MEMORIAL FOR RESPONDENT TEAM QUINTANA
1
FOREIGN DIRECT INVESTMENT
INTERNATIONAL MOOT COMPETITION
29 OCTOBER-1 NOVEMBER, 2015
ARBITRATION PURSUANT TO THE RULES OF ARBITRATION OF
THE
LONDON COURT OF INTERNATIONAL ARBITRATION
VASIUKI LLC
(CLAIMANT)
V.
REPUBLIC OF BARANCASIA
(RESPONDENT)
MEMORIAL ON BEHALF OF THE RESPONDENT
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TABLE OF CONTENTS
LIST OF AUTHORITIES…………………………………………………………………….IV
TABLE OF ABBREVIATIONS……………………………………………………………...XV
STATEMENT OF FACTS ……………………………………………………………………..1
ARGUMENTSADVANCED…………………………………………………………………….4
CONTENTION 1:.THE TRIBUNAL LACKS JURISDICTION OVER THE PRESENT
DISPUTE…………………………………………………………………………………………...4
I. The Bit has been terminated Under Article 59………………………………………….4
A. the BIT and EU law govern the same subject
matter…………………………………………………………………………………………….4
B. The BIT and EU law are materially
incompatible…………………………………………………………………………………….9
C. Alternatively, Article 8 of the BIT is derogated under Article 30
VCLT…………………………………………………………………………………………...13
II. The Termination was confirmed through subsequent notification under article 65
VCLT…………………………………………………………………………………….14
III. The bit was terminated under article 54(b)
VCLT…………………………………………………………………………………….15
CONTETION 2: THE RESPONDENT’S ADMINISTRATIVE AND REGULATORY MEASURES DO
NOT AMOUNT TO VIOLATION OF ARTICLE 2 OF THE
BIT………………………………………………………………………......................................17
I. Respondent’s regulatory measures did not defeat legitimate expectations of the
Claimant…………………………………………………………………………………18
A. Respondent’s Right to regulate is not limited by any promise to stabilize its legal
framework…………………………………………………………………………………18
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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B. Amendment of LRE was proportionate and did not lead to total alteration of its
legal framework…………………………………………………………………………..20
C. Reasonableness of Claimant’s expectations should be weighed against public
interest……………………………………………………………………………………..21
II. Respondent’s Administrative measures were reasonable, transparent and
consistent……………………………………………………………………………..…23
CONTENTION 3: THE RESPONDENT’S ACTIONS ARE EXEMPTED ON THE BASIS THAT THEY WERE
NECESSARY IN ORDER TO MEET ITS ECONOMIC AND RENEWABLE ENERGY OBJECTIVES AND TO
ADHERE TO ITS EU
OBLIGATIONS…………………………………………………………………………………….26
I. The applicable standard in the present case is that of customary international law
…………………………………………………………………………………................26
A. The Lex Specialis does not embody own essential security interests of the
respondent……………………………………………………………………………26
B. Such a full fallback on customary international does not violate the Lex Specialis rule
or other rules of treaty
interpretation………………………………………………………………………………….27
II. The conditions laid down under Article 25 have been fulfilled…..………………….29
A. The economic hardships faced by the respondent were a grave and imminent peril to
its economic stability…………………………………………………………………………29
B. The measures taken by the respondent were the only way to protect its essential
securityinterests……………………………………………………………………………….30
C. The Measures Did Not Impair Other States’ or International Essential
Interest…………………………………………….……………………………………………………………..31
III. The tribunal should award damages
accordingly…………………..………………………………………………………………………………………….31
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CONTENTION 4: THE RESPONDENT CANNOT BE ORDERED TO RESCIND THE LRE AMENDED
ART 4 OR TO CONTINUE PAYING THE PRE-2013 TARIFF TO THE
CLAIMANT……………………………………………………………………………………….32
I. An order for restitution is not permissible as per Article 35 of Draft Articles of
State Responsibility…………………………………………………………………………………………………….32
A. Rescinding the LRE amendment is materially
impossible………………………........................................................................32
B. Restitution imposes a burden out of all proportion on the
respondent…………...............................................................................................33
II. Alternatively, an order for specific performance is not permissible …………....34
A. Specific performance as remedy in international investment law does not
exist………………………………………………………………………………………...35
B. Such an order would violate the sovereignty of the
respondent………………………………………………………………………………...35
CONTENTION 5: THE CLAIMANT’S BASIS FOR CLAIMING AND QUANTIFYING COMPENSATION
IS INCORRECT………………………………………………………………………………........36
I. The basis for claimant damages for Alfa is unfounded ……………………………...36
II. The claimant has erroneously used WACC to discount cash
flows……………………………………………………………………………………...36
III. Damages for prospective development of
plants…………………………………………………………………………………….37
IV. Payment of interest on damages……………………………………………………….37
PRAYER…………………………………………………………………………………………38
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LIST OF AUTHORITIES
ARTICLES
Cited as Reference
Martti Koskenniemi Martti Koskenniemi, FRAGMENTATION OF
INTERNATIONAL LAW: DIFFICULTIES
ARISING FROM THE DIVERSIFICATION
AND EXPANSION OF INTERNATIONAL
LAW, Report of the Study Group of the
International Law Commission, A/CN.4/L.682,
13 April 2006
Charles N Browner and Jason D Brueschke Charles N Browner and Jason D Brueschke, the
Iran Unites States Claims Tribunal , The
American Journal of International Law
Vol. 93, No. 2 (Apr., 1999), pp. 538-540
Snodgrass Elizabeth Snodgrass, ‗Protecting Investors‘
Legitimate Expectations: Recognizing and
Delimiting a General
Principle‘ (2006) 21 ICSID Rev—FILJ 1, 36.
Shaun P.Young Shaun P. Young,‖Rawlsian Reasonableness:A
Problematic Presumption?‖ Canadian Journal of
Political Science 39,no.1 (Mar 2006);159-
Felipe Felipe Mutis Tellez,Condition and Criteria for
Protection of Legitimate Expectations Under
International Law, ICSID Review (2012) pp 1-
11
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
v
Hindelang Stephen Hindelang,Member States BITs:
There‘s Still Some Life in the Old Dog Yet in
Yearbook of Int‘l Investment and Policy (2011)
Hindelang and Maydell Hindelang and Maydell, ―The EU’s common
investment policy – Connecting the dots‖, in
International Investment Law and EU Law
(2011)
Helfer, Helfer, ‗Exiting Treaties‘ (2005) 91 Virginia
Law Review 157
Martin Endicott martin Endicott, non pecuniary remedies: the
impact of ARISWA in investor state arbitration,
, in New Aspects of International Investment
Law - Research Seminar, Hague Academy of
International Law, (2007) 4 TDM 15
Markus Burgstaller Markus Burgstaller,The Future of BITs in
INTERNATIONAL INVESTMENT LAW AND EU
LAW(2011)
Moshe Hirsch Moshe Hirsch, ―Between Fair and Equitable
Treatment and Stabilization Clause:Stable
Legal Environment and Regulatory Change in
International Investment Law‖ Journal of World
Investment and Trade 12, no.6(December
2011);783-806.
Gaetano Arangio-Ruiz Gaetano Arangio-Ruiz., Special Rapporteur
,Preliminary report on State Responsibility,
Extract from the Yearbook of the International
Law Commission, 1988, vol. II(1).
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vi
Peter Jan Kuijper Peter Jan Kuijper, Ensuring respect for
Customary International Law in
EUROPEANISATION OF INT‘L LAW(2008).
Schreuer & Kreibum Christoph Schreuer and Ursula Kriebaum, ‗At
What Time Must Legitimate Expectations
Exit?‘in A LIBER AMICORUM: THOMAS WALDE—
LAW BEYOND CONVENTIONAL THOUGHTS(2009).
Stefaan De Ceulaer Stefaan De Ceulaer, Community MFN
Treatment in European Union, 57 Bulletin for
International Fiscal Documentation,495(2003).
Teerawat Wongkaew Teerawat Wongkaew, The Transplantation of
Legitimate Expectations in the ROLE OF STATE
IN INVESTOR STATE ARBITRATION (2014).
Thomas Walde Thomas Walde, ‗International Investment
An Overview of Key Concepts and
Methodology‘ (2007) 4 TRANSNATIONAL
DISPUTE MANAGEMENT 80.
Del Rio Global Subsidies Initiative (2014) A cautionary
tale: Spain‟s Solar PV Investment Bubble,
Geneva: International Institute for
Sustainable Development.
BOOKS
Alvarez and Brink Jose E. Alvarez and Tegan Brink, Revisiting
theNecessity Defense: Continental Casualty v.
Argentina, YEARBOOK OF
INTERNATIONAL INVESTMENT LAW
AND POLICY 2010-2011 (Karl P. Sauvant ed.,
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
vii
2011).
Corten & Klein Olivier Corten &Pierre Klein, Oxford
Commentaries on International Law: Vienna
Convention on Law of treaties,(2006).
Dimopoulos Angelos Dimopoulos, EU Foreign Investment
Law(2011)
Dörr & Schmalenbach Oliver Dörr & Kirsten Schmalenbach, Vienna
Convention on Law of Treaties : A
Commentary(2012).
G. Arangio-Ruiz G. Arangio-Ruiz, ‗Summary Records of the
Meetings of the Forty-fourth Session‘, ILC
Yearbook Vol. I, professor of international law
at university of Rome, appointed special
rapporteur from 1985-1996 at the ILC:
J. H. W. Verzijl J. H. W. Verzijl, International Law in
Historical Perspective (Leiden, Sijthoff, 1973),
part VI
Borzu Sabahi Borzu Sabahi, Compensation and Restitution in
Investor-State Arbitration and Practice(2011),
ILC yearbook YEARBOOK OF THE INTERNATIONAL
LAW COMMISSION, Part Two Report of the
Commission to the General Assembly on the
work of the thirty-fourth session ,1982 Volume
II.
McLachlan et al Mclachlan,et al,International Investement
Arbitration(2011)
Philip Striik Shaping the Single European Market in the
Field of FDI(2014).
