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Team Alias - GAJA

THE LONDON COURT OF INTERNATIONAL ARBITRATION

UNDER THE LCIA RULES

LCIA ARBITRATION NO. 00/2014

VASIUKI LLC … CLAIMANT

V.

REPUBLIC OF BARANCASIA … RESPONDENT

MEMORIAL ON BEHALF OF THE RESPONDENT

Table of Contents

-MEMORIAL FOR THE RESPONDENT- ii

TABLE OF CONTENTS

LIST OF AUTHORITIES…………………………………………………………………...v

LIST OF ABBREVIATIONS…………………………………………………………….....xi

STATEMENT OF FACTS…………………………………………………………………..1

SUMMARY OF ARGUMENTS…………………………………………………………….3

ARGUMENTS ADVANCED………………………………………………………………..4

JURISDICTION

I. ACCESSION OF THE CONTRACTING PARTIES TO THE EU TERMINATES THE BC BIT...4

A. The BIT stands terminated under Article 59(1)(a) of the VCLT…………………4

i) The two Treaties cover the same ‘investments’……………...................................5

ii) The two Treaties serve identical purposes…………………………………………5

iii) The two Treaties have the same ‘standards of protection’………………………...6

iv) Both the Treaties provide for the same system of remedies……………………….6

B. The BC BIT stands terminated under Article 59(1)(b) of the VCLT……………..7

i) Material provisions of the two Treaties are in conflict…………………………….7

ii) The dispute resolution mechanisms of the two Treaties are incompatible………...8

C. The BC BIT has been superseded by the TFEU in accordance with Article

59(2)…………………………………………………………………………………...9

i) The BC BIT has been terminated by the actions of the Respondent………………9

ii) The European Commission considers Intra-EU BITs to be incompatible with the

TFEU………………………………………………………………………………9

D. The procedure to be followed under Article 65 has been complied with………..10

i) Procedure as required by Article 65 was followed……………………………….10

ii) Procedure as required by customary international law was complied with……...10

II. THE CLAIMANT HAS WAIVED ITS RIGHT TO RAISE AN OBJECTION TO THE

TERMINATION OF THE BC BIT………………………………………………………..11

A. The Claimant did not object to the termination of the BC BIT…….……………11

B. The Claimant has not approached domestic judicial forums of the

Respondent…………………………………………………………………………..12

III. IN THE ALTERNATIVE, THE ECJ HAS THE EXCLUSIVE JURISDICTION TO DECIDE UPON

THE CLAIMS SUBMITTED BY THE CLAIMANT………………………………………….12

A. Requirement of incompatibility of individual provisions………….......................12

Table of Contents

-MEMORIAL FOR THE RESPONDENT- iii

B. Similarity of dispute resolution mechanisms of both Treaties…………………...12

ADMISSIBILITY

IV. THE CLAIMANT’S CLAIMS ARE NOT ADMISSIBLE UNDER THE BC BIT……………..13

A. The Claimant’s photovoltaic plants / projects are not covered under the ambit of

the BC BIT…………………………………………………………………………..13

B. The Claimant’s photovoltaic projects are not protected investments under the

BC BIT………………………………………………………………………………14

MERITS

V. THE RESPONDENT DID NOT BREACH ITS OBLIGATIONS UNDER THE BC BIT,

INCLUDING THE FAIR AND EQUITABLE TREATMENT STANDARD...…………………...15

A. The Respondent’s legislative actions did not frustrate the Claimant’s legitimate

expectations...………………………………………………………………………..15

i) The Claimant’s expectations were not legitimate...……………………………….16

ii) The said expectation did not induce the Claimant’s investment...…………..........18

iii) No specific warranties were made and later repudiated……………………..........18

B. The Respondent’s actions did not violate its transparency obligation…………..19

C. The Respondent’s legislative actions were not arbitrary………………………...20

D. There was no breach due to the refusal of grant of license to Project Alfa……..20

VI. ALTERNATIVELY, THE RESPONDENT’S ACTIONS ARE EXEMPTED ON THE BASIS OF

THE EXCEPTION UNDER ARTICLE 11 OF THE BC BIT………………………………...21

A. Article 11 of the BC BIT is a self-judging provision and is applicable to the

current dispute…………………………………………………………………........21

i) Article 11 of the BC BIT is substantially different from Article 25 of the ILC

Articles…………………………………………………………………………….21

ii) Article 11 has a simple purpose requirement for it to be applicable……………...22

iii) A severe economic crisis constitutes a security interest of the State………...........22

B. Alternatively, Article XX of the GATT is applicable to the present case……….23

i) Reference to the GATT is appropriate……….......................................................23

ii) Interpretation of the term “necessary”………........................................................23

REMEDIES

VII. ALTERNATIVELY, THE RESPONDENT CAN NEITHER BE ORDERED TO RESCIND

THE 2013 AMENDMENT NOR TO PAY THE PRE-2013 AMENDMENT TARIFF…………..25

A. An order of specific performance will be in violation of Respondent’s

sovereignty…………………………………………………………………………..25

Table of Contents

-MEMORIAL FOR THE RESPONDENT- iv

B. Alternatively, an order of specific performance will cast a disproportionate

burden on the Respondent………………………………………………………….25

VIII. THE CLAIMANT’S BASIS FOR CLAIMING AND QUANTIFYING THE

COMPENSATION IS NOT APPROPRIATE………………………………………………...26

A. The Claimant is not entitled to compensation for its loss of profits……………..26

i) There is no established record of profitability………………………………..26

ii) Future profits cannot be calculated without past performance record……….27

B. The Claimant’s basis for claiming and quantifying the compensation is

inappropriate………………………………………………………………………..27

i) The Claimant is not entitled to compensation for Project Alfa………………28

ii) The WACC is the incorrect rate for discounting the Claimant’s cash flows...28

iii) The Claimant cannot claim compensation for ‘wasted investment in land’…29

iv) The Claimant is not entitled to compensation for future investment in

expansion of its projects……………………………………………………...30

PRAYER FOR RELIEF……………………………………………………………………31

List of Authorities

-MEMORIAL FOR THE RESPONDENT- v

LIST OF AUTHORITIES

ABBREVIATION FULL CITATION

BOOKS

Dorsett/Godden

Shaunnagh Dorsett and Lee Godden,

A Guide to Overseas Precedents of Relevance to Native Title

(1998)

Douglas

Zachary Douglas,

The International Law of Investment Claims (2012)

Marboe

Irmgard Marboe

Calculation of Compensation and Damages in International

Investment Law (2009)

Metcalf/Papageorgiou

Katrin Nyman Metcalf and Ioannis Papageorgiou,

Regional Integration and Courts of Justice (2005)

JOURNALS

Schreuer

Christoph Schreuer,

Fair and Equitable Treatment in Arbitral Practice

6 J. World Investment & Trade 357 (2005)

Tellez

Felipe Mutis Téllez,

Conditions and Criteria For The Protection of Legitimate

Expectations Under International Investment Law,

27 ICSID Rev. 432 (2012)

MISCELLANEOUS

EU Commission Paper

Commission Staff Working Document Capital Movements and

Investments in the EU Commission,

Service’s Paper on Market Monitoring, Brussels,

3.2.2012 SWD(2012)

STATUTES AND TREATIES

ILC Articles

International Law Commission, Articles on State Responsibility for

Internationally Wrongful Acts (including official Commentary),

Yearbook of the International Law Commission

2001, Vol. II (Part 2)

List of Authorities

-MEMORIAL FOR THE RESPONDENT- vi

TFEU Treaty on the Functioning of the European Union,

2012/C 326/01.

VCLT Vienna Convention on the Law of Treaties,

May 23, 1969, 1155 U.N.T.S. 331

ARBITRAL DECISIONS

Achmea v. Slovak Achmea B.V. v. The Slovak Republic,

UNCITRAL, PCA Case No. 2008-13, (Dec. 7, 2012)

ADC v. Hungary

ADC Affiliate Limited and ADC & ADMC Management Limited v.

The Republic of Hungary,

ICSID Case No. ARB/03/16, (Oct. 2, 2006)

AES v. Hungary

AES Summit Generation Limited & AES-Tisza Erömü Kft v. The

Republic of Hungary,

ICSID Case No. ARB/07/22, (Sep. 23, 2010)

Al-Bahloul Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan,

SCC Case No. V (064/2008), (Jun. 8, 2010)

Amoco v. Iran

Amoco International Finance Corp. v. The Government of the

Islamic Republic of Iran, et al.,

15 Iran-U.S. C.T.R. 189, Partial Award No. 310-56-3, (Jul. 14,

1987)

CME v. Czech CME Czech Republic B.V. v. The Czech Republic,

IIC 62 (2003), (Mar. 14, 2003)

CMS v. Argentina CMS Gas Transmission Co. v. Argentine Republic,

ICSID Case No. ARB/01/8, (May 12, 2005)

CMS v. Argentina

Annulment

CMS Gas Transmission Co. v. Argentine Republic,

ICSID Case No. ARB/01/8, Annulment Proceeding, (Sept. 25,

2007)

Continental v. Argentina Continental Casualty Co. v Argentina Republic,

ICSID Case No ARB/03/9, (Sept. 5, 2008)

Duke Energy

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

Ecuador,

ICSID Case No. ARB/04/19, (Aug. 18, 2008)

EDF v. Argentina EDF International S.A., SAUR International S.A. and León

Participaciones Argentinas S.A. v. The Argentine Republic,

List of Authorities

-MEMORIAL FOR THE RESPONDENT- vii

ICSID Case No. ARB/03/23, (Jun. 11, 2012)

EDF v. Romania EDF (Services) Limited v. Romania,


Enron v. Argentina Enron Corp. v. Argentine Republic,


Eureko v. Slovak Eureko BV v. The Slovak Republic,

UNCITRAL, PCA Case No. 2008-13 (Oct. 26, 2010)

Glamis Gold v. USA Glamis Gold v. United States of America,

UNCITRAL, (Jun. 8, 2009)

Hochtief v. Argentina Hochtief AG v. The Argentine Republic,


Lemire v. Ukraine Joesph Charles Lemire v. Ukraine,

ICSID Case No. ARB/06/18, (Mar. 28, 2011)

Levy v. Peru Renée Rose Levy and Gremcitel S.A. v. Republic of Peru,

ICSID Case No. ARB/11/17, (Jan. 9, 2015)

LG&E v. Argentina LG&E Energy Corp. & Ors. v. Argentine Republic,

ICSID Case No. ARB/02/1, (Jul. 25, 2007)

MTD v. Chile MTD Equity Sdn. Bhd. v. Republic of Chile,

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

MCI v. Ecuador

M.C.I. Power Group L.C. and New Turbine, Inc. v.

