MEMO CLAIMANT - ALVAREZ - FDI Moot

ALVAREZ
INTERNATIONAL CHAMBER OF COMMERCE
In the Case of
FREEDONIA PETROLEUM LLC
(CLAIMANT)
v.
REPUBLIC OF SYLVANIA
(RESPONDENT)
Case No. 12345/XXX
MEMORIAL FOR CLAIMANT

TABLE OF CONTENTS
LIST OF AUTHORITIES …………………………………………………………………….
STATEMENT OF FACTS…………………………………………………………………….
PART ONE: JURISDICTION………………………………………………………………
A. THIS TRIBUNAL IS ENTITLED TO EXERCISE ITS JURISDICTION OVER THE
DISPUTE ………………………………………………………………………………….
I. RATIONE MATERIAE JURISDICTION REQUIREMENTS ARE SATISFIED ...........................
1. Investor owns directly an asset, that has a characteristics of an
investment, namely, shares ………………………………………………
2. The ratione materiae jurisdiction are satisfied ………………………..…
II. RATIONE PERSONAE JURISDICTION REQUIREMENTS ARE SATISFIED……………….
1. Freedonia Petroleum LLC falls inside the ambit of the BIT definition of
an Investor………………………………………………………………..
2. Claimant is a company duly organized under the laws of the Republic of
Freedonia…………………………………………………………………
3. Claimant does not pursue sovereign activities and is not funded by the
Government of Sylvania within the meaning of the BIT…………………
III. RATIONE VOLUNTATIS JURISDICTION REQUIREMENTS ARE FULFILLED....................
IV. THE CASES DEALT WITH BY THE SYLVANIAN MINISTRY OF ENERGY AND THE
ICC ARE TWO SEPARATE ISSUES AND CAN BE HEARD SEPARATELY AND
SIMULTANEOUSLY .................................................................................................
V. THE UMBRELLA CLAUSE DOES NOT EXCLUDE THE JURISDICTION OF THE ICC ……
1. The umbrella clause only protects contractual rights of the Investor
under the treaty and it cannot be interpreted as a provision incorporating
private contracts into international law …………………………………..
i

2. The purpose of the “umbrella clause” is to protect Investments against
the host state………………………………………………………………
VI. THE BIT DOES NOT PROHIBIT TO BRING A CLAIM BEFORE AN INTERNATIONAL
BODY AFTER SUBMITTING IT BEFORE THE DOMESTIC COURTS AS:...........................
1. It does not contain the “fork-in-the-road” provision……………………...
2. It does not impose the requirement of exhaustion of domestic remedies...
VII. THE BIT DOES NOT PROHIBIT TO INITIATE ARBITRAL PROCEEDINGS, BECAUSE ITS
ART. 11(3)(B) IS NOT APPLICABLE ONLY IN THE CONTEXT OF AN
ADMINISTRATIVE AUTHORITY ………………………………………………….
PART TWO: MERITS………………………………………………………………………
B. NPCS’ ACTIONS ARE ATTRIBUTABLE TO RESPONDENT………………………………….
I. AS NPCS IS A STATE ENTITY, RESPONDENT IS RESPONSIBLE FOR ITS ACTS……..
1. It is of legal consequence that NPCS acted in the governmental capacity
and on the basis of authorization……………………………………….
a. Acts of NPCS were governmental, not commercial and as such
were not aimed to obtain profit……………………………………
2. NPCS is controlled by Respondent in direct and indirect way…………
II. NPCS EXERCISES GOVERNMENTAL AUTHORITY AND IS CONTROLLED BY
RESPONDENT, THUS ITS ACTIONS ARE ATTRIBUTABLE TO RESPONDENT………..
C. RESPONDENT MATERIALLY BREACHED ITS CONFIDENTIALITY
OBLIGATIONS……………………………………………………………………………
I. RESPONDENT BY ITS ACTIONS AGGRAVATED THE DISPUTE………………………..
1. Respondent failed to preserve the confidentiality of the report…………..
2. Respondent further exacerbated the dispute by the President‟s
declaration……………………………………………………………….
ii

II. RESPONDENT VIOLATED THE PROVISIONS OF ICC RULES OF ARBITRATION……..
III. THE SYLVANIAN NGO, CSE, SHOULD NOT BE PERMITTED TO PARTICIPATE IN ANY
WAY IN THE CONFIDENTIAL ICC PROCEEDINGS…………………………………..
1. CSE‟s participation is unnecessary for the proceedings.………………...
2. Allowing CSE to the proceedings would be detrimental to Claimant‟s
position in the dispute...............................................................................
D. RESPONDENT VIOLATED INTERNATIONAL LAW, PARTICULARLY THE
BIT…………………………………………………………………………………………
I. RESPONDENT DID NOT ACCORD CLAIMANT FET ………………………………..
1. Respondent frustrated Claimant‟s legitimate expectations………………
a. Expectations created by the legal framework of Sylvania…………..
b. Expectations arising out of the Agreement………………………….
2. Bad faith on the part of Respondent…………………………………….
3. Respondent did not satisfy the standard of due process…………………
II. RESPONDENT DID NOT ACCORD CLAIMANT‟S INVESTMENT FULL PROTECTION
AND SECURITY……………………………………………………………
III. RESPONDENT UNLAWFULLY EXPROPRIATED CLAIMANT‟S INVESTMENT……..
1. Respondent breached Art. 4(1) BIT by interfering in Claimant‟s
possession, control and enjoyment of the investment…………………….
2. Respondent has expropriated Claimant‟s investment…………………….
a. Claimant was deprived of effective control over the investment……..
b. The deprivation was not „merely ephemeral‟………………………
3. Respondent did not fulfill the legality grounds under Art. 4(2)………….
iii