Piet Eeckhout Piet Eeckhout,EU Internal Market and
International Trade(1994).
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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R. Lefeber
R. Lefeber, Transboundary Environmental
Interference and the Origin of State Liability,
Kluwer Law International, (1996)
S A Sadat Akhavi SA Sadat-Akhavi, Methods of Resolving
Conflicts between Treaties (2003)
Sinclair Sir Ian Sinclair,The Vienna Convention on Law
of Treaties(1984)
Villiger Mark E Villiger, Commentary on the 1969
Vienna Convention on the Law of Treaties,
(2011).
Chittharanjan felix Amerisanghe Chittharanjan felix Amerisanghe, , jurisdiction
of international tribunals, Kluwer law
international,2003
Deutsche Gesellschaft für Völkerrecht Deutsche Gesellschaft für Völkerrecht (German
International Law Association) Documents of
the twenty-first session including the report of
the Commission to the General Assembly,
Yearbook of the international law commission
1969, vol. II,
CASES
Cited as Reference
Amoco International Amoco Int‘l Finance Corp. v. Iran,partial
award, 15 IRAN-U.S. C.T.R., (14 July, 1987).
CMS CMS v. Argentina, Award, ICSID CASE NO.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
ix
ARB/01/8, (12 may 2005)
Toto Toto v. Lebanon, ICSID ARB /07/12,Award, ,7
June 2012.
Enron, Award Enron v. Argentina, ICSID Case No.
ARB/01/3,Award, (22 May 2007).
Mobil Mobil Investments Canada and Murphy oil
Corporation v. Canada, ICSID
ARB(AF)/07/04,Decision on Liability( 22 June
2012).
Continental Continental Casualty Company v. Argentine
Republic, ICSID Case No ARB/03/9, Award,
(5 September 2008).
Sempra Energy Sempra Energy v Argentina,Award, ICSID
Case no. ARB/02/16Award, ( 28 September
2007).
ADF ADF Inc v United States of America, ICSID
Case No ARB(AF)/00/1, Award, (9 January
2003
Aminoil Arbitration between Kuwait and the American
Independent Oil Company ,(24 March 1982).
LIAMCO Libyan American Oil Company v. The
Government of the Libyan Arab Republic 62
ILR 140,142, (12 April 1977).
LG&E Corp LG&E Corp and ors. v. Argentina, ICSID
CASE NO ARB/02/1, IIC 295 (2007)
Damages award, (25 July 2007)
Metalclad Metalclad Corpn. v.The United Mexican
States, ICSID CASE No. ARB(AF)/97/1,
Award,( 30 august 2000)
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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Occidental petroleum Occidental petroleum Corporation and
Occidental Exploration and Production
Company v. Ecuador, ICSID Case no.
ARB/06/11, Decision on Jurisdiction, IIC
337(2008).
EDF EDF (Services) Limited v Romania, ICSID
Case No ARB/05/13, Award,(8 October 2009).
PSEG Global v. Turkey PSEG Global Inc and Konya Ilgin Elektrik U ¨
retim ve Ticaret Limited Sirketi v Republic of
Turkey, ICSID Case No ARB/02/5, Award (19
January 2007).
Parkerings-Compagniet Parkerings-Compagniet AS v Republic of
Lithuania, ICSID Case No ARB/05/8, Award
(11 September 2007)
Plama Plama Consortium Limited v Republic of
Bulgaria, ICSID Case No ARB/03/24, Award
(27 August 2008)
White Industries White Industries v. Republic of
India,UNCITRAL,final award, (30 November
2011).
British Petroleum (BP) British Petroleum(BP) Exploration Company
(Libya) Ltd. v. Libya, BP/ Libya Concession
Tribunal; (1979) 53 ILR 297, Award (merits)
(10 October 1973),.
Georges Pinson Case Georges Pinson case (France/United Mexican
States), UNRIAA, vol. V,Award (13 April
1928)
Suez V Argentina Suez V Argentina, ICSID Case no. ARB/03/19,
Decision on liability( 30 July 2010)
Total Totalv. Argentina, ICSID case no. ARB/04/01,
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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Decision on liability ( 27December 2010)
INTERNATIONAL DECISIONS
Cited as Reference
Chorzow factory case Factory at Chorzow, Jurisdiction, Judgment
No. 8, 1927, P.C.I.J., Series A, No. 9, p. 48(13
September, 1928).
Electricity Company of Sofia Electricity Company of Sofia and Bulgaria,
Belgium v Bulgaria,Separate, Dissenting
Opinion of Judge Anzilotti, PCIJ.(4 April
1939),
Gabcikovo Hungary v.Slovakia, ICJ.Reports 1997
.Judgment (25 September 1997)
Pulau Ligitan and Pulau Sipadan
Indonesia/Malaysia,I.C.J. Reports 2002 , (17
December 2002).
Temple of Preah Vihar Cambodia v Thailand,Merit, ICJ Reports
(1962) , Judgment (15 June 1962)
ECJ AND EFTA DECISIONS
Cited as Reference
Bud_jovicky Budvar, narodni podnik Case C-478/07, Bud_jovicky Budvar, narodni
podnik v. Rudolf Ammersin GmbH, Judgment
of 8 September 2009, [2009] ECR I-07721.
Commission v. Austria C-205/06,Commission v. Austria, Judgment of
21 December 2001 [2001] ECR I-9285.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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Commission v. Ireland Case C-459/03, Commission v. Ireland,
Judgment of 30 May 2006, (2006) ECR I-4635.
Costa Costa v. ENEL, Judgment on June 6,1964,
[1964] ECR 585 (6/64).
EFTA Surveillance Authority/Norway Case E-2/06, EFTA Surveillance Authority v.
Kingdom of Norway, EFTA Court, Judgment
of 26 June 2007.
Francovich Joined Cases C-6/90 and C-9/90, Francovich
and Others v. Italy, [1991] ECR I-5357
Commission v. Italian Republic Case C-531-06, Commission v. Italian
Republic, Judgment of 19 May 2009.
Opel Austria GmbH & Co. v. Council CFI,Case T-115/94, Opel Austria GmbH & Co.
v. Council[1997] ECR I-365.
Opinion of the Advocate General Opinion of Mr Advocate General Tesauro
delivered on 28 November 1995,European
Court Reports 1996 I-01029.
STATUTES AND TREATIES
Cited as Reference
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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Act of Accession Act of Accession,2004
Council Regulation Council Regulation (EC) No 1467/97 of 7 July
1997
Community Guidelines on State Aid Community Guidelines On State Aid For
Environmental Protection, (2008/C 82/01)
CFR European Charter of Fundamental Rights
LCIA rules 2014 London Court of International Arbitration
Rules,2014
TEU Treaty for the European Union ( Treaty of
Maastricht)
TFEU Treaty for Functioning of the European Union
(Treaty of Lisbon)
Treaty of Athens Treaty of Athens,2004
VCLT Vienna Convention on the Law of treaties
REPORTS
Cited as Reference
ILC Report International Law Commission (2006),
‗Fragmentation of International
Law:Difficulties Arising from the
Diversification and Expansion of International
Law’.Geneva: Report of the Study Group of
ILC, 58th
Session.
Study for Juri Committee Policy Department for Citizens‘ Rights(2014),
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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Study for the Juri Committee on Legal
instruments and the Practice of Arbitration,
Brussels: Directorate General for Internal
Policies.
MISCELLANEOUS
Cited as Reference
ILC Draft Articles International Law Commission, Draft articles on
Responsibility of States for Internationally
Wrongful Acts, with commentaries (2001).
Jan Kleinheisterkamp Jan Kleinheisterkamp, The Next 10 Year ECT
Investment Arbitration, Report for the SCC / ECT
/ ICSID Conference on ―10 Years of Energy
Charter Treaty Arbitration‖ 9-10 June 2011.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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LIST OF ABBREVIATIONS
Abbreviation Full Form
¶ Paragraph
AIL Arbitration International Law
AJIL American Journal of International
Law
Art. Article
BEA Barancasia Energy Authority
BIT Bilateral Investment Treaty
CFR Charter for Fundamental Rights
CJEU Court of Justice of the European
Union
€ Euro
EC European Commission
ECHR European Convention on Human
Rights
ECJ European Court of Justice
EU European Union
FDI Foreign Direct Investment
FET Fair and Equitable Treatment
I.L.M International Legal Material
ICJ International Court of Justice
ICSID International Centre for Settlement
of Investment Disputes
ILR International Law Review
IMF International Monetary Fund
Int‘l International
€/kWh Euro/kilo Watt Hour
LCIA London Court of International
Arbitration
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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LRE Law on Renewable Energy
MFN Most Favoured Nation
NAFTA North American Free Trade
Agreement
PCIJ Permanent Court of International
Justice
PV Photovoltaic
VCLT Vienna Convention on Law of
Treaty
UNTS United Nations Treaty Series
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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STATEMENT OF FACTS
PARTIES TO DISPUTE
1. The Claimant, Vasiuki LLC was incorporated under the laws of Cogitatia in 2002;
Claimant is engaged in the development of, construction and operation of small scale
fossil fuels and wind turbine facilities in Cogitatia and various other regions including
Barancasia (Respondent).
2. The Respondent, ―Republic of Barancasia‖ [―Barancasia‖] is a party to Barancasia-
Cogitatia BIT.
EVENTS LEADING TO THE DISPUTE
1. The Republic of Barancasia and the Federal Republic of Cogitatia, on 31st December
1998 concluded a Bilateral Investment Treaty(―BIT‘) for the promotion and Reciprocal
Protection of Investments.
2. On, 1 May 2004, Barancasia and Cogitatia joined the European Union after which
Barancasia, upon review declared its Intra-EU BITs obsolete. On 15th November 2006,
Barancasia‘s Government announced its intention to terminate its Intra-EU BITs. On 11th
December 2006, the Government of Barancasia formally resolved to terminate all its
intra-EU BITs. On 29 June 2007 Barancasia notified the Federal republic of Cogitatia of
its intention to immediately terminate the BIT between them. Thereafter, Barancasia
removed the BIT from its ministry of finance website.