Republic of Ecuador,


Metalclad v. Mexico Metalclad Corp. v. The United Mexican States,

Case No. ARB(AF)/97/1, (Aug. 30, 2000)

Micula v. Romania Ioan Micula & Ors. v. Romania,

ICSID Case No. ARB/05/20, (Dec. 11, 2013)

Occidental Petroleum v.

Ecuador

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

ICSID Case No. UN 3467, (Jul. 1, 2004)

OKO v. Estonia

Oko Pankki Oyj, VTB Bank (Deutschland) AG

and Sampo Bank Plc v. The Republic of Estonia,

ICSID Case No. ARB/04/6, (Nov. 19, 2007)

Parkerings v. Lithuania Parkerings-Compagniet AS v. Lithuania,

ICSID Case No. ARB/05/8, (Sept. 11, 2007)

List of Authorities

-MEMORIAL FOR THE RESPONDENT- viii

Paushok v. Mongolia

Sergei Paushok, CJSC Golden East Company

and CJSC Vostokneftegaz Company v. The Government of

Mongolia,

UNCITRAL, (Apr. 28, 2011)

PSEG v. Turkey

PSEG Global, Inc., The North American Coal Corporation,

and Konya Ingin Electrik Üretim ve Ticaret Limited

Sirketi v. Republic of Turkey,

ICSID Case No. ARB/02/5, (Jan. 19, 2007)

Romak v. Uzbekistan Romak S.A. (Switzerland) v. The Republic of Uzbekistan,

UNCITRAL, PCA Case No. AA280, (Nov. 26, 2009)

Salini v. Morocco

Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom

of Morocco,


Saluka v. Czech Saluka Investments B.V. (The Netherlands) v. The Czech Republic,

Partial Award, UNCITRAL (Mar. 17, 2006)

Sempra v. Argentina

Annulment

Sempra Energy International v. The Argentine Republic,

Decision on the Argentine Republic’s Application for

Annulment of the Award,

ICSID Case No. ARB/02/16, Annulment Proceeding, (Jun. 29,

2010)

Siemens Siemens A.G. v. The Argentine Republic,

ICSID Case No. ARB/02/8, (Feb. 6, 2007)

Societe Generale v.

Dominican Republic

Société Générale In respect of DR Energy Holdings Limited

and Empresa Distribuidora de Electricidad del Este, S.A. v. The

Dominican Republic,

UNCITRAL, LCIA Case No. UN 7927, (Sept. 19, 2008)

Swembalt v. Latvia Swembalt AB, Sweden v. The Republic of Latvia,

UNCITRAL, (Oct. 23, 2000)

Tecmed v. Mexico

Tecnicas Medioambientales Tecmed S.A. v. The United Mexican

States,

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

Thunderbird International Thunderbird Gaming Corporation v. The United

Mexican States,

List of Authorities

-MEMORIAL FOR THE RESPONDENT- ix

IIC 136 (2006), (Jan. 26, 2006)

Total S.A. v. Argentina Total S.A. v. The Argentine Republic,

ICSID Case No ARB/04/1, (Dec. 21, 2010)

Vivendi

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

v. The Argentine Republic,


INTERNATIONAL COURT CASES

Commission v. Austria

Commission of the European Commission v. Republic of

Austria,

Case C-205/06, [2009] ECR I-01301, (Mar. 3, 2009)

Commission v. Ireland Commission of the European Communities v. Ireland,

Case C-459/03, [2006] ECR I-04635, (May 30, 2006)

Commission v. Italian

Republic

Commission of the European Comminities v. Italian Republic,

Case C-174/04, [2005] ECR 1-4933, (Jun. 2, 2005)

Commission v.

Netherlands

Commission of the European Communities v. Kingdom of the

Netherlands,

Case C-542/09, [2006] ECR I-9141, (Sep. 28, 2006)

Commission v. Sweden

Commission of the European Communities v. Kingdom of

Sweden,

Case C-249/06, [2009] ECR I-01335, (Mar. 3, 2009)

Erich v. MISAT Erich Gasser GmbH v. MISAT Srl,

Case C-116/02, [2003] ECR I-14721, (Dec. 9, 2003)

Francovich v. Italian

Republic

Andrea Francovich and Danila Bonifaci and others v. Italian

Republic,

Cases C-6/90 and C-9/90, [1991] ECR I-05357, (Nov. 19, 1991)

WTO PANEL & APPELLATE BODY REPORTS

AB, Brazil–Tyres

Appellate Body Report, Brazil – Measures Affecting Imports of

Retreaded Tyres,

WT/DS332/AB/R, (Dec. 17, 2007)

China–Products

Appellate Body, China – Measures Affecting Trading Rights

and Distribution Services for Certain Publications and

Audiovisual Entertainment Products,

WT/DS363/AB/R, (Jan. 19, 2010)

List of Authorities

-MEMORIAL FOR THE RESPONDENT- x

EC–Asbestos

Appellate Body Report, European Communities – Measures

Affecting Asbestos and Asbestos Containing Products,

WT/DS135/AB/R, (Mar. 12, 2001)

Panel, Brazil–Tyres

Panel Report, Brazil — Measures Affecting Imports of

Retreaded Tyres,

WT/DS332/R, (Jun. 12, 2007)

US–C.O.O.L.

Appellate Body Report, United States – Certain Country of

Origin Labelling (COOL) Requirements,

WT/DS384/AB/R & WT/DS386/AB/R, (Jun. 29, 2012)

US–Gasoline

Appellate Body Report, United States – Standards For

Reformulated And Conventional Gasoline,

WT/DS2/AB/R, (Apr. 29, 1996)

List of Abbreviations

-MEMORIAL FOR THE RESPONDENT- xi

LIST OF ABBREVIATIONS

¶/¶¶ Paragraph(s)

2013 Amendment Amendment of Article 4 of the Law on Renewable Energy

Art. Article(s)

BC BIT Barancasia-Cogitatia Bilateral Investment Treaty

BEA Barancasia Energy Authority

BIT Bilateral Investment Treaty

Claimant Vasiuki LLC

COE Cost of Equity

Contracting Parties Republic of Barancasia and Federal Republic of Cogitatia

DCF Discounted Cash Flow

ECJ European Court of Justice

ECR European Court Reports

ECT European Community Treaty

EU European Union

FDI Foreign Direct Investment

FET Fair and Equitable Treatment

GATT General Agreement on Tariffs and Trade

ICSID International Centre for Settlement of Investment Disputes

ILC International Law Commission

LRE Republic of Barancasia’s Law on Renewable Energy

MFN Most Favoured Nation

NAFTA North American Free Trade Agreement

p./pp. Page Number(s)

PCA Permanent Court of Arbitration

Respondent Republic of Barancasia

TFEU Treaty on the Functioning of the European Union

UNCITRAL United Nations Commission on International Trade Law

VCLT Vienna Convention on Law of Treaties, 1969

WACC Weighted Average Cost of Capital

WTO World Trade Organisation

Statement of Facts

-MEMORIAL FOR THE RESPONDENT- 1

STATEMENT OF FACTS

Parties Involved

1. Vasiuki LLC (“Vasiuki”) is a company incorporated in the Republic of Cogitatia

(“Cogitatia”), and is the Claimant in the present dispute. It is engaged in the development,

construction and operation of renewable energy facilities in Cogitatia and elsewhere in the

region, including the Republic of Barancasia (“Barancasia”), since 2002. Barancasia is

the Respondent in the present dispute.

Barancasia-Cogitatia Bilateral Investment Treaty (“BIT”)

2. In 1998, Barancasia and Cogitatia concluded a BIT, as part of their wide-ranging

economic reforms. They joined the European Union (“EU”) in 2004. Between 1 May 2004

and 15 November 2006, Barancasia examined their Intra-EU BITs and concluded they had

become obsolete. On 15 November 2006, it declared its intention to terminate its Intra-EU

BITs. Accordingly, on 11 December 2006, the Government of Barancasia formally

resolved to terminate all its Intra-EU BITs.