a. Expropriating Claimant was not for public purposes nor national
interest………………………………………………………………..
b. The measures were not in accordance with due process of law………
c. No compensation whatsoever was issued by Respondent……………
4. In any event, Respondent is obliged to compensate Claimant……………
E. RESPONDENT IS NOT ENTITLED TO RELY ON ITS DOMESTIC LAW AND
INTERNATIONAL LEGAL NOTIONS OF NATIONAL SECURITY AND PUBLIC
INTEREST AS DEFENCES………………………………………………………………
I. THE PRIORITY OF INTERNATIONAL OBLIGATIONS EXCLUDE ANY RELIANCE ON
CONFLICTING DOMESTIC LAW……………………………………………………
1. In particular, Respondent cannot claim that an alleged breach of
domestic law ousts the investment‟s protection under the BIT………….
II. RESPONDENT CANNOT RELY ON THE NATIONAL SECURITY DEFENSE…………….
1. Respondent could only raise the customary defense enshrined in Art. 25
DARSIWA that shall fail to succeed…………………………………….
a. The measures were not the only means that could have been taken to
tackle the ecological danger…………………………………………..
b. No essential interest was being safeguarded………………………….
c. The ecological peril did not reach the requisite gravity………………
d. The measures seriously impaired Freedonian economic prosperity
and the interests of Claimant…………………………………………
2. Should the Tribunal consider the treaty defense in Art. 9(2) BIT, it may
be read solely in conjunction with Art. 25 DARSIWA…………………..
a. Invoking Art. 9(2) BIT is subject to good-faith review, in accordance
with the object and purpose of the BIT……………………………..
iv

. Art. 9(2) BIT shall import the customary defense of necessity under
Art. 25 DARSIWA……………………………………………………
3. In any event, compensation for Claimant‟s damages is required…………
F. RESPONDENT’S COUNTERCLAIM FOR DECLARATORY RELIEF……………..
I. RESPONDENT‟S COUNTERCLAIM IS IN BREACH OF THE APPLICABLE TREATIES……
II. CLAIMANT HAS COMPLIED WITH ALL APPLICABLE SAFETY OBLIGATIONS AND IS
NOT LIABLE FOR DAMAGES TO COVER CLEANUP COSTS………………………..
CONCLUSION…………………………………………………………………………………
v

LIST OF AUTHORITIES
BOOKS
ALVAREZ, KHAMSI, The Argentine Crisis and Foreign Investors: A Glimpse into the Heart of
the Investment Regime [in:] Yearbook on International Investment Law and Policy,
2008–2009 [Karl P. Sauvant ed., New York: Oxford University Press 2009]
CRAWFORD, The International Law Commission's Articles on State Responsibility:
Introduction, Text and Commentaries [Cambridge University Press 2002]
DOLZER, SCHREUER, Principles of International Investment Law [Oxford University Press
2008]
FREEMAN, The International Responsibility of States for Denial of Justice [Kraus Reprint Co.
1938]
DUGAN, WALLACE, RUBINS, SABAHI, Investor-State Arbitration [OUP 2008]
LOEWENFELD, International Economic Law [Oxford University Press 2008]
MALANCZUK, Akehurst‟s Modern Introduction to International Law [7 th Ed., 1997]
MASHARU, Dominium and Imperium [in:] A Normative approach to war: peace, war, and
justice in Hugo Grotius, ŌNUMA (eds.) [Oxford University Press 1993]
MCLACHAN, SHORE, WEINIGER, International Investment Arbitration, [Oxford University,
Press 2007]
MISTELIS, Confidentiality and Third Party Participation UPS v. Canada and Methanex
Corporation v.United States, [in:] Weiler International investment law and arbitration:
leading cases from the ICSID, NAFTA, bilateral treaties and customary international
law [Cameron May, 2005]
NEWCOMBE, PARADELL, Law and Practice of Investment Treaties: Standards of Treatment
[Wolters Kluwer, Law and Business, 2009]
RIPINSKY,WILLIAMS, Damages in international investment law, [British Institute of
International and Comparative Law, 2008]
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Between International and Municipal Law [Kluwer Law International, 2010]
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International investment law and arbitration: leading cases from the ICSID, NAFTA,
bilateral treaties and customary international law [Cameron May, 2005]
SORNARAJAH, The International Law on Foreign Investment [2 nd Ed. Cambridge University
Press 2004]
vi