3. Vasiuki, the claimant, worked as a turnkey provider of engineering and plant
construction. Thereafter, it decided to avail the ―green subsidies‖ offered by the
Government of Barancasia to promote development of renewable energy. In May 2009
Vasiuki decided to Launch Experimental Solar Project ―Alfa‖. On 1 January 2010 the
solar panels of the Alfa project were connected to Grid and became operational but the
project was operating at a heavy loss due to defects in installation, delay and huge budget
overruns.
4. In May 2010, Barancasia adopted the Law on Renewable Energy (LRE). The LRE
provided that the development of renewable energy sources would be promoted by
guaranteed feed-in-tariff to renewable energy providers who will receive a license from
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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the national regulator. Further, the LRE provided that such a feed-in-tariff would remain
unchanged for a period of twelve years. On 1 July 2010, Barancasia Energy Authority
(BEA) announced feed in tariff 0.44EUR/kWH.
5. Vasiuki applied for a license for Alfa and its second photovoltaic project Beta. Alfa was
denied the license on the ground that feed-in tariff would only be available for the new
projects wherein nowhere did the laws of Barancasia said so. However, Beta was granted
the license and became operational on 30 January, 2011.
6. On 21 November, 2010 Barancasian Foreign Ministry Spokesperson responded to press
question about Barancasia‘s approach to Intra-EU BITs and about their informal contact
to the Ministry of Foreign Affairs of Cogitatia recently on 3 November, 2010 but had had
no official response from Cogitatia.
7. In 2011, a ground breaking technology was developed which reduced the cost of
development of solar panels. As a result, BEA received 7000 applications for license to
develop new photovoltaic power plants. Vasiuki also decided to launch 12 more
photovoltaic projects using its new and cheaper technology.
8. In 2012, it become apparent to the Government of Barancasia that LRE was a mistake
and had created a solar bubble and public officials also admitted that guaranteed profit for
12 years amounted to unfair windfall gains. Further, the Government contended that if all
7,000 applications for feed in tariff were approved, up to 15% of state revenue will be
diverted to finance solar feed in tariffs which was higher than what the Government
allocated to its educational system. Additionally, Barancasia could not borrow the
necessary amount for the maintenance of existing renewable energy system because it
would exceed the EU-mandate of borrowing limits for relevant year.
9. In June 2012 outraged teachers of Barancasia organized a strike demanding an increase
of salaries. To this, the government promised to review its legislation. On 3 January
2013, Barancasia Amended Article 4 of LRE by way of representations from the
specially invited testimonies of industry and stakeholder groups. The amendment
subjected the feed-in tariff to annual review. Subsequently, it reduced the tariff to
0.15kw/h applicable from 1 January, 2013.
10. In the meantime Vasiuki had obtained license for its 12 projects on July 1 2012 and made
investments in purchasing solar panels and had started the constructions. Moreover,
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Vasiuki had invested a substantial amount of its own and had also borrowed huge sums in
furtherance of the same.
ARBITRATION PROCEEDINGS
Vasiuki initiated arbitration proceedings in the London Court of Arbitration against the Republic
of Barancasia pursuant to the dispute settlement provision contained in the Cogitatia- Barancasia
BIT.
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ARGUMENTS ADVANCED
I. THE TRIBUNAL LACKS JURISDICTION IN THE PRESENT CASE
1. With the Accession of the parties to the EU in May 2004,1 the parties consented to be
regulated by the EU treaties2 and Community law (acquis communautaire).3 Such lex
posterior invoked the operation of Article 59 VCLT leading to implicit termination of the
BIT [A]. The Termination was confirmed through a subsequent notification by the
Respondent under Article 65 VCLT [B].
2. Alternatively, the Termination was carried out under Article 54(b) VCLT.[C]
A. The BIT has been terminated under Article 59
3. The Chapeau of Article 59 requires that two successive treaties relate to the same subject
matter and are signed by the same parties.4 In addition to this, the tacit abrogation of the
prior treaty will be resultant from the fact that:
‘the new provisions are incompatible with the previous provisions, or that the whole
matter which formed the subject of these latter is henceforward governed by the new
provisions.’5
In the present case, the BIT and EU law govern the same subject matter[i]. Additionally,
The BIT and EU law are materially incompatible.[ii] Alternatively, Article 8 of the BIT is
incompatible with EU legal order and derogated under Article 30[iii].
i. The BIT and EU law govern the same subject matter
4. Whether a treaty relates to the same subject-matter as an earlier one is to be determined
by interpretation pursuant to the rules laid down in Arts 31–33.6This sameness condition
1 Facts,¶5.
2 Treaty of Athens,Article1.
3 Act of Accession,Arts.2-6.
4 VCLT,Article59(1).
5 Electricity Company of Sofia, ¶243.
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is also met where the earlier treaty deals with a certain subject-matter and a later treaty
,concluded by the same parties, takes up that same subject-matter together with one or
more further matters.7 A special treaty may well be tacitly abrogated by a later more
general treaty, if the parties clearly intended to exhaustively regulate the matter by that
later treaty.8
5. The most appropriate criterion, taking into consideration the object and purpose of Art
59, seems to be whether the area of regulatory overlap of the successive treaties is large
enough to form a reasonable basis for presuming, subject to further inquiry, that the
parties intended to terminate the earlier treaty by concluding the later one. 9
6. In the present case while the BIT regulates intra EU investment, EU law regulates the
internal market which is an area without internal frontiers in which the free movement of
goods, persons, services and capital is ensured in accordance with the provisions of the
Treaties10
and includes cross border investment by member states.11
Even though EU law
has a broader sphere of regulation. A comparison of the BIT and EU law would show that
the parties intended to regulate the subject matter of intra EU investment exhaustively by
the subsequent application of EU law as both the BIT and EU law provide the same
system of remedies where investments have been impaired as a result of state action.
7. Article 5 of the BIT provides protection against expropriation to the investor, similarly,
Article 17 of European Charter of Fundamental Rights provides fundamental right to
property including the right to fair compensation in good time. While it may be stated in
the light of Art.345 TFEU that the protection provided under Article 17 ECFR is not
broad enough as it does not prejudice the member states‘ right to govern its property
ownership. However, the standard of protection under Article 17 is comparable to that of
Article 5 BIT as this does not have the effect of exempting expropriation measures from
the fundamental rules of the Treaty, including those on freedom of establishment and free
6 Dor & Schmalenbach,p.625.
7 Id.
8 Corten & Klein p.1125.
9 Corten & Klein,p.45.
10 TFEU,Article 26.
11 Hindelang,p. 221.
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movement of capital. Accordingly, expropriation measures in the EU should be non
discriminatory and proportionate to attain their legitimate objective (e.g. by providing for
adequate compensation).12
8. The basic freedoms and Fundamental Rights enshrined in the EU Treaties partially deal
with the same subject matter as full protection and security provisions under international
investment law. In particular, pursuant to Article 49 TFEU, restrictions on the freedom of
establishment are prohibited13
, The ECJ has held such freedom includes protection of
investment from physical interventions, impairment or neutralization measures which
might discourage investors from other Member States.14
9. In comparison to Article 2 of the BIT any European investor enjoys the protection of
fundamental rights, under the Charter of Fundamental Rights (CFR) as directly applicable
law. This includes the guarantee of personal liberty and security15
, the freedom to pursue
a freely chosen occupation16
to conduct business, the right to good administration,17
as
well as access to effective justice and due process.18
In addition to these rights the
minimum standard of treatment is applicable as customary international law.19
Principle
of legitimate expectations is also recognized under Community law as a part of
international principle of good faith of the State.20
10. While all the enforcement of all the protection laid down under the BIT are ensured
through Article 8 of the BIT. The non-contractual liability of the member states arising
out of a violation of any right due to non-implementation of an EU measure was
confirmed in the Francovich decision.21
This was further confirmed as individual's right
to compensation used to guarantee protection of the rights conferred by a provision which
12
EFTA Surveillance Authority,¶.79;
13 Article 49, TFEU.
14Commission v. Italian Republic.
15 Article 6, CFR.
16 Article15,CFR.
17 Article 41,CFR.
18 Article 47,CFR.
19 Kuijper,p.102.
20 Opel Austria GmbH & Co. v. Council.
21 Francovich.¶38.
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cannot be invoked directly before the national court, yet places an obligation on the
State.22
11. Principle of non-discrimination under Article 18 TFEU is comparable to principles
enshrined under Article 3 of the BIT while the scope of operation of prohibition of all
restrictions on the movement of Capital under article 63 TFEU is the same as Article 4 of
the BIT. Furthermore EU citizens also have the freedom to move or reside anywhere in
the EU,23
are free to establish companies in the EU,24
to provide services across borders
within the EU.25
However, these freedoms are not unqualified. Member states are partially
allowed to restrict these freedoms for the purposes of imperative requirements of public
interest.26
.The underlying rationale of such limitations is the need to balance the basic
freedom with other fundamental values within the EU legal order, such as public policy,
public security or the correct operation of the Union from an economic and monetary
point of view.27
Thus freedom of capital is regulated more under EU law than the BIT
which guarantees lack of any restrictions for transfers.28
12. While there is no provision under the BIT regulating state aid which is the subject matter
of the dispute in the present case, Article 107 TFEU and State aid guidelines29
of the
European Commission regulate the special subject matter of State aid.
13. Thus , the relevant regulations corresponding to the subject matter of the BIT are
covered by the internal market rules on the freedom of capital movements, establishment
and services along with, competition and state aid rules, which are capable of imposing
restrictions and do not provide absolute rights to the investor.
14. Even though both BIT and EU law regulate investment between the two countries and
provide protection to the investor within their respective frameworks. The difference
between the investment protection provided under the two legal regimes is that:
22
Opinion of the Advocate General,¶26.
23 Article 21,TFEU.
24 Article 49,TFEU.
25 Article 56,TFEU.
26 Article 65,TFEU.
27 Study for Juri Committee,p.261.
28 Article 4,BIT.
29 Community guidelines on State aid.
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a) While protection under EU law makes space for regulation in the internal market as
well as policy consideration and balancing of public and private interests.
b) The BIT gives absolute standards of protection which do not consider the above.