3. In 2007, Barancasia notified Cogitatia of its intention to immediately terminate the BIT;

and the Cogitatatian Foreign Ministry acknowledged the receipt of Barancasia’s

notification. In 2008, Barancasia removed the BIT from the section of its Ministry of

Finance website which lists valid and binding international agreements.

Vasiuki’s Photovoltaic Projects in Barancasia

4. In 2009, Vasiuki went ahead and purchased land plots in Barancasia and decided to launch

an experimental solar project called “Alfa”. By 2010, solar panels of the Project Alfa were

connected to the grid and became operational, but the project was initially operating at a

loss.

Barancasia’s Law on Renewable Energy (“LRE”)

5. In 2010, Barancasia adopted the LRE which fixed general “feed-in tariffs” for renewable

energy providers who receive a license from the national regulator – the Barancasia

Energy Authority (“BEA”). The LRE also guaranteed that the feed-in tariff applicable at

the time of the issuance of a license would apply for twelve years. The BEA publicly

Statement of Facts


announced the fixed feed-in tariff of 0.44 EUR/kWh. Vasiuki applied for a license for the

Project Alfa, as well as Project Beta. But in August 2010, the BEA denied Vasiuki’s

license application for Project Alfa, while simultaneously granting a license for its Project

Beta.

6. By 2011, Project Beta became operational. In the same year, a ground-breaking

technology was developed making solar panels substantially cheaper to manufacture and

dramatically reducing the costs of development. In September 2011, Vasiuki borrowed

substantial sums of money from the United Bank of Cogitatia to acquire several land plots

suitable for the development of photovoltaic power plants. And in April 2012, Vasiuki

applied for licenses for its 12 new photovoltaic power plants. By July 2012, Vasiuki had

obtained licenses from the BEA for the development of all 12 photovoltaic power plants

with an approved 0.44 EUR/kWh feed-in tariff, and it ordered solar panels and started the

construction of photovoltaic power plants based on the new technology.

Amendment to Barancasia’s LRE

7. By 2012, a solar bubble had been created in Barancasia. And in June 2012, teachers

organized national strikes in Barancasia, demanding an increase of salaries and

educational funding Therefore, in January 2013, after prior consultations with the relevant

stakeholders, the Barancasian Parliament adopted an amendment to Article 4 of LRE as

per which the feed-in tariffs could be reviewed annually. The BEA announced the new

fixed feed-in tariffs: 0.15 EUR/kWh, to be applicable retrospectively from 1 January 2013.

Request for Arbitration

8. Aggrieved by the arbitrary amendment in the LRE and subsequent reduction of the feed-

in-tariff, Vasiuki notified Barancasia’s Ministry of Foreign Affairs of its intention to

pursue legal remedies. In November 2014, Vasiuki commenced arbitral proceedings

before the London Court of International Arbitration pursuant to Article 8 of the BIT.

Summary of Arguments


SUMMARY OF ARGUMENTS

JURISDICTION: This Tribunal does not have jurisdiction to decide the claims submitted by the

Claimant because the Barancasia-Cogitatia BIT has been automatically terminated by virtue

of the Contracting Parties accession to the EU. Further, the BIT has been validly terminated

by the Respondent in accordance with the provisions of international law and the BIT itself.

In any case, the ECJ has exclusive jurisdiction to decide cases concerning the interpretation

of EU law, as well as the Claimant, through its conduct, has waived its right to now raise an

objection to the termination of the BIT.

ADMISSIBILITY: The Claimant’s claims concerning its photovoltaic projects in the

Respondent’s territory are not admissible because the photovoltaic projects do not constitute

a valid ‘investment’ under the BIT, and are not protected investments as per the provisions of

the BIT.

MERITS: The Respondent’s actions were not in violation of its obligations under the BIT,

including the FET standard, as the Claimant’s expectations were not legitimate. In any event,

the Respondent’s actions are exempted by virtue of the exception provided in the BIT,

because the severe economic crisis in the Respondent’s territory constituted a security interest

for the Respondent, and the Respondent’s actions are covered by the margin of appreciation

in Article 11 of the BIT.

REMEDIES: Regardless of its findings on the substantive merits of the claims, this Tribunal

cannot order specific performance against the Respondent because any such order of the

Tribunal would violate the sovereignty of the Respondent, and place a disproportionate

burden on it. Furthermore, the Claimant is not entitled to the full compensation claimed by it

because there are fundamental flaws in the Claimant’s expert’s quantification of the

compensation amount.

Arguments Advanced


ARGUMENTS ADVANCED

JURISDICTION AND ADMISSIBILITY

PART I – JURISDICTION OF THE TRIBUNAL

1. The Tribunal is not vested with the jurisdiction to decide upon the merits of the claims

brought before it by the Claimant because: the Barancasia-Cogitatia Bilateral Investment

Treaty1 (“BC BIT”) has become obsolete due to the accession of Barancasia and

Cogitatia (“Contracting Parties”) to the European Union (“EU”) (I); the Claimant has

waived its right to raise an objection to the termination of the BC BIT (II); and in the

alternative, the European Court of Justice (“ECJ”) has the exclusive jurisdiction to decide

upon the claims submitted by the Claimant (III).

I. ACCESSION OF THE CONTRACTING PARTIES TO THE EU TERMINATES THE BC BIT.

2. The BC BIT has become obsolete due to its termination as per Article 59(1)(a) of the

Vienna Convention on the Law of Treaties, 1969 (“VCLT”), as it deals with the same

subject matter as the Treaty on the Functioning of the European Union (“TFEU”) (A); as

well as the fact that it is materially incompatible with the TFEU as per Article 59(1)(b) of

the VCLT (B). The BIT has been superseded by the TFEU in accordance with Article

59(2) of the VCLT as such was the intention of the Contracting Parties (C). Further, the

procedure to be followed under Article 65 of the VCLT has been complied with, as it is a

necessity for Article 59 of the VCLT to be applicable (D).

A. The BIT stands terminated under Article 59(1)(a) of the VCLT.

3. The BC BIT stands terminated due to its becoming obsolete as a result of the accession of

the Contracting Parties to the EU. The subject matter of both the BIT and the TFEU is

similar. Article 59(1)(a) of the VCLT prohibits two treaties with the same ‘subject matter’

and between the same parties from existing simultaneously. When interpreting a treaty it

must be interpreted in the broadest manner as to determine its ambit.2 This rule has been

1 Agreement between the Republic of Barancasia and Federal Republic of Cogitatia for the Promotion and

Reciprocal Protection of Investments, Barancasia-Cogitatia, December 31, 1998. 2 Dorsett/Godden, p. 3.

Arguments Advanced


applied to determine the meaning of the provisions of the TFEU and other Bilateral

Investment Treaties (“BIT”) by the ECJ and numerous other tribunals.3

i) The two Treaties cover the same ‘investments’.

4. This “subject matter” can be determined by a comparison of the two treaties. With respect

to the ‘covered investments’, Article 1(1) of the BC BIT has defined the investments as

“every kind of asset invested in connection with economic activities by an investor of one

Contracting Party in the territory of the other Contracting Party” and lists a set of

examples of possible investments. Under EU law, the protection of investments is

provided under the commercial policy laid down by Article 207 of the TFEU. The TFEU

frames the ‘Common Commercial Policy’4 to be followed by all Member States. There are

other provisions providing for freedom of the internal market,5 such as the freedom of

establishment6 and the free movement of goods,

7 workers,

8 services,

9 et al. Although the

TFEU has not explicitly defined the term “investment”, a subsequent explanatory note by

the EU Council and decisions of the ECJ have determined and upheld the term

“investments” to include the exact similar types of investments as covered under the BC

BIT.

ii) The two Treaties serve identical purposes.

5. The BC BIT and the TFEU intend to serve identical purposes, especially if one is to

compare the Preambles, as well as the principle provisions, of both the BC BIT and the

TFEU. The fundamental purpose of both these treaties is to broaden and strengthen mutual

economic relationships and to promote the flow of capital and economic development of

the Contracting Parties, and at the same time, guarantee fair and equitable treatment. It

must be specifically pointed out that the Preamble of the BC BIT and Articles 2, 3 and 12

of the TFEU are similar and indicate that the two treaties have the same purpose. The BC

BIT constitutes a subset, and its role elapses upon the Contracting Parties accession to the

EU.

3 Metcalf/Papageorgiou, p. 4.

4 TFEU, Art. 207 addresses the common term investment along with the decisions of the ECJ have confirmed

the term investments under the Council Directive is a wide ambit as per Commission v. Italian Republic; Eureko

v. Slovak, ¶67. 5 TFEU, Art. 26.

6 Ibid, Art. 49.

7 Ibid, Art. 57.

8 Ibid, Art. 45.

9 Ibid, Art. 56.

Arguments Advanced


iii) The two Treaties have the same ‘standards of protection’.

6. The ‘standard of protection’ provided by both the Treaties are the same. This may be

determined by the comparison between the Treaties, with respect to the establishment of

investments – Article 2 to Article 4 of the TFEU deal with the same ambit of internal

markets and treaties undertaken by its Member States. Article 4 of the TFEU further

prohibits any restrictions on the free movement of capital and payments. With respect to

equal treatment and non-discrimination, it is important to note the similarities between the

promise in Article 2(2) of the BC BIT and the principles of non-discrimination and

equality of treatment fundamentally protected by EU law through Articles 12 and 49 of the

TFEU and under the Charter on Fundamental Rights of the European Union.10

7. The summary below is further substantiates the similarities between the two Treaties:

BC BIT TFEU

Free Transfer of Capital (Art. 4) Free Movement of Capital (Art. 4)

Fair and Equitable Treatment (Art. 3(1)) Prohibition of Discrimination (Art. 12)

Indirect Expropriation (Art. 5) Freedom of Establishment (Art. 49)

Full Security and Protection (Art. 3(2)) Freedom of Establishment (Art. 49)

iv) Both the Treaties provide for the same system of remedies.