MUCHLINSKI, ORTINO, SCHREUER (eds.), The Oxford Handbook of International Investment
Law [Oxford University Press 2008]
ARTICLES
AGO, Addendum to the eighth report on State Responsibility, 2 YB ILC (1980)
CHRISTIE, What Constitutes a Taking of Property under International Law? BYIL (1962)
DOLZER, Indirect expropriations: New developments?, 11 NYU Environmental Law Journal
(2002)
FIETTA, Expropriation and the “Fair and Equitable” Standard: The Developing Role of
Investors´ “Expectations” in International Investment Arbitration, 23 Journal of
International Arbitration (2006)
JUILLARD, L'évolution des sources du droit des investissements [in:] Recueil des Cours de
l'Académie de Droit International, Vol. 250 (1994)
MANN, British Treaties for the Promotion and Protection of Investments, 52 BYIL 241 (1981)
REISMAN, SLOANE, Indirect Expropriation and its Valuation in the BIT Generation, 74 BYIL
115 (2003)
REITERER, Article XXI GATT – Does the National Security Exception Permit “Anything
Under the Sun”, 2 Australian Review of International and European Law 2 (1997)
RUBINS, Opening the Investment Arbitration Process: At What Cost, for What Benefit? In:
Disputes (ICSID), Taking Stock after 40 Years, Schriften zur Europäischen Integration
und Internationalen Wirtschaftsordnung, 7. Nomos.
SCHREUER, Travelling the BIT Route of Waiting Periods, Umbrella Clauses and Forks in
the Road, The Journal of World Investment & Trade, Vol. 5, No. 2 (2004)
SOHN, BAXTER, Responsibility of States for Injuries to the Economic Interests of Aliens, 55
AJIL (1961)
TIENHAARA, Third Party Participation in Investment-Environment Disputes: Recent
Developments, 16 Rev. Eur. Cmty. & Int‟l Envtl. L. (2007)
MISCELLANEOUS
CRAWFORD, Second Report on State Responsibility: Addendum, (UN Doc
A/CN.4/498/Add.2 (1999))
vii

NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions,
[Minimum Standard of Treatment in Accordance with International Law, para.2(2)] (31
July 2001)
SULLIVAN, Overview of the rule requiring the exhaustion of domestic remedies under the
Optional Protocol do CEDAW , OP-CEDAW Technical Papers, No. 1.
WEBSTER’S ONLINE DICTIONARY; www.websters-online- dictionary.org/definitions/
LIST OF LEGAL SOURCES
TREATIES
CERCLA - Comprehensive Environmental Response, Compensation and Liability Act, 1980
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Internationally Wrongful Acts, with commentaries, Yearbook-of the-ILC-2001, Vol. II-
(Part 2)
ECT – Energy Charter Treaty
ICC Rules of Arbitration - http://www.iccwbo.org/uploadedFiles/Court/Arbitration/other/
rules_arb_english.pdf
UNCITRAL Model Law - Model Law on International Commercial Arbitration of the
United Nations Commission on International Trade Law, as revised in 2010
U.S.-ARGENTINA BIT - Treaty Between United States Of America And The Argentine
Republic Concerning The Reciprocal Encouragement And Protection Of Investment
U.S. MODEL BIT 2004 – Model Treaty Between The Government Of The United States Of
America And The Government Of [Country] Concerning The Encouragement And
Reciprocal Protection Of Investment
VCLT – Vienna Convention on the Law of Treaties
CASES
ADC Affiliate Ltd and ADC & ADMC Management Ltd v. Hungary, Final Award, ICSID
Case No ARB/03/16
ADF Group Inc v. United States, Award, ICSID Case No ARB(AF)/00/1
viii

AES Corporation v. Argentine Republic, Decision on Jurisdiction, ICSID Case No.
ARB/02/17
Aguas del Tunari, S.A. v. Bolivia, Decision on Jurisdiction, ICSID Case No. ARB/02/3
Amco v. Republic of Indonesia, Decision on Jurisdiction, ICSID Case No. ARB/81/1
Amco v. Republic of Indonesia, Decision on request for provisional measures of 9
December 1983, (ICSID Case No. ARB/81/1), ICSID Reports, 1993.
Amco Asia Corporation and others v. Republic of Indonesia, Award, ICSID Case No
ARB/81/1
American International Group v. Islamic Republic of Iran, AWD 93-2-3, 4 Iran-U.S. CTR
96 (1983)
Amoco International Finance Corp. v. Iran, Award, 14 July 1987, 15 Iran-U.S. CTR 189
AMT v. Zaire, Award and Separate Opinion, ICSID Case No ARB/93/1
Applicability of the Obligation to Arbitrate under Section 21 of the United Nations
Headquarters Agreement of 26 June 1947, Advisory Opinion, ICJ Rep. 1988 34
Azurix Corporation v. Argentina, Award, ICSID Case No ARB/01/12
Biloune and Marine Drive Complex Ltd v. Ghana Investments Centre and Ghana,
UNCITRAL, Award on Jurisdiction and Liability, 27 October 1989
Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, Procedural Order No. 3,
ICSID Case No. ARB/05/22
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ARB/05/22
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ARB/08/05
Ceskoslovenska Obchodni Banka AS v. Slovakia, Award, ICSID Case No ARB/97/4
City Oriente v. Ecuador, Decision on provisional measures of 19 November 2007, ICSID
Case No. ARB/06/21
CME Czech Republic BV v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001
CMS Gas Transmission Company v. Argentina, Award, ICSID Case No ARB/01/8
CMS Gas Transmission Company v. Argentina, Decision on Application for Annulment,
ICSID Case No ARB/01/8
Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France), Judgment,
ICJ Rep. 177 (2008)
Elettronica Sicula S.P.A. (ELSI), Judgment, I.C.J. Reports 1989
ix