15. Thus, European investor rights are qualified by the ‗Policy space‘ for the European Union
and cannot be harmoniously constructed with absolute and unqualified rights of the
BIT.30
However, by virtue of principle of primacy of EU law31
over bilateral agreements
among member states32
as well as the operation of lex posteriori rule, the absolute
standards of protection are redundant as they are now qualified by the regulatory
framework of the internal market. Since such qualified rights are already provided under
the EU legal framework it can be validly concluded that the parties tacitly abrogated the
BIT, as they clearly intended to exhaustively regulate the matter by that EU legal regime.
16. Lastly, while it may be argued that the BIT in the present case is lex specialis and is an
exception to the rule under Article 59.Before applying the exceptions as a matter of rule
following considerations may be considered as reasons for the prevalence of the general
law33
:
a) Whether third party beneficiaries may be negatively affected by the special law.
b) Whether the balance of rights and obligations, established in the general law would be
negatively affected by the special law.
17. In the present case, firstly, third party members of the EU law will be adversely affected
under Article 18 TFEU due to unequal rights conferred by the BIT on the parties.
Secondly, as already stated the balance between public and private interest will be
disturbed by absolute standards of the BIT.Hence, even if the tribunal concedes to the
fact of the BIT being lex specialis, it should not prevail over Article 59 VCLT in the
present case.
30
Jan Kleingeisterkam, p,6.
31 Costa v. ENEL.
32Rudolf Ammersin GmbH.
33 ILC Report.p.411.
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ii. Additionally, the BIT and EU law are materially incompatible
18. Treaties are incompatible with each other if their obligations cannot be complied with
simultaneously, ie if the State Parties to both treaties cannot comply with one of them
without breaching the other.34
This requires their comparative interpretation. Only if
simultaneous application is not at all possible, namely that the provisions of the later
treaty are so far incompatible with those of the earlier one that the two treaties are not
capable of being applied at the same time, will the earlier treaty be abrogated.35
19. In the present case, certain provisions of TFEU clash with the BIT as a whole and the two
cannot be applied at the same time by virtue of such a clash. The TFEU provisions which
are incompatible with the BIT are Article 207 [a], Article344 and 267[b] and
Article18[c].
a. The BIT is incompatible with Article 207 TFEU
20. Prior to the Lisbon treaty, although the Community enjoyed implicit external
competences in the field of FDI of third countries before the Lisbon Treaty under Article
133 of the EC Treaty. These competences were limited to questions of admission to the
market and did not cover the protection of investments during the post-entry phase. The
Community lacked external competence for the BITs‘ core provisions the protection of
already admitted investment.36
21. However, this changed with the Lisbon treaty which transferred exclusive competence
over FDI making EU the sole authority to legislate internally and conclude agreements
regarding the subject, hence transferring the necessary competence to exercise such
exclusive competence externally.37
Article 207(6) establishes parallelism between
exclusive external competence and the necessary internal competence38
Since,
34
SA Sadat-Akhavi, p. 5.
35 Villiger, p.673.
36 Hindelang and Maydell,,pp. 2–11.
37 Philip Strik, p.98.
38 Dimopoulos,p.98
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competence for intra EU investment is shared, EU possesses the relevant legal basis to
conclude international investment agreements with provisions on investment protection.39
22. Article 207 transfers the exclusive competence of FDI to the European Union which
gives it the authority to take autonomous measures applicable for internal
regulation.40
Such autonomous measures may be taken with respect to regulating
investment protection for third countries within the internal market both in the form of
substantive rules and rules necessary for implementing international investment
agreements.41
23. Since there is no differentiation between intra EU and third country investment once
such investment enters the internal market42
. Such autonomous measures may be made
applicable on both member state and third country investment.43
In Commission v.
Austria, ECJ elucidated the concept of ‗hypothetical incompatibility‘ meaning that even a
perceived, but not yet materialized conflict between pre-accession treaties and EC law
obligations is sufficient to constitute a violation. Regarding compatibility of a pre
accession BIT and Article 64 TFEU(Article 307 TEC) which empowered the EU to take
measures restricting movement of capital with a third country , the ECJ observed: to
ensure effectiveness of Council measures, where adopted by the Council had to be
capable of being immediately applied, if the BIT doesn‘t contain any exception for
application of such measure, it will be in violation of Article 307.44
24. If the authority to issue such measures is read in the light of the decision of ECJ decision,
it can be concluded that intra EU BITs are materially incompatible with article 207 of
TFEU.
b. Article 8 of the BIT undermines EU legal order
39
Burgstaller,p.60..
40 Philip Striik,p.97.
41 Krajewski,p.107
42 Piet Eeckhout, ,p.344.
43 Philip Strik,p.134.
44C-205/06,Commission v. Austria, ¶23, [2001] ECR I-9285.
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25. The primacy of EU law and the exclusive, final, authoritative jurisdiction of the CJEU
combined with the preliminary ruling systems under arts. 344 and 267 is a fundamental
part of the EU acquis communautaire. In MOX Plant case , the ECJ stated that An
International Agreement cannot affect the allocation of responsibilities defined in the
Treaties, and, consequently, the autonomy of Community legal system. The act of
submitting a dispute to an arbitral tribunal invokes the risk that a judicial forum other
than a court will rule on the scope of obligations imposed on member states, pursuant to
community law.45
26. Such an obligation of the Member States to have recourse to the procedures for settling
disputes established by EU law and, in particular, to respect the jurisdiction of the Court
of Justice, which is a fundamental feature of the EU system ,must be understood as a
specific expression of Member States‘ more general duty of loyalty resulting from
Article 4(3) TEU.46
27. Thus, the test laid down under MOX plant for infringement of Article 344 TFEU is not
whether such dispute has arisen between two member states but whether such a dispute
involves the chance of a ruling on the ‗scope of obligations‘ of the Member State under
EU law. In the present case the matter involves the validity of an amendment of a state
support measure which directly comes within the purview of Article 107 and the State
Aid guidelines of the EU.As this measure has been taken under a law passed to comply
with the EU‘s renewable energy objectives and is simultaneously governed by
Competition and state aid rules. An undertaking towards adjudicating such a dispute
would also have to consider or at least affect member state‘s corresponding obligations
pursuant to community law. Since such an engagement is explicitly prohibited under
Article 344 TFEU, therefore Article 8 of the BIT is incompatible with Article 344 in the
present case.
28. This incompatibility is particularly due to the inherent tension between State‘s obligation
under a BIT to honour its pre-accession concessions of special benefits to attract
investors and its supervening obligation under the European Treaties not to distort
45
Commission v. Ireland,¶175.
46 Op2/13,¶202.
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competition in the Common Market through state aids.47
Such tension can be illustrated
with the example of Micula v. Romania which concerned Romania‘s revocation of
certain incentives for investment in underdeveloped regions in Romania which were held
to violate the promise of fair and equitable treatment contained in the Swedish-Romanian
BIT. An enforcement of the award in favor of the Claimant led to infringement
proceedings by the respondent as in Commission‘s opinion such award amounted to
illegal state aid. Similarly, in AES, Hungary‘s compliance with the Commission‘s
demand to reduce its state aid led to violation of legitimate expectations of AES, even
though non-compliance with such demand would amount to violation of EU‘s
competition law regime.
29. Hence, clearly member state‘s EU competition and state aid obligations cannot be
complied without contravening the BIT and to submit the same to an arbitral tribunal is a
further contravention of Article 344 TFEU. Thus, a submission of dispute to the tribunal
in the present case would undermine the EU legal order.
c. Compliance with the BIT would undermine Article 18 TFEU
30. The EU internal market operates with the internal freedoms and additional positive
measures to carry out the process of economic integration in the EU, so as to facilitate the
fusion of national markets into a single European markets to the greatest extent possible.
Article 18 of the TFEU lays down rule regarding prohibition of discrimination on the
basis of nationality.48
The intention behind article 18 is to provide same material rights
within the internal market. 49
As has already been argued EU law confers rights on
investors which are qualified and are regulated so as to create a balance between public
and private interests. On the other hand, the existence of Investor State Dispute
Settlement Mechanism and other absolute protections under the BIT leads to
discrimination between EU investors, as investors from specific member states enjoy a
47
Jan Kleinheisterkamp,p5..
48 Article 18,TFEU.
49Stefaan De Ceulaer p.495,.
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broader degree of protection because of Intra-EU BITs whereas investors from other
countries have to enjoy qualified the protection that is afforded by the EU Law.
31. This broad protection particularly becomes discriminatory due to the provision of
Investor State Dispute Settlement clause which provides a direct access to international
arbitral bodies for the investor, whereas under EU law the investor has to deal with
Member State‘s courts in all cases where measures affecting investments originate from
EU Member States. Such a situation fragments the single market by conferring rights to
some EU investors on a bilateral basis. The provisions overlap and conflict with EU
single market law on cross-border investments.50
32. While it may be argued that instead of withdrawing such rights they may be extended to
all EU citizens, it is not compatible with the EU legal framework as such absolute rights
disturb the balance between private and public interest and cannot be applied without
infringing several provisions of TFEU.
In the light of the above, it can be validly concluded that the BIT and EU law cannot be
applied simultaneously and are materially incompatible.
iii. Alternatively, Article 8 of the BIT has been derogated under Article 30
VCLT
33. Article 59 is concerned only with the termination of the entire treaty. Article 30, in
contrast, is concerned with the priority between particular provisions of earlier and later
treaties relating to the same subject-matter and may be triggered at the slightest
incompatibility.51Thus, for reasons highlighted under [ii] [b] Article 8 of the BIT should
be derogated under Article 30 VCLT while keeping in mind that lex specialis is a
residuary rule to decide hierarchy of provisions and does not come into play in the
presence of an explicit rule recognized by the parties,52which in the present case is
Principle of Primacy of EU law.53
50
European Commission, 18 June 2015.