8. Finally, both the BC BIT and the TFEU provide for the same system of remedies where

investments have been impaired as a result of State action. Under the TFEU, investors can

pursue their claims before the respective national courts with the involvement of the ECJ

through a preliminary ruling procedure; and under the BC BIT, the investors can have

their dispute heard before an arbitral tribunal. Both mechanisms aim at the same objective,

namely, the protection of investments. Under both mechanisms, investors may seek

compensation for damages from States for unlawful conduct.11

10

TFEU, Arts. 18 and 49. 11

Francovich v. Italian Republic, ¶22.

Arguments Advanced


B. The BC BIT stands terminated under Article 59(1)(b) of the VCLT.

9. The BC BIT and the TFEU have materially incompatible provisions which cannot be

applied at the same time. The effective exercise of exclusive competence under Article

207 of the TFEU requires regulation of investment in the internal market by the EU, which

leads to a potential conflict with the BC BIT (i). Also, Article 8 of the BC BIT is

incompatible with Article 344 and Article 267 of the TFEU which confer exclusive

competence to the ECJ to rule on matters related partially or wholly to EU law (ii).

i) Material provisions of the two Treaties are in conflict.

10. Independent of a finding that the BC BIT has been terminated by virtue of Article 59(1)(a)

of the VCLT, Article 59(1)(b) has, in any case, already been satisfied; which renders the

BC BIT void because it has become obsolete. This is because the provisions of the TFEU

are so far incompatible with those of the BC BIT that the two Treaties are not capable of

being applied at the same time. Under Article 59(1)(b), a conflict occurs when the

performance of one treaty necessarily causes a breach of the other treaty; in other words,

the obligations arising out of the BC BIT and the TFEU cannot both be fulfilled at the

same time. The provisions on the ‘free movement of payments’ and the ‘protection and

security of investments’ guaranteed under the BC BIT are incompatible with the TFEU

because Article 58 of the TFEU permits exceptions to the free movement of capital

relating to taxation and financial supervision or public policy and security. Thus, a State

may be in breach of the BC BIT while simultaneously being in compliance with the

TFEU.

11. Further, the expropriation clause in Article 5 of the BC BIT is incompatible with the

regulation of expropriation and damages under EU law, which is derived largely from the

European Commission on Human Rights. This is because EU law enables possible

restrictions on proprietary rights “necessary for the general interest” which could cause a

breach of Article 5 of the BC BIT. Article 5 of the BC BIT also breaches Article 10 of the

TFEU which deals with loyal cooperation. The ECJ, in its judgments of 2009 against

Sweden, Austria and Finland,12

held that BITs’ provisions on free transfers related to

investment in a third country (commonly referred to as a "transfer clause") are

incompatible with EU law if they do not allow the application of potential EU measures

12

Commission v. Finland, ¶3.

Arguments Advanced


restricting capital movements. A similar situation would arise if the Claimant claims a

‘transfer clause’ under the BIT rather than the TFEU. Therefore, the Claimant has failed to

address the Extra-EU BIT cases, even though the cases mentioned above precisely define

what the incompatibilities are between EU law and international law instruments.

ii) The dispute resolution mechanisms of the two Treaties are incompatible.

12. The arbitration clause in Article 8 of the BC BIT is also incompatible with the TFEU for

two reasons: the arbitration clause violates the exclusive competence of the ECJ to

interpret EU law (a); and the TFEU does not provide for arbitration proceedings between

investors and Member States thereby leading to a discrimination problem (b).

a. Article 8 violates the exclusive competence of the ECJ to interpret EU law.

13. Arbitral tribunals, unlike national courts, are not entitled to refer preliminary questions of

EU law to the ECJ, under Article 234 of the TFEU. Hence, if an arbitral tribunal were to

resolve questions of EU law in the absence of a referral to the ECJ, this would seriously

jeopardise the uniform application of EU law.13

14. Although it is acknowledged that this Tribunal is obligated to apply EU law, it is

prevented from doing so because it will not be able to ensure the uniform application and

interpretation of EU law, which is the role of the ECJ under Article 220 of the TFEU.

Even if this Tribunal could request a national court to assist, such a national court could

not do so because it would not ultimately decide the present case on its merits. Moreover,

the uniform application of EU law may not be sufficiently safeguarded by the possibility

of annulment or enforcement proceedings in national courts because: (i) such proceedings

are not obligatory; (ii) such remedies are limited by specific prerequisites and not every

misinterpretation of the law results in the annulment of an award or refusal of its

recognition and enforcement; and (iii) if such proceedings are commenced outside the EU,

then the national courts will neither be obliged nor entitled to request a preliminary ruling

from the ECJ.

b. Incompatibility between the two Treaties leads to discrimination.

15. Furthermore, Article 8 of the BC BIT is incompatible with the TFEU because it

fundamentally violates the principle of equality as stipulated in Article 12 of the TFEU.

13

Eureko v. Slovak, ¶114.

Arguments Advanced


Article 12 prohibits discrimination on the grounds of nationality. Investors from Member

States which have not concluded BITs with the Respondent would be discriminated

against as a result of Article 8. Thus, the fact that only certain EU nationals may seek

compensation for damages caused by a breach of EU law before an international arbitral

tribunal is discriminatory and in violation of Article 12 of the TFEU. Since TFEU came

into force after the BC BIT, it supersedes the latter.

C. The BC BIT has been superseded by the TFEU in accordance with Article 59(2).

i) The BC BIT has been terminated by the actions of the Respondent.

16. The Contracting Parties became members of the EU on 1 May 2004. On 15 November

2006, the Respondent announced its intention to terminate all its Intra-EU BITs,14

and

thereon the Respondent terminated all such BITs.15

On 29 June 2007, there was formal

notification16

of the termination of the BC BIT sent by the Respondent to the Republic of

Cogitatia (“Cogitatia”), which became active after one year as per Article 13(2).

Following such one-year period, any subsequent investment by the Claimant was on its

own volition, and not protected by or subject to the provisions of the BC BIT. On 28

November 2008, the BC BIT was removed from the section listing valid and binding

international agreements on the website of the Respondent’s Finance Ministry.17

This is an

indication that the parties had intended to phase out of their existing BITs post accession

to the EU. This intention to let the TFEU supersede the BC BIT satisfies the test of Article

59(2) of the VCLT.

ii) The European Commission considers Intra-EU BITs to be incompatible with the TFEU.

17. The BC BIT was concluded with the objective of regulating the investment legal

framework in a context preceding the Contracting Parties’ accession to the EU, and thus, it

is obsolete in a post-accession economic and legal context. Further, the European

Commission has asserted in a recent decision that the rule of pacta sunt servanda does not

apply to agreements between EU Member states, because of the jurisprudence establishing

that the EU law takes supremacy not only over the national legal systems but also over the

14

Statement of Uncontested Facts, ¶5. 15



Statement of Uncontested Facts, ¶11.

Arguments Advanced


BITs concluded between Member States. This rule applies to pre-accession BITs

concluded between Member States.

18. If there is a conflict between such a pre-accession BIT and the TFEU, then the latter

prevails. The principle of ‘acquis communautaire’ applies as soon as the Member State

signs the EU Accession Treaty.18

The European Commission has further held that BITs

between EU Member States are in conflict with EU law, are incompatible with the EU

single market and, therefore, should be phased out.19

D. The procedure to be followed under Article 65 has been complied with.

19. The BC BIT has been terminated in accordance with the procedure laid down under

Article 65 of the VCLT. Article 65 lays down the procedure for valid termination of treaty

as required by Article 59 of the VCLT.

i) Procedure as required by Article 65 was followed.

20. A written notification was sent by the Respondent to Cogitatia, expressing the intention to

terminate the BC BIT on 29 June 2007.20

The same was acknowledged by Cogitatia on 28

September 2008.21

Subsequent communications were made to confirm the termination of

the BC BIT. Lack of any objection to the notification of termination of the BC BIT within

a reasonable period of time amounts to tacit acquiescence to the termination of the BC BIT

by Cogitatia.

ii) Procedure as required by customary international law was complied with.

21. Though the Claimant may choose to rely on the decision of the Arbitral Tribunal in

Achmea v. Slovak,22

the facts in that case and the facts before this Tribunal can be clearly

distinguished. In the abovementioned case, the Tribunal rejected the contention that

Article 59 of the VCLT made the BIT in question obsolete because the procedure as laid

down in customary international law had not been followed. The Tribunal ruled that there

was a lack of notice of termination, and Article 59 is only applicable when the two treaties

relate to the same subject-matter and there is an incompatibility between the two. All the

above mentioned criteria have been met and satisfied by the facts in the current dispute. In

18

Eureko v. Slovak, ¶180. 19

EU Commission Paper, p. 13. 20



Achmea v. Slovak, ¶234.