EnCana Corporation v. Republic of Ecuador, UNCITRA, Award, LCIA Case No. UN3481, 3
February 2006
Enron Corporation and Ponderosa Assets, LP v. Argentina, Award, ICSID Case No
ARB/01/3
Eureko v. Poland, UNCITRAL, Partial Award on Liability, 19 August 2005
Factory at Chorzow, Jurisdiction, Judgment, PCIJ 1927, Series A, No. 9
Feldman Karpa v. Mexico, Award and separate opinion, ICSID Case No ARB(AF)/99/1
Fraport AG Frankfurt Airport Services Worldwide v. Philippines, Award, ICSID Case No
ARB/03/25
Gabčíkovo-Nagymaros Project (Hungary/Slovakia), Judgment, ICJ Rep 7 (1997)
Genin and others v. Estonia, Award, ICSID Case No ARB/99/2
Giovanna Beccara and Others v. Argentine Republic, Procedural Order No. 3, ICSID Case
No. ARB/07/5
Inceysa Vallisoletane, SL v. El Salvador, Award, ICSID Case No ARB/03/26
Interhandel Case (Switzerland v. United States), Judgement of March 21 st , 1959: I.C.J.
Reports 1959
Israel Security Wall - Consequences of the Construction of a Wall in the Occupied
Palestinian Territory, Advisory Opinion, ICJ Rep. 136 (2004)
Klöckner Industrie-Anlagen GmbH and others v. Cameroon and Société Camerounaise des
Engrais, Award, ICSID Case No. ARB/81/2
Lauder v. Czech Republic, UNCITRAL, Final Award, 3 September 2001
Consorzio Groupement LESI and ASTALDI v. Algeria, Decision on Jurisdiction, ICSID Case
No ARB/05/3
LG&E Energy Corp and others v. Argentina, Decision on Liability, ICSID Case No ARB
02/1
Loewen Group Inc and Loewen v. United States, Award, ICSID Case No ARB(AF)/98/3
Mafezzini v. Spain, Award, ICSID Case No. ARB/97/7
Maffezzini v. Spain, Decision on Jurisdiction, ICSID, 25 January 2000
Metalclad Corp v. Mexico, Award, ICSID Case No ARB(AF)/97/1
Methanex v. United States, NAFTA, Amicus Curiae Decision on 3 August 2005.
x

Middle East Cement Shipping and Handling Co SA v. Egypt, Award, ICSID Case No
ARB/99/6
Mondev International Ltd v. United States, Award, ICSID Case No ARB(AF)/99/2
National Grid P.L.C. v. Argentine Republic, UNCITRAL, Award, 3 November 2008
Noble Ventures Inc. v. Romania, Award, ICSID Case No. ARB/01/11
Nykomb Synergetics Technology Holding AB v. Republic of Latvia, Award, SCC Case No
118/2001
Occidental Exploration and Production Company v. Ecuador, Final Award, LCIA Case No
UN3467
Occidental v. Ecuador, Decision on provisional measures of 17 August 2007, ICSID Case
No. ARB/06/11
Olguín v. Paraguay, Award, ICSID Case No ARB/98/5
Pan American v. Argentina, Decision on Preliminary Objections, ICSID Case No
ARB/03/13
Pantechniki S.A. Contractors & Engineers (Greece) v. the Republic of Albania, Award,
ICSID Case No. ARB/07/21
Parkerings-Compagniet AS v. Lithuania, Award on jurisdiction and merits, ICSID Case No
ARB/05/8
Phelps Dodge Corp v. Iran, 10 Iran-US CTR (1986)
Plama Consortium Limited v. Bulgaria, Decision on Jurisdiction, ICSID Case No.
ARB/03/24
PSEG Global Inc and Konya Ilgin Elektrik Üretim ve Ticaret Ltd Širketi v. Turkey, Award
and Annex, ICSID Case No ARB/02/5
RSM Production Corporation v. Grenada, Award, ICSID Case No. ARB05/14
Rudloff Case, Decision on Merits, 9 RIAA (1959)
Revere Copper v. OPIC, Award, 24 August 1978, 56 ILR 258 (1980)
Salini Construtorri S.p.A. and Italstrade S.p.A. v. Morocco, Jurisdiction, ICSID Case No.
ARB/00/4
Saluka Investments BV v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006
Compañía del Desarrollo de Santa Elena SA v. Costa Rica, Final Award, ICSID Case No
ARB/96/1
SD Myers Inc v Canada, UNCITRAL, First Partial Award, 13 November 2000
Sempra Energy International v. Argentina, Award, ICSID Case No ARB/02/16
xi