51 Villiger,p 786.
52 Sinclair,p.137.
53 Declaration Concerning Primacy of EU Law.
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B. Termination has been confirmed through a subsequent notification
34. If the termination of the BIT is contended under Article 59 of VCLT, such termination is
subject to the procedure laid down in Article 65 of the VCLT.54
Article 65 VCLT lays
down the Procedure to be followed with respect to invalidity, termination, withdrawal
from or suspension of the operation of a treaty.
35. A notification under Article 65 must fulfill three prerequisites.55
Firstly, it should explain
the party‘s claim and the reasons for invoking defect in the validity of the treaty.
Secondly, it should indicate the measure that it proposes to be taken. According to
Waldock, a ‗measure‘ signifies ―a step or legal act performed with respect to the
treaty‖.56
Thirdly, it must explain the reason for the measure that includes the explanation
that the claim and the measure proposed are proportional.Such reasons should be legal
and not political.
36. The notification dated June 29 200757
was sent with the clear indication to terminate the
BIT as a measure. To explain the reason for treaty termination the resolution of the
government of Barancasia was annexed to such notification which clearly stated that it
was‗concerning the termination of the bilateral investment treaties concluded by the
Republic of Barancasia with members of the European Union.‘58
This, in itself was clearly
a manifestation of Barancasia‘s widely publicized intention of terminating all its intra EU
BITs after its accession to the EU.59
37. Furthermore, if no objection is raised within a 3 month period from the date of receipt of
a notification under Article 65, the notifying party may unilaterally take the measure
proposed. The measure taken must conform to the requirements of Art 67(2) VCLT
which states the act of termination should be through an ‗instrument‘ communicated to
54
Eureko,¶234.
55 Dor & Schmalenbach , p.1145.
56 Waldock [1966-I/2] YbILC 150.
57 Annex No.7..
58 Annex No.6.
59 Annex No.5.
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the other party. Such instrument should be any kind of written instrument,which may be
formal or informal.60
38. Subsequent to the notification there were several informal communications made by the
Barancasian Foreign Ministry to confirm such termination till the last known date of
November 3,201061
which was past the reasonable period of 3 months. Though the facts
nowhere explicitly state that such communications were in written but given the fact that
they were made several times and the termination of all the intra EU BITs was confirmed
by Barancasian Prime Minister with no response or objection from Republic of Cogitatia
points to the fact that such communication was made in written.
C. Alternatively, the BIT was terminated under Article 54(2) VCLT
39. At the negotiation stage, State representatives have free reign to choose the substantive
and procedural rules that will govern the future cessation of their relationship. A State
that ratifies or accedes to the treaty also accepts any conditions or restrictions on
termination, withdrawal, or denunciation that the treaty contains.62
40. However, the treaty parties may waive these conditions or restrictions and permit
unilateral withdrawal,or terminate the treaty, ‗at any time by consent of all the parties
after consultation with the other contracting States‘.63
It is based on the contracting
parties‘ joint power of disposal under customary international law as ‗masters of their
treaty‘
41. International law does not accept any theory of the ‗acte contraire‘.64
Therefore, the
consent of all the parties to terminate a treaty does not have to be established in the same
form as theoriginal treaty. Rather, the States Parties are free under international law to
60
Dor & Schmalenbach, p.1170.
61 Facts¶24.
62 Helfer,p.160.
63 VCLT Art 54(b).
64 ILC Final Draft, Commentary to Art 51, 249 ¶3.
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choose any form they please it will normally suffice if some or all of the parties implicitly
consent to the termination or withdrawal65
.
42. On this background, Art 54 (b) covers obsolescence or desuetude as a ground of
termination of a treaty, meaning treaty related conduct of the parties from which one can
imply their consent to abandon it by acquiescence66
An example of such a case would be
the effective termination after Declaration by Finland on the obsolescence of certain
provisions of the Peace Treaty of 1947 to which no other party raised any objection.67
\
43. In the present case the BIT became obsolete with the accession of its parties to the EU, as
all the matters regulated by the BIT were subsequently intended to be regulated by EU
law. The substantiation for the same has already been argued under Contention A.
44. Thus, in order to terminate such obsolete treaty the notification dated June 29 2007 was
sent. It is to be noted that the receipt of such notification to terminate was acknowledged
by Republic of Cogitatia on July 10 2007.68
45. In Temple of Praeh Vihar case the ICJ ruled that if a unilateral act creates circumstances
between two states which requires some reaction, within a reasonable period, on the part
of either authority, if they wished to disagree or had any serious question to raise in
regard to a measure by the other party. In the absence of any such reaction, the Court
simply concluded with the finding of acquiescence.69
46. In the light of the fact that after becoming aware of the notification instead of raising any
objection there was only an acknowledgment of the receipt. There were no responses to
any of the informal communications made either.Nor was there an objection or reaction
to the Barancasia‘s Prime Minister‘s confirmation of termination of all Barancasia‘s intra
EU BITs in an interview.70
Such circumstances called for a reaction within a reasonable
period of time, since there was absolute silence acquiescence on the part of Republic of
Cogitatia to the treaty termination can be inferred beyond reasonable doubt.
65
Villiger,p. 687.
66Id..
67 Dor & Schmalenbach,p.957
68 Annex No.7.2
69 Case Concerning the Temple of Preah Vihear ¶23.
70 Uncontested Facts,¶31.
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II. RESPONDENT’S ADMINISTRATIVE AND REGULATORY MEASURES ARE CONSISTENT
WITH ARTICLE 2 OF THE BIT
47. The approach that ‗any adverse change in the business or legal framework of the host
country may give rise to a breach of the FET standard in that the investors’ legitimate
expectations of predictability and stability are thereby undermined’, is unjustified.71
As it
ignores the fact that investors should legitimately expect regulations to change over time
as an aspect of the normal operation of legal and policy processes of the economy.72
This
standard of protection, being relied on by the Claimant, was introduced by seminal
jurisprudence of Tecmed which has been extensively criticized by both scholars73
and
arbitral tribunals74
for its thin reasoning and over reaching scope.75
48. The Undefined nature of the term ‗Fair and Equitable‘ cannot be interpreted to cater to
unlimited expectations of the investor76
and the same must be balanced with the right of
the host state to regulate its economy in public interest.77
. Changes to general legislation,
in the absence of specific stabilization promises to the foreign investor, reflect a
legitimate exercise of the host State‘s governmental powers that are not prevented by a
BIT‘s fair and equitable treatment standard and are not in breach of the same.78
In
assessing the breach of FET by respondent‘s regulatory measures the focus of will be its
relation to legitimate expectations of the investor in the the absence of a stabilization
clause.
49. In the present case, the regulatory measures undertaken by the respondent were exercise
of its legitimate right to regulate. The measures undertaken do not frustrate any of the
legitimate expectations of the Claimant [A] and were implemented in a fair, reasonable
71
PSEG Global v. Turkey, ¶ 262.
72 Occidental v. Ecuador, ¶ 190.
73 McLachlan et al,p.325.
74 MTD Equity ¶66;WhiteIndustries,¶10.3.5.
75 Teerawat,p.77.
76 Thomas Walde,p 83.
77Schreuer and Kriebaum,p.265.
78 LG&E, ¶175
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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and transparent manner [B] while maintaining a fine balance between policy adaptability
and investor stability.
A. Respondent’s regulatory measures did not frustrate the legitimate expectations
of the Claimant
50. The rationale behind the protection of legitimate expectations is to encourage foreign
investors to make adequate business decisions based on the legal regime of, and
representations made by, the host State.79
However not all expectations upon which a
foreign investor takes a business decision are ‗legitimate‘, some expectations are
excluded from the protection afforded by international investment law.80
51. In the present case the Respondent did not create any legitimate expectation of stabilizing
its legal framework regulating Photovoltaic Sector. The measures regarding Amendment
of Article 4 of the LRE as well as alteration of feed in tariff were a legitimate exercise of
Respondent‘s right to regulate its economy.81
In the absence of a stabilization clause or a
specific representation made by the Respondent to the Claimant, such a right cannot be
limited in the favor of the investor82
[i] unless the change brought about by the exercise of
such right is disproportionate and leads to a total alteration of the legal framework83
[ii].
Lastly, Legitimate expectations must be weighed against public interest as a
countervailing factor84
[iii].
i. Respondent’s right to amend its laws is not limited by any promise to
stabilize its legal framework
52. The Claimant‘s alleged entitlement to stability of legal framework is unfounded as the
BIT does not incorporate a Stabilisation clause and no specific representation was given
by the Respondent to the Claimant. The principles of territorial sovereignty and economic
79
Felipe,p.1.
80 Schreuer and Kriebaum (n 5) 265.
81 Saluka,¶307.
82 Parkerings-Compagniet, ¶ 333–7; Plama, ¶267; ADF Group ¶ 189.
83 ICSID ARB /07/12,Award,¶244,7 June 2012.
84 Snodgrass,p.48.
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self-determination, foundational in international law, dictate that each State has the right
to determine its own laws. In the absence of a stabilization clause signatories of such
treaties do not thereby relinquish their regulatory powers nor limit their responsibility to
amend their legislation in the normal exercise of their prerogatives and duties. Such
limitations upon a government should not lightly be read into a treaty through the ‗back
door‘ of FET standard 85
as an insurance policy against subsequent adverse changes in the
legal framework.86
53. When alleged legitimate expectation is one of regulatory stability the reasonableness of
the expectation must take into account the underlying presumption that absent an
assurance to the contrary a state cannot be expected to freeze its laws and
regulations.87
The LG&E Tribunal, regarding the scope of obligations of the host state
towards a foreign investor who relied on Gas Law and the terms of its license under its
implementing regulations, stated : ‘Changes to general legislation, in the absence of
specific stabilization promises to the foreign investor, reflect a legitimate exercise of the
host State’s governmental powers that are not prevented by a BIT’s fair and equitable
treatment standard and are not in breach of the same.‘88
54. In case of a license provided under a Regulation the basis of an investor‘s invocation of
entitlement to stability under a fair and equitable treatment clause relies on legislation or
regulation of a unilateral and general character, that is not specifically addressed to the
relevant investor. This type of regulation is not shielded from subsequent changes under
the applicable law.89
55. The Feed in tariff Policy was a part of the LRE.90
An amendment of such policy is within
the legitimate right of the Respondent to amend its laws as there was no promise to
stabilize it by the Respondent. The licenses issued to the Claimant under LRE in August
201091
and July 201292
were legal instruments of a general nature. These were ‗a means
85
J.Roman,p.281.