Arguments Advanced


the instant case, the notification of termination was provided by the Respondent well in

advance of the final termination of the BC BIT. Moreover, such notification was

accompanied by the rationale behind the decision to terminate, which was in the form of

the legislative decision. Therefore, the BC BIT has been validly terminated by the

Respondent in accordance with the principles established by customary international law.

II. THE CLAIMANT HAS WAIVED ITS RIGHT TO RAISE AN OBJECTION TO THE TERMINATION

OF THE BC BIT.

22. The Claimant has waived its right to object to the termination of the BC BIT due to two

primary reasons: the Claimant did not take any action to object to the termination of the

BC BIT for a period of seven long years (A); and the Claimant has failed to approach the

appropriate domestic judicial forums of the Respondent (B).

A. The Claimant did not object to the termination of the BC BIT.

23. It is a well-established principle of international law that the termination of a treaty or the

withdrawal of a party from a treaty may only take place in conformity with the provisions

of such treaty. In the present case, Article 13(2) of the BC BIT provides for a notification

process to terminate the Treaty. The Respondent notified Cogitatia of its resolution to

terminate the BC BIT in accordance with the provision.23

It must be noted that since 29

June 2007, no action has been taken by Cogitatia in relation to the notification of

termination, except for an acknowledgement of the receipt of said notification. Such non-

action and silence amounts to acquiescence of the termination by Cogitatia. The silence

permitted the Respondent to assume implied acceptance. The acceptance has allowed for

the pre-condition of ten years to be frustrated due to no objection to the notification of

termination of the BIT.24

23


Hochtief v. Argentina, ¶94.

Arguments Advanced


B. The Claimant has not approached domestic judicial forums of the Respondent.

24. Further, the Claimant does not have the right to approach this Tribunal as it has not yet

exhausted the remedies available to it by approaching the domestic judicial forums of the

Respondent State.25

III. IN THE ALTERNATIVE, THE ECJ HAS THE EXCLUSIVE JURISDICTION TO DECIDE UPON

THE CLAIMS SUBMITTED BY THE CLAIMANT.

25. Even if Article 59 of the VCLT does not operate to terminate the BC BIT, the Tribunal

lacks jurisdiction to decide upon this case because the arbitration clause in the BC BIT is

not “compatible” with the TFEU within the meaning of Article 30 of the VCLT, which

provides:

“Successive Treaties Relating to the Same Subject Matter…

3. When all the parties to the earlier treaty are parties also to the later treaty but the

earlier treaty is not terminated or suspended in operation under article 59, the earlier

treaty applies only to the extent that its provisions are compatible with those of the

later treaty”

A. Requirement of incompatibility of individual provisions.

26. Unlike Article 59, Article 30 requires no proof of the parties’ intentions and does not

relate to the incompatibility of the treaties as a whole, but rather to the incompatibility of

individual provisions. In this arbitration, the Claimant asserts that the Respondent

violated Articles 3(1), 3(2), 4 and 5 of the BC BIT, all of which have been supplanted by

EU law. Therefore, the dispute has to be solved under and in accordance with EU law.

However, the Tribunal lacks the competence to apply and interpret EU law. It is a

principle that the jurisdiction should be decided before deciding the merits. In the facts

before an arbitral tribunal, the preliminary objection was whether the jurisdiction lies with

the ECJ.26

Thus, it is asserted that Article 30(3) of the VCLT renders Article 8 of the BC

BIT inapplicable, and the Tribunal lacks jurisdiction to decide the case.

B. Similarity of dispute resolution mechanisms of both Treaties.

27. It has been previously held by the European Commission that when all parties to an

earlier treaty are parties to the later treaty but the earlier treaty has not been terminated or

25

MCI Power v. Ecuador, ¶349. 26

Erich v. MISAT, ¶3.

Arguments Advanced


suspended in operation under Article 59, the earlier treaty applies only to the extent that

its provisions are compatible with those of the later treaty.27

In the case at hand, Article

54 of the TFEU addresses the concerns of a company in the same manner that the BC BIT

addresses the concerns of a ‘legal entity’.28

Hence, there is a similarity of dispute

resolution mechanisms as both Article 263 of the TFEU and Article 8 of the BIT have a

provision for redressal of grievances for unlawful conduct.29

28. Therefore, even if the Tribunal finds that the BC BIT and the TFEU are not materially

incompatible, the Tribunal will lack jurisdiction under Article 30(3) of the VCLT because

the ECJ has exclusive jurisdiction over Intra-EU disputes, as has been enshrined in

Articles 344 and 267 of TFEU.30

PART II – ADMISSIBILITY OF CLAIMS

IV. THE CLAIMANT’S CLAIMS ARE NOT ADMISSIBLE UNDER THE BC BIT.

29. The Claimant’s claims concerning the photovoltaic projects are not admissible in relation

to the dispute under the BC BIT because: the Claimant’s photovoltaic plants / projects are

not covered under the ambit of the BC BIT (A); and they are not protected

investments under the BC BIT (B).

A. The Claimant’s photovoltaic plants / projects are not covered under the ambit of

the BC BIT.

30. The Claimant’s investments in Project Alfa, Project Beta and the 12 photovoltaic projects

were made post the termination of the BC BIT, and therefore, they cannot be accorded the

status of ‘investment’ under the BC BIT. In a similar decision of Romak v. Uzbekistan,31

Uzbekistan had contended before the Tribunal that Romak did not own an ‘investment’ as

required under the BIT since Romak had delivered only one order, which too was post the

27

Commission v. Austria; Commission v. Sweden, ¶29. 28

Law on Renewable Energy (“LRE”), Art. 2(b). 29

Francovich v. Italian Republic, ¶31. 30

Commission v. Ireland, ¶123-126. 31

Romak v. Uzbekistan, ¶182.

Arguments Advanced


signing of another acceding treaty, thus lending that order to be on the Company’s own

volition rather than an investment according to the BIT. The Tribunal had accepted

Uzbekistan’s contention and held that the transaction did not amount to an ‘investment’.

31. Further, to constitute a valid ‘investment’ under a BIT, there must be some development

and benefit accruing to the host nation. In the instant case, there are no plants which are

already operational. Hence, the planned photovoltaic projects do not constitute

‘investments’ as there is no benefit or development in the Respondent’s territory.32

B. The Claimant’s photovoltaic projects are not protected investments under the BC

BIT.

32. As has been previously submitted, the BC BIT was terminated and any transaction post

such termination (in 2007) would have been made on the investor’s own volition and not

protected by the provisions of the BC BIT. A parallel can be drawn between the facts of

the present case and the decision of the Arbitral Tribunal in Societe Generale v.

Dominican Republic,33

wherein it was decided that the treaty was designed to protect only

nationals and the Claimant’s would fail the test to constitute a valid ‘protected

investment’ under the BC BIT, as the BIT has been terminated.

33. Furthermore, the rationale behind the principle of any post-termination investment being

treated at par with an independent investment is that post the termination of the BIT, the

transaction shall be deemed to be unprotected as it suggests the transaction was ‘too late’.

Thus, it is the Claimant’s fault for knowingly taking the risk of investing post termination

of the BC BIT.34

32

Salini v. Morocco, ¶5. 33

Societe Generale v. Dominican Republic, ¶106. 34

Levy v. Peru, ¶145.

Arguments Advanced


MERITS

V. THE RESPONDENT DID NOT BREACH ITS OBLIGATIONS UNDER THE BC BIT, INCLUDING

THE FAIR AND EQUITABLE TREATMENT STANDARD.

34. The Respondent has not breached its obligations under the BC BIT, including the Fair and

Equitable Treatment (“FET”) standard. The FET Standard is autonomous and consists of

various elements.35

These include the need for a State to: act in good faith, act

transparently, act without discrimination, act non-arbitrarily, act within the framework of

due process, provide investors the freedom from coercion and harassment, and protect

legitimate expectations of investors.36

The Respondent has not violated any of the

aforementioned components.

35. The standard of treatment need not be anything in addition to the international minimum

standard.37

The threshold for a breach as under international minimum standards is very

high. A breach can only result from treatment that is “shocking” or “egregious”.38

Even if

the standard of protection is to be considered autonomous, the right of protection of the

investor has to be balanced against the right of the host State to exercise its sovereign

power to regulate in public interest.39

36. The Respondent’s legislative actions did not frustrate Claimant’s legitimate expectations

(A); the Respondent’s legislative actions did not violate its transparency obligations (B);

the Respondent’s legislative actions were not arbitrary (C); and the Respondent did not

breach the FET standard with respect to Project Alfa (D).

A. The Respondent’s legislative actions did not frustrate the Claimant’s legitimate

expectations.

37. The Respondent’s actions have not frustrated Claimant’s legitimate expectations because

the three elements, namely: legitimacy of expectations40

(i); inducement of investment on

35

Schreuer, pp. 374-385. 36

Ibid. 37

MTD v. Chile, ¶110. 38

Glamis Gold v. USA, ¶627. 39

Saluka v. Czech, ¶305; EDF v. Romania, ¶219. 40

Tellez, p. 441.

Arguments Advanced


the basis of such expectations41

(ii); and specific warranties by the host State that were

later repudiated42

(iii); have not been satisfied in the current case.

i) The Claimant’s expectations were not legitimate.