Sempra Energy International v. Argentina, Decision on Argentina‟s Application for
Annulment of the Award, ICSID Case No ARB/02/16
Case Concerning the Payment of Various Serbian Loans Issued in France (France v.
Kingdom of the Serbs, Croats and Slovenes), PCIJ, Judgement, No. 14, Series A, No.
20, 41.
SGS Société Générale de Surveillance SA v. Philippines, Decision on Objections to
Jurisdiction and Separate Declaration, ICSID Case No ARB/02/6
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, Decision on
Jurisdiction, ICSID Case No. ARB/01/13
The case of the S.S. „Lotus” (France v. Turkey), Judgement, 7 September 1927, PCIJ, Series
A, No 10
Siag and Vecchi v. Egypt, Award, ICSID Case No ARB/05/15
Siemens AG v. Argentina, Award and Separate Opinion, ICSID Case No ARB/02/8
Starret Housing Corp., Starret Systems, Inc. Starret Housing International, Inc. v.
Government of the Islamic Republic of Iran, Bank Markazi Iran, Bank Omran, Bank
Mellat, Interlocutory Award No. ITL-32-24-1, 4 Iran-U.S. CTR 122
Técnicas Medioambientales Tecmed SA v. Mexico, Award, ICSID Case No ARB(AF)/00/2
Tokios Tokelės v. Ukraine, Decision on Jurisdiction, ICSID Case No ARB/02/18
Waste Management Inc v. Mexico, Award, ICSID Case No ARB(AF)/00/3
Wena Hotels Ltd v. Egypt, Award, ICSID Case No ARB/98/4
Wintershall Aktiengesellschaft v. Argentine Republic, Award, ICSID Case No. ARB/04/14
xii

Agreement – Medanos License Agreement
LIST OF ABBREVIATIONS
BIT - Treaty Between The Republic Of Freedonia And The Republic Of Sylvania Concerning
The Encouragement AndReciprocal Protection Ofinvestments
Claimant - Freedonia Petroleum LLC
Facts – FDI Moot 2011 Problem
FPS – Freedonia Petroleum S.A.
ICA – International Court of Arbitration
ICC – International Chamber of Commerce
ICJ – International Court of Justice
MoE – Ministry of Energy of the Republic of Sylvania
NPCS – National Petroleum Company of Sylvania
Order – Executive Order No. 2010–1023 from November 29th, 2010 issued by the President
of the Republic of Sylvania
Respondent - Republic of Sylvania
Responses, No. – FDI Moot 2011 Requests for Clarification, Question
xiii

STATEMENT OF FACTS
1. Claimant is an international energy company in which the Freedonia government
owns a 60% interest.
2. On 31 January 2007, Respondent issued an international tender for deep sea
exploration blocks in the Medanos Field in the Libertad Gulf, situated in Respondent‟s
territorial waters.
3. On 26 May 2007, the Sylvanian Government and FPS entered into the Agreement.
4. On 9 June 2009, an explosion occurred in the Medanos Field causing several oil
explorations wells operated by FPS to leak.
5. On 10 December 2009, the Sylvanian Congress amended several sections of OPA, in
particular, eliminating the limitations on liability for damages resulting from oil
pollution, imposing new safety obligations and broadening the scope of the term
„damages‟.
6. On 26 February 2010, the Sylvanian Government ordered FPS to pay liquidated
damages for the breach of the Agreement and the OPA. FPS commenced
administrative proceedings to resist the request for payment.
7. On 10 August 2010, Sylvania adopted a new law that created NPCS, a company fully
owned by the Government of Sylvania, which, on 29 November 2010, took over the
premises of the previously leaking oil wells.
8. On 23 December 2010, Claimant communicated to Respondent that the transfer of the
wells to NPCS was a breach of BIT.
9. On 23 March 2011, Claimant filed a request for arbitration before the ICC against
Respondent invoking the dispute resolution clause contained in the BIT and claiming
compensation for breach of the BIT.
10. On 29 April 2011, the Government of Sylvania submitted objections to the
Jurisdiction of the ICC and served notice of its counterclaim against Claimant.
1

JURISDICTION
A. THIS TRIBUNAL IS ENTITLED TO EXERCISE ITS JURISDICTION OVER THE
DISPUTE
I. RATIONE MATERIAE JURISDICTION REQUIREMENTS ARE SATISFIED
11. The definition of an „investment‟ under the BIT is set forth in art. 1 thereof.
Accordingly, „the term „Investment‟ shall be construed to mean every asset that an
Investor owns or controls, directly or indirectly. Moreover, „investment includes, in
particular, (…) shares‟.
12. Thus, two requirements have to be met by an investment to fall inside the scope of the
BIT definition: (a) an investor shall own or control an asset, directly or indirectly, that
has a characteristics of an investment, in particular shares; (b) an investment shall be
undertaken in conformity with the laws and regulations of the Territory in which the
investment is made.
1. Investor owns directly an asset, that has characteristics of an investment, namely,
shares
13. On 1 February 2007, Claimant incorporated FPS, a wholly-owned subsidiary in
Sylvania, to participate in the bidding process. 1
14. Therefore, investor owns shares in a company incorporated in the territory of
Sylvania, which are qualified as an investment under the definition provided for in art.
1 of the BIT. In support of this view Claimant would like to point that ICSID tribunal
issued numerous awards confirming that should a BIT state so, shares shall be deemed
as an investment 2 .
2. The investment is made in accordance with law
1 Facts, §3.
2 Lauder; Tokios Tokelės.
2