86 EDF,¶217.
87 Micula v. Romania,¶673.
88LG&E, ¶175.
89Total, Para 122.
90 Uncontested Facts,¶16.
91 Uncontested Facts¶23.
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of implementing the core principle‘ of Law on Renewable Energy93
enacted by the
Barancasian legislature and cannot qualify as a representation or a promise specifically
addressed to the investor.94
ii. The Amendment of the LRE was a proportionate measure and did
not lead to total alteration of its legal framework
56. Investor‘s Expectations are protected from unreasonable modifications in the legislative
framework.95
Changes in regulatory frameworks are not sufficient grounds for creating
legitimate expectations protected under FET standard96
and would only be considered as
failure to grant fair and equitable treatment if such change is entirely drastic in the
essential features of its transactions97
or leads to a total alteration or breakdown of the
legal framework established. 98
57. Renewable energy subsidy must be designed in a way that makes it robust in the face of
changing costs. Since inflexibilities result in a system that fails to reduce compensation in
the response to technology‘s declining costs. Such failure overcompensates the investors
and becomes particularly problematic in the case of Solar PV as it is a modular
technology that can be installed in relatively short timelines making it easier for investors
to respond to such technological changes, much faster than policy makers.99
58. In the present case the amendment made to the LRE was proportionate to the
circumstances and did not cause a total or drastic alteration of the feed in tariff regime of
the LRE. Its objective was to modify the prevalent Feed in tariff in order to make it more
sustainable and robust in its response to the present and future change in technology.
Firstly, the alteration of the feed in tariff was to bust the ‗solar bubble‘ being
created100
due to unfair windfall for the Photovoltaic licensees101
in the face of
92
Uncontested Facts¶33.
93 Article 3,LRE,Annex No.2.
94 Total,¶149.
95 Impregilo,¶291.
96 Moshe Hirsch, p.796.
97Toto v. Lebanon,¶244.
98 El Paso v. Argentina¶374; Mobil Investments,¶153.
99 Del Rio,p.7.
100 Uncontested Facts,¶28.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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substantial reduction in the manufacturing costs of solar panels.102
It is pertinent to
mention that such amendment was made to preserve the Feed in tariff scheme which was
otherwise proving to be unsustainable in its implementation,103
as the economy could not
be burdened with costly Solar PV generation for years to come, while overcompensating
licensees for the same.
59. Secondly, the revised feed in tariff of 0.15 €/kWh was calculated taking into account the
variety of factors to be considered under Article 3 of the Photovoltaic Support
Regulation, while ensuring 8% rate of average annual return, which was the initial
premise for feed in tariff calculation.104
60. Lastly, the feed in tariff was made annually reviewable for adjustment taking into account
the costs of the best available technology105
in order to give rapid response to any change
in technology leading to declining costs since solar PV is a modular technology that can
be installed in relatively short timelines.106
This was to prevent any unfair windfall in the
future with a change in technology.
61. Thus, Respondent‘s regulatory measure were proportional to the objective of making the
support scheme more sustainable and robust and did not drastically alter the legal
framework initially established by the LRE. These were made with a view to minimize
harm to the investor and maximize policy adaptability.
iii. Reasonableness of Claimant’s expectations should be weighed
against public interest
62. The Host State has a right to enact public interest legislation, even if the changes
negatively affect a foreign investor. Such conduct will not be considered as defeating the
investors‘ legitimate expectations and violating the FET standard, as long it is
implemented by the government in a bona fide manner.107
101
Uncontested Facts,¶29.
102 uncontestedFacts,¶25.
103 Uncontested Facts,¶29.
104 Procedural Order No.2,¶27.
105 Annex No.4.
106 Del Rio, p.7.
107 Saluka,¶304.
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63. Since the protection of legitimate expectations is not unconditional and everlasting,108
the
same must be qualified by the need to maintain a reasonable degree of regulatory
flexibility on the part of the host State to respond to changing circumstances in the public
interest.109
64. The concept of reasonableness serves as the fundamental basis of evaluating the basic
criterion of legitimate expectations. Under Rawls‘ theory, reasonable citizens have to
recognize right of others to develop, pursue and realize their own visions of the good
life.110
Transposing that definition into the investment framework, investors as rational
agent have to recognize that in some circumstances, especially in times of crisis, States
may have to take measures to protect public interest.111
In assessing ‗reasonableness of
expectations‘, political, socio-economic, historical perspective112
,high regulatory risk,
national shortage113
and vicissitude of national economy114
are surrounding
circumstances which also play an important role.
65. Accordingly, legitimate expectations, may not to be protected when the public interest
served by the act that disappoints the expectations outweighs the investor‘s individual
interest in having its expectations met.
66. In Suez it was stated that the reasonable expectation of the investor should have included
regulatory changes in exercise of State‘s legitimate regulatory interests over a period of
30 years of APSF concession and in case of any unforeseen change in circumstances.115
67. In the light of the above ,a constructive reference of the surrounding circumstances and
context would engender reduced expectations in the present case.116
Firstly, while the
invention of the new technology led to substantial reduction in costs to developing solar
power plants, it also created a ‗solar bubble‘ and exposed the prospect of gross abuse of
108
Thunderbird ¶30.
109 EDF Services v. Romania,¶219;McLachlan QC, Shore and Weiniger (n 10) 239.
110 Shaun P.Young p.180.
111 Teerawat, p.81.
112 Duke Energy v. Ecuador¶340.
113 Id,,¶347.
114 Generation Ukraine 20,37.
115 Decision on Liability¶236.
116 Nordzucker v. Poland (UNCITRAL) Second Partial Award¶88.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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the feed in tariff in future by the investors to the government as well as the people
.117
This was further substantiated by opinion polls prioritizing educational funding over
renewable energy support scheme measure in terms of public interest.118
Thus, to expect
no regulatory change despite substantial change in technology leading to cost reduction
and political opposition to the unfair windfall is misplaced optimism and not legitimate
expectation of the claimant.
68. Secondly, the Claimant needs to place its expectations reasonably while recognizing the
right of citizens to develop. While the renewable energy support system financed by the
state budget, was proving to be unsustainable as the Respondent would have to exceed its
EU mandated borrowing limits to maintain the existing Feed in Tariff.119
There was a
also a pressing need for public financial allocation to the education system of the country
in the light of national strikes by teachers demanding a raise in their salary and a higher
public allocation to the country‘s educational system. As already stated the public
prioritized the need for educational funding over the state support measures for renewable
energy production.
69. Hence the expectations placed by the Claimant are solely subjective120
and are not that of
a diligent or prudent investor,121
as these do not consider the socio economic, political
and factual surrounding circumstances and the right of host state‘s citizens to develop.
B. The Respondent’s Administrative measures were reasonable, transparent and
consistent
.
70. The host country authorities are required to act consistently, without ambiguity and
transparently, making sure the investor knows in advance the regulatory and
administrative policies and practices to which it will be subject, so that it may
comply.‗Transparency‘ requires that all relevant legal requirements for the purpose of
117
Uncontested Facts¶28.
118 Uncontested Facts¶32.
119 Uncontested Facts,¶30.
120 EDF ¶ 219.
121 Elizabeth Snodgrass,p. 36.
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initiating, completing and successfully operating investments made, or intended to be
made, under the Agreement should be capable of being readily known to all affected
investors.‗Consistency‘ requires a host state to act coherently and apply its policies
consistently.The reasonableness principle requires that the host state‘s conduct be
reasonably related to a legitimate public policy objective.122
71. In the present case denial of license to Alfa by BEA was a fair, consistent and transparent
measure as the rules detailing the criteria and process of issuance of licenses were
publicly stated and the same rules were used in the approval procedure resulting in denial
of license.
72. The denial of license to Alfa was reasonable as it was related to a public policy objective.
The purpose behind a feed in tariff scheme enshrined is to provide a premium price over
and above the wholesale market price of electricity, so as to help renewable energy
developers project their future revenue streams with confidence while making a decision
of considering viability of investment in the Photovoltaic sector.123
This was not the case
with Alfa a license issuance for which was made only because the tariff gave it ‗some
hope to survive‘ so that the budget overruns could be covered through the tariff
revenue.124
73. The FIT scheme was put in place to support a viable investment decision and not to
compensate investors for their investment decisions which turn out to be unviable. For
the same reason, issuance of license to existing projects was not unconditional, unlike in
case of new projects. It was qualified by the prospect of development of such a plant, so
that an investor may further develop its plant by availing the feed-in tariff. The intention
behind applying for a license for Alfa was to balance its losses and not to develop it
further as it was an experimental project125
for which ‗there appeared no future without
the feed in tariff‘126
and was as such sans a reliable profitable future at the time.127
122
Saluka Investments BV v. Czech Republic, ¶ 460
123 Del Rio,p.6.
124 Procedural Order¶22.
125 Uncontested Facts,¶12.
126 Uncontested Facts,¶13.
127 Uncontested Facts,¶13.
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Claimant‘s application for a license for a new project at the same time as Alfa128
further
confirmed its intention, as it chose to channelize its acquired technical knowhow and
funds into a new project instead of saving Alfa.
74. Thus, license to Alfa was denied on reasonable grounds. There was no inconsistency in
the denial of such license as Alfa did not show a prospect of development as an existing
project.
128
Uncontested Facts¶23.
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III. THE RESPONDENT’S ACTIONS ARE EXEMPTED ON THE BASIS THAT THEY WERE
NECESSARY FOR BARANCASIA IN ORDER TO MEET ITS ECONOMIC AND RENEWABLE
ENERGY OBJECTIVES AND TO ADHERE TO ITS EU OBLIGATIONS
75. The respondent relies on the defense of necessity as enshrined under the customary
international law [A.] In order to be able to invoke the defense of necessity under the
customary international law, the conditions laid down in Article 25 of Draft Articles of
State Responsibility have to be fulfilled, which in the present case have been met [B.]