38. The Claimant’s expectations that the laws of the Respondent will remain frozen were not

legitimate. Legitimacy has three key elements viz. reliance on the law, its reasonableness

and its beneficial effect for the investor.43

The expectations of the Claimant do not fulfil

the legitimacy requirement. More specifically, the Claimant’s expectations did not rely on

the law (a), and they were not reasonable (b).

a. Claimant’s expectations did not arise out of reliance on law.

39. The expectations of the Claimant did not arise out of its reliance on law. In the absence of

a stabilisation clause, a nation’s laws are reasonably expected to evolve over time.44

The

licenses to operate the photovoltaic projects were granted in pursuance of the Law on

Renewable Energy (“LRE”).45

Under the LRE, the feed-in tariff was not allowed to

change for a period 12 years from the date of grant of the license.46

40. Article 4 of the LRE is not a stabilisation clause. A stabilisation clause can only be

contained in State contracts with foreign investors which provide that the host State’s legal

framework would be frozen as on a certain date.47

In such a specific situation, any

regulatory changes would be illegal.48

However, in the current scenario, the licenses

themselves did not have any such provision. Therefore, no such warranty was specifically

made to the Claimant by the Respondent.

b. The Claimant’s expectations were not reasonable.

41. The Claimant’s expectations were unreasonable. The Arbitral Tribunal in Duke Energy

held that the assessment of reasonableness should take into account “not only the facts

surrounding the investment, but also the political, socioeconomic, cultural and historical

41

Continental v. Argentina, ¶261. 42

Ibid. 43

Tellez, p. 441. 44

Parkerings v. Lithuania, ¶332. 45

LRE, Art. 5. 46

LRE, Art. 4. 47

Total S.A. v. Argentina, ¶101. 48

Ibid.

Arguments Advanced


conditions prevailing in the host State”.49

Only when investors fulfill their due diligence

duties concerning potential circumstance changes can their expectations be considered

legitimate and reasonable.50

42. In the present dispute, both the political and the socioeconomic conditions which were

prevailing prior to the Claimant’s investment were ignored by it. The failure of the

Claimant to conduct adequate due diligence attenuates the legitimacy of Claimant’s

expectations. In Parkerings v. Lithuania, the Arbitral Tribunal ruled that since Lithuania

was in the middle of a transition from being a part of the Soviet Union to becoming a

member of the EU, legislative changes in its legal regime should have been considered to

be likely.51

The investor in the case should have been aware of the risk of change in the

legal framework in Lithuania, and therefore, the investor’s expectation that the laws

would remain unchanged could not be considered to be legitimate.52

In the instant case,

even though the Respondent was a new EU member, the Claimant went ahead with its

investment. Therefore, it was likely that the feed-in tariff would change along with other

laws, and the Claimant should have been aware of such risk.

43. Further, even the economic circumstances at the time of the Claimant’s investment prove

that stability of the legal environment was not a legitimate expectation. Particularly, in

relation to the Claimant’s twelve subsequent photovoltaic projects, the discovery of the

ground-breaking technology in 2011 prior to said investment made it clear that the feed-in

tariff could have changed.53

Hence, it can be inferred that stability of legal environment

was not the reason behind the Claimant’s investment.

44. Furthermore, under no circumstances can it be held to be reasonable to expect the laws to

not change even during a crisis. In Continental v. Argentina, the Arbitral Tribunal held

that:

“Stability of the legal framework is undoubtedly conducive to attracting foreign

investments, especially direct investments where business plans can extend over a

number of years; and even more so in respect of those where initial investments are

substantial and are recouped only over a long period of time. On the other hand, it

would be unconscionable for a country to promise not to change its legislation as time

and needs change, or even more to tie its hands by such a kind of stipulation in case a

crisis of any type or origin arose. Such an implication as to stability in the BIT’s

49

Duke Energy, ¶340. 50

Parkerings v. Lithuania, ¶333. 51

Ibid, ¶335. 52

Ibid. 53


Arguments Advanced


Preamble would be contrary to an effective interpretation of the Treaty; reliance on

such an implication by a foreign investor would be misplaced and, indeed,

unreasonable.”54

45. In the present case, an economic crisis did arise in the Respondent’s territory.55

It was in

aftermath of the aforementioned crisis that the Respondent’s laws were changed.

Therefore, the Claimant’s expectations that the position of laws would remain frozen,

even in such circumstances, were unreasonable. Consequently, the Claimant’s

expectations were not legitimate.

ii) The said expectation did not induce the Claimant’s investment.

46. In any case, the aforementioned expectation of the Claimant did not induce the

investment. The factual matrix is bereft of any evidence that would point to such

inducement. On the contrary, the facts clearly show that while Project Alfa was instituted

as an experimental solar project,56

Project Beta was commissioned to build on the efforts

from Project Alfa57

and the last twelve projects were to build on the efforts of Projects

Beta and Alfa.58

Hence, it is clear that there was no active reliance placed by the Claimant

on the stability of the legal environment. Consequently, such an expectation did not

induce the Claimant to invest in the Respondent.

iii) No specific warranties were made and later repudiated.

47. No specific warranties were made by the Respondent to the Claimant that were later

repudiated. To constitute a legitimate expectation, warranties should be unequivocally

directed towards the Claimant. Moreover, the Respondent should unequivocally make the

specific warranty the Claimant seeks to enforce. However, in the current dispute, both

these requirement have not been satisfied.

48. In OKO v. Estonia, the Arbitral Tribunal stated that the warranty in question should be

unequivocally directed towards the Claimant.59

Municipal legislations cannot, in and of

themselves, amount to specific warranties until and unless they are expressly aimed at a

54


Statement of Uncontested Facts, ¶29, ¶30, ¶32. 56




OKO v. Estonia, ¶247.

Arguments Advanced


foreign investor.60

Article 4 of the LRE is part of a municipal legislation. Therefore, no

specific warranties were directed at the Claimant by the Respondent.61

49. Additionally, the Arbitral Tribunal in PSEG Global v. Turkey held that even though a host

nation’s foreign investment policy might be framed to induce foreign investments in

general, it cannot amount to a specific warranty until and unless a specific warranty of

profitability is made to a particular investor.62

In the present dispute, no such warranties

were made to the Claimant.63

Therefore, not only do the alleged warranties lack specificity

as to the warrantee, but also as to the nature or the contents of the warranty itself.

Consequently, the requirement of subsequent repudiation of specific warranties is not

fulfilled as well.

B. The Respondent’s legislative actions did not violate its transparency obligation.

50. With respect to the Amendment of Article 4 of the Law on Renewable Energy, 2013

(“2013 Amendment”), even though only private consultations were held with selected

stakeholders, the Respondent has not violated its transparency obligations.

51. In Paushok v. Mongolia, the Arbitral Tribunal ruled that even if the legislative or

regulatory changes in question were made without any consultations or debates, such

changes would not be in violation of the transparency obligations of the Respondent State

until and unless the procedure followed was in violation of the municipal laws of the

Respondent State.64

Consequently, the standard for the transparency obligation is that the

regulatory change in question should not be in violation of the Respondent’s own

municipal laws.

52. In the present dispute, the Respondent did abide by its own municipal laws. Barancasian

law grants sufficient discretion to the national parliament board in consulting the public in

course of legislative changes.65

They are not bound by any rules regarding their choice of

stakeholders.66

Therefore, even if there is an obligation to consult stakeholders, there is no

obligation to consult or invite any specific stakeholders since the margin of discretion in

this regard is considerably high. The Respondent did consult the stakeholders it considered

60


Statement of Uncontested Facts, ¶20; LRE, Art. 4. 62

PSEG Global v. Turkey, ¶243. 63

Statement of Uncontested Facts, ¶20; LRE, Art. 4. 64

Paushok v. Mongolia, ¶304. 65

Procedural Order No. 3, ¶5. 66

Ibid.

Arguments Advanced


relevant.67

Hence, there has been no breach of the transparency obligation by the

Respondent.

C. The Respondent’s legislative actions were not arbitrary.

53. The 2013 Amendment was not arbitrary because if a measure is based on a considered

opinion, such a consideration is enough for the measure to not qualify as arbitrary.68

In

LG&E v. Argentina, the Tribunal held that even if a measure is inequitable or unfair, it

would not be arbitrary as long as it is in furtherance of a reason.69

In other words, an

action is considered arbitrary when it inflicts damage upon an investor without serving any

legitimate purpose.70

In AES v. Hungary, the Tribunal ruled that a policy in pursuance of

public interest is a legitimate policy.71

54. The appropriateness of the reasoning behind a policy is irrelevant so long as the policy

itself is based on a reason.72

In the present dispute, it had become economically

unsustainable for the Respondent to continue with the old feed-in tariff.73

The educational

system would have been adversely affected, too.74

Hence, the Respondent reduced the

feed-in tariff for a legitimate reason as opposed to being arbitrary.

D. There was no breach due to the refusal of grant of license to Project Alfa.

55. There was no breach of the FET standard, or otherwise, due to the refusal of the grant of

license to Project Alfa. The refusal was in light of criteria specifically laid down under

Article 5 of the LRE, which clearly shows that only projects that have a scope of

development of their capacity or are new projects are entitled to a license.75

Since Project

Alfa was a project that predated the LRE, it was not entitled to a license.76

There was no

lack of transparency in this regard.