15. The facts of the case do not give raise to any speculation that the investment made by
Claimant could possibly contravene any laws and regulations of Sylvania. It should
also be borne in mind that FPS was awarded an oil exploration and drilling license by
the Sylvanian Government, which proves Respondent‟s acceptance for FPS‟s
operation within the territory of Sylvania.
II. RATIONE PERSONAE JURISDICTION REQUIREMENTS ARE SATISFIED
16. Art. 11 of the BIT provides for a disputes settlement mechanism only with regard to
Investment Disputes involving two parties: (a) an Investor and (b) a Contracting Party.
17. It shall be proved by Claimant that despite being a state-owned company it qualifies as
an Investor under the BIT.
1. Claimant falls inside the ambit of the BIT definition of an Investor
18. According to Art.1 of the BIT three conditions have to be met by Claimant to be
regarded as an Investor within the meaning of the BIT: (a) being a legal person
established in the Territory of one of the Contracting Party in accordance with the
respective national legislation, regardless of the legal form and type of liability; (b)
not pursuing sovereign activities; (c) not being funded by the Republic of Freedonia.
2. Claimant is a company established in conformity with law
19. In this case, no given facts lead to the conclusion that Freedonia Petroleum was
established within the territory of the Republic of Freedonia illegally. A contrario, it
shall be deemed as duly organized under the laws of the Republic of Freedonia.
3. Claimant does not pursue sovereign activities and is not funded by the Government of
Freedonia within the meaning of the BIT
20. BIT refers to, but does not provide for a definition of „sovereign‟ [activities] and
„funded‟ [by other Contracting Party]. Therefore, the meaning of these terms shall be
sought in accordance with the guides set forth in VCLT. Art. 31 thereof stipulates that
3

„treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose [emphasis added]‟. 3 .
21. Consequently, „sovereign‟ means (a) not controlled by outside forces; (b) independent
of, and unlimited by, any other; (c) being independent or autonomous‟ 4 and fund - „to
furnish money for‟. 5
22. Both the above terms were used in the context of exceptions to the general rule, saying
that nationals of either of the Contracting Parties, meeting the requirements set forth in
point 1 above, are qualified as „Investors‟ and may enjoy protection under the BIT.
Such exceptions shall be construed restrictively. Especially the term „funded by the
other Contracting Party‟ should not be construed in such a manner that it would debar
all the state-owned companies from seeking legal protection under the BIT. Claimant
would argue that the common will of the Parties‟ was to not confer the status of an
Investor only upon the state-owned companies funded by the other Contracting Part
and by means of which the other Contracting Party pursues its own sovereign
activities. Should it be the Parties‟ intention to exclude all the state-owned companies
from holding a status of an Investor they would have simply created an additional
exception and left no place for speculation.
23. Such an approach finds also foundation in the object and purpose of the BIT.
According to the preamble it intends
„to establish favorable conditions for improved economic co-operation
between the two countries, including investment by nationals of one
Contracting Party in the territory of the other Contracting Party‟
Furthermore, „it is legitimate to resolve uncertainties in its interpretation so as to
favour the protection of covered investments‟ 6 .
3 See also: Aguas del Tunari, §91
4 WEBSTER‟S ONLINE DICTIONARY, see: Sovereign
5 Idem.; see: Fund
6 SGS v. Philippines, §116.
4

24. In the light of the above, state-owned companies funded by a state and pursuing
sovereign activities shall be confronted with state-owned companies invested in by a
state and pursuing purely commercial activities. Only the latter deserve protection
under the BIT.
25. It is also a standpoint approved by ICSID tribunal that a mixed economy company or
government–owned corporation should not be disqualified as a „national of another
Contracting State‟ unless it is acting as an agent for the government or is discharging
an essentially governmental function 7 .
26. Similar stance was presented by the tribunal in Maffezini, where it applied structural
and functional tests to determine whether an entity was a private one or state one. The
structural test required direct or indirect ownership by the state to be demonstrated,
although the tribunal itself stated that the structural test is „but one element to be taken
into account‟ 8 and that it may not always be a conclusive 9 . Further, the tribunal
resorted to „functional test‟, examining „whether specific acts or omissions are
essentially commercial rather than governmental in nature‟, as the former ones cannot
be attributed to a State, and the latter ones „should be so attributed‟. 10
27. In the case at hand, Claimant is a state-owned company, with 40% of its shares
remaining in private hands 11 . This, however, in the view of the BIT and its
interpretation as above, does not indicate that it cannot enjoy the status of an investor
in pursuance with the BIT provisions. As underlined in the above assertions the
decisive criterion of whether Claimant shall be deemed as an investor, is the character
of its activities. None of the facts of this case provide the Tribunal with any
information about any other activity pursued by Claimant, than strictly commercial
7 Ceskoslovenska Obchodni Banka, Jurisdiction, §17.
8 Maffezini, Award, §50.
9 Maffezini, Jurisdiction, §79.
10 Maffezini, Award, §52.
11 Facts, §1.
5

