADC v. Hungary Final Award, [521];

Himpurna v. Indonesia; Sapphire v. National Iranian Oil Co, pp136, 187-88; Rumeli Telekom v.

Kazakhstan, Annulment Application, [142]. 129 Article 31(1), ARSIWA; Factory at Chorzów, p47: “The Chorzów Factory decision is the authority

most frequently cited by international tribunals in investor-state disputes involving matters of

compensation”; Ripinsky&Williams; Bienvenu&Valasek, p231-37. 130 Article 31(2), ARSIWA. 131 SOABI v. Senegal, [7.01–7.18]; LETCO v. Liberia, p373–7.

25

should cover the expenditures made in reliance on the assurances made by the

Respondent. 132 This includes the purchase of land, hiring of personnel and other

equipment133 which amounts to a total of €690,056.134

If the Respondent is not in a position to pay the full amount, then it is within the

Tribunal’s power to award partial compensation for the damage.135 However, this does

not change the fact that compensation is owed and the specific amount owed is at the

discretion of the Tribunal.136

A. The amount of compensation should be assessed according

to the fair market value as of 1 January 2013.

The starting point for calculating the amount of compensation due is the fair

market value of the investment on the relevant date.137 The Claimant’s position is that

the relevant date is the 1 January 2013, when the Respondent adopted the amendment

to the LRE.138 All harm to the Claimant can be traced to this date.

In assessing the fair market value of the losses the Claimant contends that the

investments are a going concern with future projects of profitability. The Claimant has

been acting within the energy sector of the Respondent since 2009139 and has shown

consistent signs of growth.140 The Claimant submits that this valuation should be made

in line with the principle of highest and best use, which requires an assessment of the

value of the investment if it were put to its most valuable use.141 For example, in the

case of Gallo v Canada142, a location with excellent rail and road access was ideally

suited to be a high-volume waste-by-rail landfill therefore its value was assessed on

132 Gabcikovo Nagymaros Project, p55 [80]; Bogdanov v. Moldova, [19]. 133 Problem, Statement of Uncontested Facts, p24 [35]. 134 ibid; Problem, Expert’s Report, p54. 135 Petrobart, [84]; RosInvest Ltd v. Russian Federation; Biwater Gauff (Tanz.) Ltd. v. Tanzania. 136 ADC v. Hungary 2006 Award; Kardassopoulos v. Georgia; BG v. Argentina; and Rumeli Telekom

A.S. v. Kazakhstan, Annulment Application. 137 MTD Equity v. Chile, [238]; Feldman Karpa v. Mexico, [195]; CMS, [409]; Enron v. Argentina, [360];

LG&E, [30]; Sempra, [403]; BG v. Argentina, [419–29]; and National Grid v. Argentine, [269–70]. 138 Problem, Statement of Uncontested Facts, p24 [34]. 139 Problem, Statement of Uncontested Facts, p21 [12]. 140 Problem, Annex 1(A) of Kovic Expert Report, p51; Problem, Statement of Uncontested Facts, p21-2

[23], [27]. 141 Dukes, Article 7; and Santa Elena SA v. Costa Rica, [94]. 142 Gallo v. Canada [124].

26

this basis. The Claimant’s land is perfect for use with solar panels 143 and thus a

photovoltaic cell project on the land is the best use of the Claimants investment.

Therefore it is erroneous to determine the value of the land itself. The fact that it may

be used for other purposes should not discounts its value.

B. The Discounted Cash Flow (DCF) Method is the appropriate

method in the present case.

A DCF method of valuation extrapolates expected net cash flows whilst using

a discounted rate.144 The Claimant submits that the appropriate time for projection is

12 years as that was the time that the tariff was guaranteed to the Claimant. In the CMS

case, the Tribunal accepted 30 years as the appropriate forecast model for a license of

that duration.145 This approach has been applied by other tribunals.146 Professor Kovic

was accurate in forecasting for the duration of the license that was afforded to the

Claimant as that was the outstanding duration of the licence147

Due to the inherent difficulty with determining future growth/profit models, it

is appropriate for the valuator to make the assumption that cash flows will remain

steady in the future.148 The continuing value of the investment for the Alpha project

should be based on the growth rate of 2.2%.149 This can be extrapolated to calculate

the operating capacity of the Alfa Project during the term of the licence and further used

to calculate its continuing value and totalling €120,621.150 For the Beta Project, this

should be based on the most recent operating capacity, which is recorded as 21.8% in

2011 thus adding to €123,261.151 For the other 12 projects, the continuing value should

be based on the projected operating capacity and its projected revenue because there is

143 Problem, Procedural Order No.2, p60 Q29. 144 AICPA International Glossary of Business Valuation, p43. 145 CMS, [199]. 146 Rumeli Telekom AS v. Kazakhstan, Award, [766]; and Occidental [779]. 147 Problem, Annex 1(B) of Kovic Expert Report, p51. 148 CMS, [466]. 149 Problem, Annex No.9 Annual Projected Revenue from Vasiuki Projects, p44. 150 Problem, Annex 1(A) of Kovic Expert Report, p51. 151 Problem, Annex 1(B) of Kovic Expert Report, p51.

27

nothing to suggest that the projects will not operate as expected thus it should amount

to a total of €1,427,500.

Finally, WACC is a perfectly accepted method of discounting future cash flow

within investment arbitration.152 In the course of operating a business, there will be

debt, especially when this is the primary methodology for financing expensive projects.

This must be offset against projected revenue in order to determine a realistic projected

net return, as the debt will persist throughout the operation of the project. Therefore,

Professor Kovic was correct in applying WACC because the projected equitable return

is not the sole concern when determining future net cash flow. Projects debts must also

be taken into consideration.

In conclusion if the Tribunal does not find awarding specific performance or

restitution palatable, then the Claimant submits damages is the most suitable remedy,

and a DCF methodology is the most logical way to achieve that. In any event the

Respondent must make reparations to the Claimant in one form or another.

152 CMS, [432]; ADC, [510]; Enron v. Argentina, [411–3]; Sempra, [430].

28

Prayers for Relief

The Claimant respectfully requests the Arbitral Tribunal to find:

1. The tribunal has jurisdiction to hear the claim

2. Declare that Respondent is liable for violations of the BIT, including failure

to accord Vasiuki fair equitable treatment.

3. Order Respondent a) to repeal the amendment to Article 4 of the LRE or b)

to continue to pay Vasiuki the €0.44 feed-in tariff for 12 years.

4. In the alternative to its second claim, order Respondent to pay damages to

Vasiuki for its losses, which Vasiuki calculates would equal approximately

€2.1 million over the 12 years during which the tariff should have remained

unchanged.

5. To find that Claimant is entitled to restitution by Respondent of all costs

related to these proceedings.