67


LG&E v. Argentina, ¶160. 69

Ibid, ¶162. 70

EDF v. Romania, ¶303. 71

AES v. Hungary, ¶10.3.9. 72

Enron v. Argentina, ¶281. 73



LRE, Art. 5. 76


Arguments Advanced


56. The transparency standard as established in Tecmed v. Mexico is that an investor is entitled

to know about any laws and regulations that might govern its investment.77

With respect to

transparency, the reason for refusal was already expressly stated in Article 5 of the LRE.78

57. The refusal was not arbitrary either. The only requirement for an action to not be arbitrary

is that the action should not be taken without adequate reasoning.79

It is irrelevant as to

whether the reason was appropriate or not.80

Since the reason was clearly stated by the

Respondent, the said action was not arbitrary.81

VI. ALTERNATIVELY, THE RESPONDENT’S ACTIONS ARE EXEMPTED ON THE BASIS OF THE

EXCEPTION UNDER ARTICLE 11 OF THE BC BIT.

58. The impugned measures are exempted on the basis of the exception enshrined in Article

11 of the BC BIT. This is because: Article 11 of the BC BIT is a self-judging provision

and the Respondent was within its permitted margin of appreciation (A); and in the

alternative, Article 11 of the BC BIT is closer to Article XX of the General Agreement on

Tariffs and Trade (“GATT”) and hence the latter is applicable in the present scenario (B).

A. Article 11 of the BC BIT is a self-judging provision and is applicable to the

current dispute.

i) Article 11 of the BC BIT is substantially different from Article 25 of the ILC Articles.

59. Article 11 of the BC BIT and Article 25 of International Law Commission’s Articles on

State Responsibility (“ILC Articles”) were substantially different.82

In the CMS v.

Argentina Annulment Award, the Arbitral Tribunal held that:

“Article XI and Article 25 are substantively different. The first covers measures

necessary for the maintenance of public order or the protection of each Party’s own

essential security interests, without qualifying such measures. The second

subordinates the state of necessity to four conditions. It requires for instance that the

action taken “does not seriously impair an essential interest of the State or States

towards which the obligation exists, or of the international community as a whole”, a

condition which is foreign to Article XI.”83

77

Tecmed v. Mexico, ¶154. 78



Enron v. Argentina, ¶281. 81


CMS v. Argentina Annulment Award, ¶130. 83

Ibid.

Arguments Advanced


60. Moreover, unlike Article XI of the Argentina-USA BIT, Article 11 of the BC BIT does not

use the word “necessary”. Therefore, there is clearly no threshold requirement under the

latter. In Sempra v. Argentina Annulment, the Arbitral Tribunal held that application of

Article 25 of ILC Articles to Article XI of a BIT was an annullable error of law.84

ii) Article 11 has a simple purpose requirement for it to be applicable.

61. There is nothing but a simple purpose requirement under Article 11 of the BC BIT. The

2013 Amendment was in pursuance of protection of economic interests of the Respondent.

In LG&E v. Argentina, the Tribunal rejected the notion that the defence of “essential

security interests” is applicable only in situations of war or military action.85

“Essential

security interests” can include measures taken in pursuance of the objective of avoidance

of an economic crisis.86

62. In the instant case, the purpose requirement of Article 11 of the BC BIT has been fulfilled.

For understanding the terms of a provision, it must be interpreted in light of the ordinary

meaning read in good faith.87

Article 11 of the BC BIT includes the “essential security

interests” ground as it is the title of said Article. Therefore, measures undertaken by a

State in order to avoid an economic crisis are covered under Article 11 of the BIT.

iii) A severe economic crisis constitutes a security interest of the State.

63. In Continental v. Argentina, the Tribunal held that a severe economic crisis with public

order implications falls within security interests of the State, especially for developing

countries.88

Moreover, the margin of appreciation in such scenarios is quite high.89

64. In the current scenario, the Respondent is a developing country.90

Further, it had become

both economically and logistically impossible for the Respondent to continue with the old

feed-in-tariff.91

Also, there was a situation where a public order problem had become quite

84

Sempra v. Argentina Annulment, ¶208. 85


Ibid. 87

VCLT, Art. 31(1). 88


Ibid. 90


Statement of Uncontested Facts, ¶29, ¶30; Procedural Order No. 2, ¶13.

Arguments Advanced


apparent.92

Consequently, the actions of the Respondent were covered under the margin of

appreciation bestowed upon the Respondent by virtue of Article 11 of the BC BIT.

B. Alternatively, Article XX of the GATT is applicable to the present case.

i) Reference to the GATT is more appropriate.

65. Article XX of the GATT is applicable to the present dispute since it is closer to Article 11

of the BC BIT, and the requirements under the former have been satisfied in the present

dispute. With regard to the applicability of the GATT, reliance must be placed on the

Continental v. Argentina decision, wherein the Tribunal held that it is more appropriate to

use the “necessary” standard under Article XX of the GATT as opposed to Article 25 the

ILC Articles.93

66. The aforementioned proposition is premised on the fact that it is more appropriate to refer

to the GATT and World Trade Organisation (“WTO”) case law which has extensively

dealt with concept and requirements of necessity in the context of economic measures,

rather than the corresponding standard under customary international law.94

ii) Interpretation of the term “necessary”.

67. In the Continental v. Argentina decision, the Arbitral Tribunal referred to the

interpretation of the term “necessary” by the WTO Panel in the EC Tyres case.95

A relative

consideration of various factors should be undertaken to ascertain the necessity of a

measure.96

The three factors which must be considered: the relative value of interests

furthered through the challenged measures (a); contribution of the measure to the

realisation of ends pursued by it (b); and the restrictive impact of measure on imports and

exports (c); favour the Respondent.97

a. Value of the interests protected / furthered.

68. The value protected by the impugned measure in the present case is vital. To interpret the

importance of a value, reliance must be placed on the Preamble of the GATT.98

The

92



Ibid. 95

Ibid, ¶194. 96

Panel, Brazil–Tyres, ¶7.104. 97

Ibid. 98

US–Gasoline, 30-31; VCLT, Art. 31(2).

Arguments Advanced


Preamble of the GATT highlights the paramount importance of the objectives of “raising

[the] standards of living, ensuring full employment”. These objectives were the ultimate

values pursued by the impugned measures by means of avoidance of an economic crisis.

Hence, the values protected by the Respondent’s actions were vital.

b. Contribution of the measures to the interest pursued.

69. The contribution of the measure to the interest pursued is material. The WTO Appellate

Body (“AB”) in Brazil- Retreated Tyres stated that “the fundamental principle is the right

that WTO Members have to determine the level of protection that they consider

appropriate in a given context”.99

The evaluation can be either quantitative or

qualitative.100

The threshold to be considered is either that of a genuine means-ends

relationship101

or one of a material contribution102

. The greater the contribution a measure

makes to the objectives sought to be achieved; the more likely is it to be considered

‘necessary’.103

In the current scenario, the 2013 Amendment and the corresponding change

in the feed-in tariff were sufficient to make a material contribution to the crisis that would

have arisen due to its original numerical value.

c. No restrictive impact on imports and exports.

70. The restrictive impact of the measure on international commerce was minimal. The effect

of the measure on imports and exports was also minimal since there was a mere

application of a lower rate of feed-in tariff and not a denial of market access. Since all the

three factors are in favour of the Respondent in the present case, the measures were

necessary.

99

AB, Brazil–Tyres, ¶210. 100

AB, Brazil–Tyres, ¶146; EC–Asbestos, ¶167. 101

AB, Brazil–Tyres, ¶145. US – C.O.O.L., ¶462, ¶473. 102

Brazil–Tyres, ¶146. 103

China–Products, ¶251.

Arguments Advanced


REMEDIES

VII. ALTERNATIVELY, THE RESPONDENT CAN NEITHER BE ORDERED TO RESCIND THE

2013 AMENDMENT NOR TO PAY THE PRE-2013 AMENDMENT TARIFF.

71. The Respondent cannot be ordered to either rescind the 2013 Amendment or pay the pre-

2013 Amendment tariff because: the Tribunal cannot order specific performance since

such an order will be in violation of Respondent’s sovereignty (A); and alternatively, it

will cast a disproportionate burden on the Respondent (B).

A. An order of specific performance will be in violation of Respondent’s

sovereignty.

72. Specific performance, if ordered, will violate Respondent’s sovereignty. State sovereignty,

recognised in Article 2(1) of the United Nations Charter, is one of the paramount

principles of international law. In LG&E v. Argentina, the Arbitral Tribunal held that:

“The judicial restitution required in this case would imply modification of the current

legal situation by annulling or enacting legislative and administrative measures that

make over the effect of the legislation in breach. The Tribunal cannot compel

Argentina to do so without a sentiment of undue interference with its sovereignty.

Consequently, the Tribunal arrives at the same conclusion: the need to order and

quantify compensation.”104

73. Even other tribunals in the past have been reluctant in ordering specific performance.105

An order of rescission in the instant case will violate the sovereignty of Respondent.

Hence, specific performance should not be ordered, and pecuniary damages are the only

viable option.106

B. Alternatively, an order of specific performance will cast a disproportionate

burden on the Respondent.

74. Specific performance can be ordered only so long as the performance is neither materially

impossible,107

nor does it cast a disproportionate burden on the Respondent.108

An order of

specific performance would cast a disproportionate burden on the Respondent. In CMS v.

104


Douglas, p. 100. 106

Occidental Petroleum v. Ecuador, ¶80; CMS v. Argentina, ¶408. 107

ILC Articles, Art. 35. 108

CMS v. Argentina, ¶400.