ones. Likewise, none of the facts indicate that Claimant was funded by the
Government of Freedonia within the meaning of the BIT. In fact, it is the opposite -
the Government of Freedonia exercises its shareholder‟s right like any other
shareholder would do under Freedonian company laws 12 . This means, that, using the
language of the ICSID Tribunal 13 , it pursues its interests in Freedonia Petroleum LLC
like a merchant, rather than like a sovereign.
28. In the light of the foregoing, the conditions for the rationae personae jurisdiction are
met.
III. RATIONE VOLUNTATIS JURISDICTION REQUIREMENTS ARE FULFILLED
29. Consent to arbitration by the host State and by the investor is an indispensable
requirement for a tribunal‟s jurisdiction 14 . In the given case the arbitration clause
contained inside the BIT covers all the necessary elements worded in the Standard
ICC Arbitration Clause 15 .
30. Therefore, all the jurisdiction requirements are met in this case.
IV. THE CASES DEALT WITH BY THE SYLVANIAN MINISTRY OF ENERGY AND THE ICC ARE
TWO SEPARATE ISSUES AND CAN BE HEARD SEPARATELY AND SIMULTANEOUSLY
31. In order to resist the payment of unlawful liquidated damages, FPS resorted to the
Ministry of Energy. 16 The decision challenged by FPS was founded on the domestic
legislation of Sylvania. Fourteen months later the dispute based on the violation of
BIT (international) obligations was brought before the ICC. 17
12 Responses I, §34
13 Pan American v. Argentina, §108
14 The Oxford Handbook, p. 831
15 ICC Rules of Arbitration.
16 Facts, §17.
17 Facts, §29.
6

32. BIT, Art. 11(3)(b) stipulates that
„[t]he Contracting Parties hereby consent to the submission (..) of
Investment Disputes to the ICC for settlement and resolution (…), at
any time after three months upon the dispute arose, provided that the
Investor has not brought the dispute before the courts having
jurisdiction [within the territory in question]‟ 18
33. Thus, the subject matter of administrative proceedings before MoE was based on the
provisions of the OPA (amended version) and the Agreement. It constitutes different
legal basis than the claim brought before the Tribunal, which was founded on the BIT.
These two cases cannot constitute the same dispute and BIT, Art. 11(3)(b) is not
applicable in the ongoing case.
34. The Agreement constitutes a contract between the investor and the state acting as a
private subject. In Serbian Loans case the Court acknowledged that
„Any contract which is not a contract between States in their capacity
as subjects of international law is based on the municipal law of some
country‟ 19 .
35. The Court pointed out the common rule of the international law, i.e. the distinction has
to be drawn between the obligations of the state acting as a „sovereign‟ and acting as a
„merchant‟. 20 The Roman law (and scholars, e.g. H. Grotius) differentiates the dual
role of the state by relation to spheres of imperium and dominium. 21
36. The principal difference between the disputes before the MoE and the ICC can be
easily noticed by reference to the subject matter of the dispute. In course of
administrative proceedings, FPS was resisting an unlawful obligation to pay liquidated
damages. However, by the recourse to the international arbitration, Claimant demands
just compensation pursuant to the terms of the BIT.
V. THE UMBRELLA CLAUSE DOES NOT EXCLUDE THE JURISDICTION OF THE ICC
18 BIT, Art. 11(3).
19 Serbian Loans, p. 41.
20 DOLZER, SCHREUER, p. 158-159.
21 MASHARU, p. 170 et seq.
7

1. The umbrella clause only protects contractual rights of the Investor under the treaty
and it cannot be interpreted as a provision incorporating private contracts into
international law
37. BIT, Art. 10 stipulates that
„Each Contracting Party shall constantly guarantee the observance of
any obligation it has assumed with regard to Investments in its
Territory by the other Contracting Party‟ 22 .
38. Such is the typical wording of so-called „umbrella clauses‟ common in the investment
treaties. Its aim is to safeguard the observance of contractual commitments incumbent
upon the state vis-á-vis the investor. Briefly, it embraces the contractual rights under
protective umbrella of the international treaty. 23
39. The umbrella clause itself does not make the provisions of domestic legislation a part
of international law as it would result in flood of lawsuits before international
arbitration and obviation of other guarantees safeguarded by the treaty. 24 The elevation
of the contractual commitments violations on the level of the international law 25 does
not mean that such commitments automatically became a part of international law.
40. A presence of the „umbrella clause‟ in the treaty does not mean that the legal character
of the contractual norms protected under the provision in question is different. On the
contrary, the „umbrella clause‟ indicates the existence of two separate legal orders
which have to be accordant with each other.
41. Although the distinction between international law and private obligations can be
blurred in course of performance of the „umbrella clause‟, 26 the sources of
international law are enlisted in the Art. 38 of the Statute of ICJ. Possible ways of
22 BIT, Art. 10.
23 SCHREUER, p. 231-256.
24 SGS v Pakistan, §168.
25 DOLZER, SCHREUER, p. 155.
26 Ibid, p. 155.
8