The fact of necessity of respondent to be taken into consideration while awarding
damages [C.]
A. The applicable standard in the present case is that of customary international
law
76. The BIT is the special treaty regime to the dispute at hand; hence, it forms the lex
specialis for the same. The Lex Specialis cannot be applied in the present case [i.]
Therefore, recourse may be had to Draft Articles of State responsibility which is in
consonance with principles of treaty interpretation [ii].
i. The Lex Specialis does not embody own essential security interests of
the respondent.
77. Article 11 of the BIT lays down Essential Security Interests under which other
obligations of the treaty may be suspended. The said Article only specifies international
peace or security, in furtherance of which, any measures taken are not precluded.129
However, the respondent invokes the defense on account of economic instability and
international obligations imposed by the European Union. In case of failure of such a
self- contained regime, recourse to the general law is permitted.130
78. The respondent argues that there are certain conditions that must be met before a
provision may be considered to be in deviation of general principles of international law.
129
Article 11, BIT.
130 Martti Koskenniemi, p. 82, ¶4.
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This is to avoid the dangers of the fragmentation of international law and prevent
inconsistency and conflict between different regimes.131
79. The respondent submits that the special rule must clearly determine the conditions for
liability so as to exclude CIL.132
If the treaty provision is ambiguous about its relationship
with the general rule or the conditions under which it is applicable, it would be necessary
to fall back on CIL and apply it harmoniously with the treaty provision.133
Various
tribunals have adopted an approach wherein the language of the treaty is unclear or
ambiguous, CIL is made applicable.134
ii. Such a full fallback on customary international does not violate the
Lex Specialis rule or other rules of treaty interpretation
80. As per Art. 31(1) of VCLT, Art. 6(2) must be read in good faith in accordance with its
ordinary meaning. The Claimant submits that, as per Article 31(3)(c), while interpreting a
provision the ―relevant rules of international law applicable between the parties‖ have to
be taken into account.135
These relevant rules of international law include CIL rules or
general rules under international law and the Claimant submits that the interpretation
must be to harmonize the two where possible.
81. It must be understood that the relevance of a particular rule of international law in the
interpretation of a treaty is to be gauged on the basis of the intention of the parties to
bring the treaty into relation with that rule.136
82. Furthermore, the respondent agrees that the operation of a special law or regime would
preclude the operation of a general rule of international law. However, as per Article 55
of the ILC Articles on State Responsibility, it always depends on the special rule to
establish the extent to which the general rule is to be excluded.137
131
Brownlie, p. 55.
132 Alvarez and Brink, pp. 332-333.
133 ILC Fragmentation Conclusions, ¶¶19-20; Georges Pinson Case, p. 422.
134 CMS, Award, ¶¶320-331.
135 Article 31(3) (c), VCLT.
136 ILC Draft Articles on State Responsibility, Commentary to Article 27, ¶16.
137 ILC Draft Articles on State Responsibility, Commentary to Article 55, ¶¶2-3.
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83. Hence, the Tribunal in Amoco held that even when the Treaty as a whole constitutes lex
specialis, rules of CIL may be used to fill lacunae in the working of a treaty and ascertain
the meaning of undefined terms.138
84. Self-contained regimes or subsystems as ―closed legal circuits‖ in the sense that they
would completely and finally exclude the application of the general law. A minimal
conclusion that one can draw from practice and literature is that articles 31 and 32 of the
VCLT are always applicable unless specifically set aside by other principles of
interpretation.139
85. In addition to the aforementioned, the mere fact that the respondent, in the present case
did not include its own essential security interests in Article 11 does not bar the
respondent from invoking customary international law. This is supported by the
proposition that among several possible constructions, the principle of effective
interpretation requires adopting the interpretation that best gives effect to the norm in
question. Effectiveness includes the notion of enforceability. 140
86. Consequently, it cannot be easily inferred that a state was willing to give up ‗the rights or
faculties of unilateral reaction it possessed under general international law‘ by
complementing special primary obligations with a specific set of secondary
obligations.141
87. If states create new substantive obligations along with special enforcement mechanisms,
they merely relinquish their facultés under general international law in favour of a special
regime‘s procedures to the extent that and as long as those procedures prove efficacious.
When such procedures fail, enforcement through countermeasures under general
international law becomes an option.142
138
Amoco International, ¶112.
139 Pulau Ligitan and Pulau Sipadanp. 645-646, ¶37
140 Bruno Simma and Dirk Pulkowski, p 3, ¶483-529,
141 Id, page 26.
142 G. Arangio-Ruiz, p 25.
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B. The conditions laid down under Article 25 have been fulfilled
88. Article 25 of Draft Articles of Sate Responsibility states that necessity cannot be invoked
unless there is a grave and imminent peril to a state‘s essential security interests [i] ,the
measures undertaken by the respondent were the only for it to avoid such a peril [ii], they
do not hamper the interests of the state towards which the obligation exists.[iii]
i. The economic hardships faced by the respondent were a grave and
imminent peril to its economic stability
89. Arbitral tribunals have held on a number of instances that economic interests could often
be essential security interests.143
The measures in the present case were aimed at securing
the essential security interests of the respondent i.e. restoring economic stability.
90. The hardships of the respondent which prompted the respondent to make regulatory and
administrative changes are twofold:
a. It could not have continued to pay the pre-2013 tariff to the existing
license holders
91. The respondent submits that it had reached a threshold limit for borrowing and as a result
could not have continued to pay the existing license holders the promised feed-in-
tariff.144
This caused the respondent to reach a situation of budget deficit.
92. As a member of the European Union, there were obligations on the respondent to
maintain a Debt to GDP ratio145
of 60%.146
In the event of default, the European Union
may undertake a procedure to correct the said deficit.147
In the event of failure in
compliance, the EU may impose sanctions on the defaulting state as well.148
93. Keeping the aforesaid circumstances, the respondent had no choice but to reduce its debt
to a minimal permissible limit granted by the EU. Had it not done so, a mounting deficit
143
CMS, Award, ¶359; Enron, Award, ¶332; Continental, Award, ¶178.
144 Uncontested Facts, ¶30.
145 Article 104(c), TEU.
146 Article 1, protocol on the excessive deficit procedure, TEU.
147 Article 126, TFEU.
148 Council Regulation (EC) No 1467/97 of 7 July 1997.
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already coupled the economic sanction by the EU would have taken a toll on the
economic stability of the respondent.
b. The amendment in 2013 was also done to align the support schemes
with the state aid rules of the European Union
94. In 2011, when the ground breaking technology was discovered, the cost of development
of photovoltaic power plants was reduced significantly.149
This led to an increased profit
for the investors since the calculation of tariff was done in accordance with the old cost of
production. However, with the reduced costs but a higher feed-in-tariff, there was a case
of unjust enrichment of the investors.
95. The European Union Guidelines state that in particular, the aid amount must be limited to
the minimum needed to achieve the environmental protection sought. Therefore, eligible
costs for investment aid are based on the notion of the extra (net) cost necessary to meet
the environmental objectives..150
96. In the present case, if the respondent had paid a tariff of 0.44€/Kwh to the license
holders, it would have compromised with the provisions enshrined in the state aid
guidelines, upon which the commission could make enquiries into the legality of the said
aid granted.
ii. The measures taken by the respondent were the only way to
protect its essential security interests
97. The fact that a part of its measures were in the nature of mitigating the peril cannot
prevent the respondent from the defense of necessity. The ICJ in the Gabcikovo-
Nagymaros case held that a ―peril‖ appearing in the long term might be held to be
―imminent‖ as soon as it is established that the realization of that peril, however far off it
might be, is not any less certain and inevitable.151
98. The Respondent submits that for reasons already stated above, the threat faced by the
Respondent‘s essential interest was a grave and imminent one. In addition to that, the
nature of measures was such that the respondent had no other way to deal with the
149
Uncontested facts, ¶25.
150 Community Guidelines on State Aid For Environmental Protection, (2008/C 82/01)
151 Gabcikovo., p. 42, ¶54.
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hardships. Tribunals in the past have defined the only way requirement to mean that so
long as the measure taken are a legitimate exercise of state power and were necessary, the
first requirement under Article 25 is said to have been met.152
iii. The Measures Did Not Impair Other States’ or International Essential
Interests
99. There is no evidence that Cogitatia or the international community suffered severe
consequences due to the measures taken by the respondent. The only party in the present
dispute is Vasiuki. Therefore, the respondent is not disqualified from invoking the
defense on this ground as well.
C. The tribunal should award damages accordingly
100. In the event that the tribunal decides to award damages to the claimant, the respondent
submits that the computation of damages may be done keeping in mind the state of
necessity of the respondent. In CMS, although the defense was not accepted yet the
Tribunal held, some of the negative impacts should be attributed to the business risk
borne by CMS when investing in Argentina. The Tribunal said that both parties should
be ―sharing some of the costs of the crisis in a reasonable manner‖, otherwise the arbitral
award could ―amount to an insurance policy against business risk‖.153
Specifically, the
adverse economic circumstances were taken into account in determining the market
value of the shares using discounted cash flow analysis (DCF).154
The Enron Tribunal
also made downward adjustments in its DCF valuation of the investment to ―reflect the
reality of the crisis‖ as compared to a ―normal business scenario‖.155
152
Continental, Award¶¶227-230.
153 CMS, Award of 12 May 2005, ¶244.
154 Id, ¶443-446
155 Sempra, Award,¶¶397, 416-449.
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IV. THE RESPONDENT CANNOT BE ORDERED TO RESCIND THE LRE AMENDED
ARTICLE 4 OR TO CONTINUE TO PAY THE PRE-2013 TARIFF TO CLAIMANT
101. The claimant prays for rescinding the LRE amendment thereby seeking juridical
restitution. Although restitution has been accorded primacy in forms of reparation, yet
the investment arbitral tribunals generally don‘t take an extreme step of ordering the
revocation or annulment of domestic legislative measures.156
Primarily because of a
limit on their powers to do so and secondly, because such an order may suffer from
enforcement problems in the host state.157
102. Additionally,, the respondent contends that such a remedy cannot be passed on account
of disqualifications as mentioned in customary international principles of reparation [A.]