Arguments Advanced


Argentina, the Arbitral Tribunal held that it would be utterly unrealistic to order the

Respondent to rescind measures undertaken to remedy a crisis.109

In the current dispute, if

specific performance were to be ordered by way of rescission of the 2013 Amendment, it

would effectively lead to the actualisation of the speculated economic crisis.

75. If specific performance were to be ordered by means of payment of pre-2013 Amendment

feed-in tariff, the Respondent will be bound to pay the same tariff to all the investors from

EU Member States.110

Hence, such an order will lead to the actualisation of the speculated

economic crisis, as well.

76. In either case, any such order will be a breach of the Respondent State’s sovereignty. In

Occidental Petroleum v. Ecuador, the Tribunal stated that such a breach of a State’s

sovereignty is disproportionate compared to the pure monetary loss suffered by any

investor.111

VIII. THE CLAIMANT’S BASIS FOR CLAIMING AND QUANTIFYING THE COMPENSATION IS

NOT APPROPRIATE.

77. The Claimant is not entitled to compensation for the loss of profits allegedly suffered by it

(A); and the Claimant’s basis for claiming and quantifying the compensation is not

appropriate as it is fundamentally flawed (B).

A. The Claimant is not entitled to compensation for its loss of profits.

i) There is no established record of profitability.

78. The Claimant’s photovoltaic projects do not have an established performance record that

indicates profitability of the Claimant’s investment. The Claimant was unable to control

the construction costs of Project Alfa resulting in an overrun of more than 50% of the

estimated project cost.112

Further, Project Alfa was only operating at a capacity of 12.1%

as opposed to the Claimant’s projection of 21%.113

The Claimant’s expert’s prediction of a

109

CMS v. Argentina, ¶406. 110

TFEU, Art. 18. 111

Occidental Petroleum v. Ecuador, ¶84. 112


Ibid.

Arguments Advanced


steady increase of 2.2% in the capacity of Project Alfa is mere speculation which is not

based on any concrete evidence.

79. Moreover, the twelve planned photovoltaic projects are still in the stage of construction

and are not yet operational. Therefore, they have obviously no record of performance and

profitability, and any claim of future profits based on them is mere speculation at this

stage.114

ii) Future profits cannot be calculated without past performance record.

80. When there is no established record of past profitability, as is required for granting of

compensation as per Article 36 of the ILC Articles,115

any claim for damages for future

profits would be speculative and indeterminable.116

It has been established by multiple

arbitral tribunals that no compensation for speculative or uncertain damage can be

awarded.117

B. The Claimant’s basis for claiming and quantifying the compensation is

inappropriate.

81. The Claimant’s basis for claiming and quantifying the compensation is inappropriate

because there are four fundamental flaws in the Claimant’s expert’s quantification of the

compensation: the Claimant is not entitled to damages for Project Alfa (i); the rate of

discounting cash flows must be at the Claimant’s Cost of Equity (“COE”) and not the

Weighted Average Cost of Capital (“WACC”) (ii); the calculation of the compensation

due for the Claimant’s “wasted investment” in land is erroneous (iii); and finally, the

Claimant is not entitled to compensation for its planned investment for the expansion of its

photovoltaic projects (iv).

114

Metalclad v. Mexico, ¶119-121. 115

ILC Articles, Art. 36, ¶26-27. 116

LG&E v. Argentina, ¶90; Metalclad v. Mexico, ¶120. 117

Amoco v. Iran, ¶238; LG&E v. Argentina, ¶90.

Arguments Advanced


i) The Claimant is not entitled to compensation for Project Alfa.

a. The Claimant could not have ‘legitimate expectations’ of profit under the LRE.

82. It is an established principle in international law that ‘legitimate expectation’ can only

exist at the time of investment.118

Further, such ‘legitimate expectation’ can only lead to

compensation if there was a link between the expectation and investment made.119

83. Project Alfa became operational on 1 January 2010, and it was only in May 2010 that the

Respondent adopted the LRE, which was to be applicable to new projects. Hence, Project

Alfa was not undertaken in response to the LRE, and therefore, the Claimant cannot claim

to have had any legitimate expectation of benefitting from the feed-in tariff specified in

the LRE, with respect to Project Alfa.

b. Denial of license to Project Alfa was not arbitrary.

84. The BEA’s denial of a license to the Claimant for Project Alfa was not arbitrary. The LRE

was brought into force to provide incentives for the subsequent photovoltaic development

projects, and not as a subsidy for pre-existing projects.120

Therefore, granting a license for

Project Alfa did not serve the LRE’s purpose of enhancing renewable energy source by

promoting more investments.

ii) The WACC is the incorrect rate for discounting the Claimant’s cash flows.

a. The rate of discount should be on the basis of the method used to compute cash

flows.

85. The Claimant has claimed compensation based on the present value of future revenues.

Such future revenue may be solely contributed to the cash flows to equity, since usually

cash flows from operations are initially used to pay the creditors, and are subsequently

used for paying shareholders. Therefore, alleged loss of future revenues should be viewed

as cash flows to equity.121

Further, having computed the cash flows to equity, the Claimant

118

AES v. Hungary, ¶138; Duke Energy, ¶138; Tecmed v. Mexico, ¶138. 119

Thunderbird, ¶138. 120

LRE, Art. 1. 121

Walter Bau, ¶14.35.

Arguments Advanced


should discount the cash flow at the COE to obtain the present value, and not a rate that

includes both debt and equity such as the WACC.122

b. The Discounted Cash Flow (“DCF”) method is inappropriate when the project is

not a “going concern”.

86. It has been held that future profits cannot be used to determine the fair market value of an

investment which lacks profitability and has no ‘going concern’;123

and that the DCF

approach becomes inappropriate when relying on speculative assumptions and

projections.124

The book-value method is the most appropriate for recent investments.125

Therefore, considering the fact that Project Alfa lacks profitability, Project Beta can be

considered to be a recent investment, and the 12 new photovoltaic projects are yet to

become operational or ‘going concerns’; the DCF method of computation of compensation

is inappropriate, and instead, the book-value method must be employed by the Tribunal.

iii) The Claimant cannot claim compensation for ‘wasted investment in land’.

87. The duty of the investor to mitigate its losses is a well-established principle of

international investment arbitration.126

Such a duty exists even when it has not been

expressly stipulated in the BIT.127

The injured party is expected to take reasonable steps to

mitigate its losses.128

88. In the present case, the Claimant presupposes that the land purchased by it will be

worthless. However, the price of the land is now 10% higher than when it was bought129

and is suitable to be used for other purposes as well. Therefore, the Claimant has the

opportunity to sell the land and make a profit, too.

122

CMS v. Argentina, ¶431. 123

Vivendi, ¶8.3.4. 124

Ibid., ¶8.3.3. 125

Siemens v. Argentina, ¶355. 126

EDF v. Argentina, ¶1302; Marboe, ¶3.240. 127

EDF v. Argentina, ¶1303. 128

CME v. Czech, ¶355. 129

Procedural Order No. 2, ¶29.

Arguments Advanced


iv) The Claimant is not entitled to compensation for future investment in expansion of its

projects.

a. There is no proof of the Claimant’s intention to expand.

89. Evidence in support of future plans of the Claimant is essential for it to be able to claim

compensation for loss of future profits.130

However, no such evidence has been provided

by the Claimant. The only evidence brought forward is the mere speculation of a local

manager who has stated that expansion of the projects “was a long term goal that the

company had always aspired to achieve, step by step”.

b. Compensation cannot be granted for merely speculative claims.

90. When the claim for compensation is based on mere speculation, the damages have been

held to be too remote to be awarded by the arbitral tribunal.131

The Respondent cannot be

ordered compensate for projects to which Claimant has made no commitments.132

As has

been established previously, projects that are inoperative at the time of the dispute cannot

be used to claim compensation for lost profits (lucrum cessans).133

Therefore, considering

the fact that the Claimant has put forward no evidence to prove its commitment to

expanding the photovoltaic projects in the future, it is not entitled to claim compensation

for the lost profits from such expansion.

130

Micula v. Romania, ¶1117. 131

Lemire v. Ukraine, ¶245-246; Al-Bahloul, ¶95-96. 132

ADC v. Hungary, ¶515. 133

Metaclad v. Mexico, ¶121; LG&E v. Argentina, ¶90.

Prayer for Relief


PRAYER FOR RELIEF

On the basis of the aforementioned reasons, the Respondent respectfully requests the

Tribunal to find that:

1. The Tribunal does not have jurisdiction over the present dispute, and the Claimant’s

claims are inadmissible under the Barancasia-Cogitatia BIT;

2. The Respondent did not breach its obligations under the Barancasia-Cogitatia BIT,

including, the Fair and Equitable Treatment standard;

3. In the alternative, the Respondent’s actions were exempted by virtue of the exception

provided for in Article 11 of the BIT;

4. In the alternative, the Tribunal does not have the power to order specific performance

against the Respondent;

5. In the alternative, the Claimant’s basis for claiming and quantifying compensation is

inappropriate, and is based on false and incorrect legal and factual assumptions; and

6. The Respondent is entitled to reimbursement of all costs related to these proceedings.

Respectfully submitted on 26 September 2015.

TEAM GAJA

ON BEHALF OF THE RESPONDENT

REPUBLIC OF BARANCASIA

the london court of international arbitration · team alias - gaja the london court of...

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