Additionally, as an alternative remedy, the claimant prays that the specific obligation of
paying the 0.44€/Kwh towards it may be fulfilled. Since the remedy of specific
performance does not exist as an available remedy, it cannot be availed by the claimant
[B.]
A. An order for restitution is not permissible as per Article 35 of Draft Articles
of State Responsibility
103. Article 35 of Draft Articles lays down the conditions for the implementation of an order
of restitution. It states that restitution may not be granted in the cases of material
impossibility [i] or if it amounts to imposing a burden out of all proportion on the
respondent [ii.]
i. Rescinding the LRE amendment is materially impossible
104. Material impossibility occurs in situations where the fundamental change in
circumstances cannot be restored to the status quo ante.158
Such material impossibility
156
Chittharanjan felix Amerisanghe, p.412.
157 Charles N Browner and Jason D Brueschke, p. 496
158 ILC Draft Article on State Rresponsibility, Commentary to Article 35, ¶4.
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can occur on the grounds of an obligation of international law. 159
Therefore, it becomes
a case of legal impossibility.
105. The host State could be exempted from an obligation to provide restitutio in integrum
whenever its internal legal system is such as not to permit the discharge of that
obligation.160
The parties in the Aminoil case agreed in the arbitration agreement stated
that restoration of the status quo ante following the annulment of the concession by
Kuwaiti decree would be impracticable in any event; they agreed also to submit to
arbitration the question (an and quantum) of compensation.161
106. In the present case, the respondent is bound by the conditions imposed on it through the
Laws of the European Union. Considering the aforesaid laws, the respondent had
amended the LRE Article 4 to bring the state aid rules in line with those formulated by
the European Union.162
This forms an extrinsic factor for the amendment beyond the
control of the respondent and violation of the same may ensue actions in the form of
sanctions upon the respondent.163
ii. Restitution imposes a burden out of all proportion on the respondent.
107. The second disqualification for restitution is where compensation can provide an equally
efficacious relief such that restitution only imposes a burden out of all proportion on the
respondent.164
Therefore, it takes the aspect of equity and reasonableness into
consideration where a clear preference to compensation is given when the balance
process does not favor restitution.165
108. The respondent would have to amend its laws, which for the aforementioned reasons
already put forth a case of legal impossibility; it would also in turn entail sanctions on
the respondent by the European Union in the event of failure to comply with the laws.
These sanctions could be monetary or otherwise and compliance with the same would
159
R. Lefeber, p. 133.
160 ILC Yearbook, p. 99-100,¶. 156.
161 Aminoil, p. 979.
162 Refer Contention III.
163 Id.
164 ILC Draft Artcles on State Responsibility, Article 35(b).
165 J. H. W. Verzijl, p. 744;Deutsche Gesellschaft für p. 149.
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impose a burden out of all proportion on the respondent. Compensation, on the other
hand would be an equally efficacious relief to the claimant.
109. It is also pertinent to mention that, the injured State would not be entitled to claim
restitutio where the application of such remedy would entail the annulment or the non-
application of legislative provisions, of administrative acts or definitive judgments
within the legal system of the author State.166
Providing restitution would jeopardize the
political independence of the host state.167
110. The issue of legal responsibility was raised in LG&E v Argentina .The claimant had
asked the tribunal to invite Argentina to provide an assurance that the gas regulatory
framework would be restored. The tribunal held that:
―Restitution would imply modification of the current legal framework by enacting
legislative measures that make over the legislation in breach. The tribunal cannot
compel Argentina to do so without a sentiment of undue interference with its
sovereignty‖168
111. The LIAMCO169
tribunal also highlighted the fact that an order of restitution which
would effectively require revoking nationalization measures, which were not in
themselves unlawful and had the character of ‗act of state‘ would violate Libya‘s
sovereignty and was practically unenforceable. Thus the tribunal awarded compensation.
B. An order for specific performance is not permissible
112. The tribunal should not order the respondent to honor its specific obligations
towards the claimant by paying the pre-2013 tariff primarily because a remedy of specific
performance is not a remedy at the disposal of the claimant [i]. It also impinges upon the
sovereignty of the respondent [ii].
166
Gaetano Arangio-Ruiz, p. 22.
167 ILC Draft Articles on State Responsibility, Commentary to Article 35, ¶11.
168 LG&E Corp., ¶ 239.
169 LIAMCO, ¶ 217.
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i. Specific performance as remedy in international investment law does
not exist
113. The ILC Draft Articles which are a source of law for the forms of reparation do not
provide for specific performance as a remedy available at the disposal of the injured
party.170
In addition to that, the Chorzow Factory Case171
is also silent on the same.
Hence, the fact that how this remedy would fit within the possible forms of reparation as
suggested by ILC Draft Articles continues to remain murky till date.172
114. Additionally, the LCIA rules, under which the said proceedings are being carried do not
bestow upon the tribunal to award such a remedy. Therefore, an order for specific
performance is also beyond the power of this tribunal.173
115. Justice Lagergen, in British petroleum174
held that there is no uniform principle general
principle of law pursuant to which specific performance is a remedy available at the
option of an innocent party, especially not a private party acting under a contract with a
government. The responsibility incurred by the defaulting party for breach of an
obligation to perform a contractual undertaking is a duty to pay damages.
ii. Such an order would violate the sovereignty of the respondent
116. Specific performance is contrary to the foundations of international arbitration due to the
enforcement problems it poses and it should, therefore, be excluded on public policy
principles.175
It would amount to declaring the contract valid and resuming it.176
It
creates an obligation on the host state to comply with its contractual obligations which,
is nothing but an interference with the sovereignty of the host state.
117. The said principle was also upheld in Occidental v. Ecuador, wherein the tribunal
focused on the effect of an order of specific performance on the respondent state. ―To
impose on a sovereign state reinstatement of a foreign investor in its concession would
170
Martin Endicott,p 544.
171 Chorzow Factory Case, p. 48
172 Borzu Sabahi, p 80.
173 Refer LCIA rules, 2014.
174 British Petroleum(BP), ¶¶389,391
175 LIAMCO, ¶ 390
176 Borzu Sabahi, p 81.
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constitute reparation disproportional to its interference with the sovereignty of the state
when compared to monetary compensation.177
V. THE CLAIMANTS BASIS FOR CLAIMING AND QUANTIFYING
COMPENSATION IS INCORRECT
118. The claimant seeks damages for lost profits to Alfa on account of denial of license [A],
compensation for beta and the 12 projects on account of change in the feed-in-tariff [B],
damages on account of reduced tariff for prospective development of plants [C] and
lastly interest rate for damages in the past [D.]
A. The basis for claiming damages for Alfa is unfounded
119. It has already been stated before that Alfa was not undertaken in pursuance of energy
law. Hence, no legitimate expectations of the claimant were created. Additionally, the
respondent was also not eligible for the license as per the energy law because Feed-in-
tariffs were given as an incentive for development of old and new projects and not for
the revival of sick ones.178
In such a scenario, where the property has no performance
record or failed to make a profit, future profits would be wholly speculative.179
120. Keeping the aforesaid in mind, the respondent submits that Alfa was not eligible for a
license as per the LRE and the claimant‘s assertion of lost profits to Alfa on account of
denial of license is without any basis.
B. The claimant has erroneously used WACC to discount cash flows.
121. The claimant expert uses the WACC method for discounting the cash flows for
calculation of damages for Beta. Since, it has been clarified by the claimant that it
intends to continue the 12 projects180
therefore; calculation of damages for the same has
also been done using the same discounting method.
122. There are two methods for discounting cash flows:
177
Occidental petroleum , ¶ 140.
178 Expert Report of Juanita Priemo, ¶7.
179 Metalclad ,¶ 119-122.
180 Procedural order 2.
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(a) Cash flows to equity are discounted at the cost of equity
(b) Cash flows to firm are discounted at WACC, which includes cost of debt.
The claimant has erroneously discounted the cash flows to equity at WACC instead
of cost of equity. As a result, this has led to a higher discounting value since WACC
also includes the cost of debt in addition to cost of equity.
123. The correct calculation would have been to discount the cash flows to equity at the cost
of equity, in the event of which the correct rate is 12% and not 8%. This substantially
reduces the amount of damages payable to the respondent.
C. Damages for prospective development of plants
124. Damages have also been claimed for additional investments in the future. However,
there is not a conclusive evidence to support this fact in the business plan of the
claimant. In the absence of such validation, an opinion cannot be framed. It would be
violative of the professional accountancy standards. In the lack of such indication, it is
impracticable to consider such investments for damages.
D. Payment of interest on damages
125. The claimant also seeks a payment for interest on losses incurred in the past. However,
the claimant uses the same rate as that of WACC for interest calculation. The reasons
stated above show that the WACC rate of 8% is not the correct rate for discounting cash
flows. Similarly, the said rate cannot be applied for interest payments as well. Therefore,
the interest rate should also be calculated at 12%.
MEMORIAL FOR RESPONDENT TEAM QUINTANA t
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RELIEF SOUGHT
The Respondent respectfully prays to the Tribunal to declare –
1. That the Tribunal does not have jurisdiction over this dispute.
2. In the event that the first prayer is not granted, declare that the respondent‘s
administrative and regulatory measures have not violated ―Fair and Equitable Treatment‖
in the BIT.
3. Where the second prayer is not granted declare, that the Respondent‘s actions are
exempted on the grounds of necessity.
4. In case the third prayer is not granted, declare that the Respondent cannot may be called
upon to rescind the LRE amended Article 4 or in the alternative pay the pre-2013 to the
claimant.
5. In the event that the first or second prayer are not granted declare that the Claimant‘s
basis for claiming and quantifying compensation is incorrect.
Respectfully submitted on 26 September 2015 by
QUINTANA
On behalf of Respondent
REPUBLIC OF BARANCASIA.