creating the treaty norms of international law are exhaustively expressed in the VCLT
and private contracts do not constitute the part of this system.
42. Thus, the claim based on the municipal law or private contract, even entered into by
the state acting as a „merchant‟ is different from the dispute arose on the basis of the
international treaty. These two claims are to be dealt separately, not only before the
different bodies, but on the different rules. That attitude was expressed by the Tribunal
in SGS v Philippines 27 case.
2. The purpose of the ‘umbrella clause’ is to protect Investments against the host state.
43. According to contextual interpretation of the Art. 31 of VCLT referred to before, the
purpose of the „umbrella clauses‟ is to put the contractual obligations of the state vis-
à-vis the investor under the umbrella of the treaty.
44. The teleological interpretation of the „umbrella clause‟ has been emphasized by the
ICSID tribunals worldwide. In Noble Ventures, the Tribunal decided:
„An interpretation to the contrary would deprive the investor of any
internationally secured legal remedy. (…) a clause that is readily
capable of being interpreted in this way and which would otherwise be
deprived of practical applicability is naturally to be understood as
protecting investors also with regard to contracts with the host State
generally in so far as the contract was entered into with regard to an
investment‟ 28 .
45. Only such an interpretation of the BIT (i.e. in favor of investor) is able to ensure a
desirable standard of protection of investment and an investor. The „umbrella clause‟
cannot be interpreted as narrowing the jurisdiction of the Tribunal in relation to the
dispute. Such a reading of the Treaty is contrary to its object and purpose and
constitutes a severe violation of international investment law.
VI. THE BIT DOES NOT PROHIBIT TO BRING A CLAIM BEFORE AN INTERNATIONAL BODY
AFTER SUBMITTING IT BEFORE THE DOMESTIC COURTS AS:
1. It does not contain the ‘fork-in-the-road’ provision
27 SGS v Philippines, §128.
28 Noble Ventures, §51.
9

46. Respondent interprets the BIT, Art. 11(3)(b) in a way that it prohibits to bring a claim
before an international body in case it has been once submitted to the domestic
authorities. In the view of Respondent, the administrative proceedings before the MoE
definitely excluded the possibility of bringing a claim before the ICC.
47. The „fork-in-the-road‟ provision contains a right of the Investor to choose the legal
remedy to protect one‟s rights under the treaty. This could be made by reference to the
domestic court or international arbitration. However, once chosen, the way of dispute
resolution remains the only available remedy for the investor. In result, the remedy
which was not chosen by the Investor is lost irrecoverably. 29
48. The only case wherein the Tribunal rejected investor‟s claim on basis of the „fork-in-
the-road‟ provision was Pantechniki case. The provision of Albania-Greece BIT was
utterly different from the BIT in question, Art. 11(3)(b). The challenged provision
read as follows:
„If such disputes cannot be settled within six months from the date
either party requested amicable settlement the investor or the
Contracting Party concerned may submit the dispute either to the
competent court of the Contracting Party or to an international
arbitration tribunal‟ 30 .
49. The wording of the relevant provision of Sylvania-Freedonia BIT, Art. 11(3)(b) is of
different character. It contains the condition of initiating the proceedings before the
ICC, not narrows the right of the investor to chose only one remedy.
50. Moreover, the Tribunal in Pantechniki decided that:
„The same facts can give rise to different legal claims. The similarity
of prayers for relief does not necessarily bespeak an identity of causes
of action. 31 .
51. In the same case, the Tribunal pointed out the absence of the „umbrella clause‟ as a
determinant which made unable to draw distinction between contractual commitments
29 SCHREUER, p. 239-240.
30 Pantechniki, §53.
31 Ibidem, §62.
10

and treaty rights protected. The claim of the Greek investor had to be found on basis
of BIT provisions and lost because of the lack of possibility of protection of
contractual rights by the virtue of the treaty. 32
52. Thus, Pantechniki case, being an exception from the well-established case-law, leads
to the conclusion that BIT, Art. 11(3)(b) does not constitute the „fork-in the-road‟
provision in the meaning of international investment law.
2. It does not impose the requirement of exhaustion of domestic remedies
53. ICSID Convention in Art. 26 prescribes that
„Consent of the parties (…) shall be deemed consent to such
arbitration to the exclusion of any other remedy. A Contracting State
may require the exhaustion of local administrative or judicial remedies
as a condition of its consent to arbitration under this Convention‟
54. The stipulation invoked reverses the rule expressed by the ICJ in Interhandel case
wherein the Court expressed the requirement of prior exhaustion of domestic remedies
as an alleged rule of customary international law. 33 Unless the treaty lacks in the
provision concerning the exhaustion of local remedies, no such obligation is imposed
on an individual seeking one‟s rights protection on the international level. 34
55. Thus, Art. 26 of ICSID Convention derogates the alleged rule of customary
international law between the Parties (lex posterior derogat legi priori) – it must be
borne in mind that there is no hierarchy of sources of international law (Art. 38 of the
Statute of ICJ does not classify the sources of law).
56. The Tribunal had to deal with similar provision while recognizing Maffezini case. 35
32 Ibidem, §64.
The two important functions of such a stipulation in BIT were pointed out:
33 Interhandel, p. 6.
34 Maffezini, Jurisdiction, §22; AES Corporation, §69.
35 Maffezini Jurisdiction, §19.
11

„First, it permits either party to a dispute to seek redress from the
appropriate domestic court. Second, it ensures that a party accessing
the domestic court will not be prevented (…) from going to
international arbitration after the expiration of [appropriate] period‟ 36 .
57. Thus, the BIT should not be interpreted as limiting right of the party to bring a dispute
before the international body. The investor has to be allowed to challenge the decision
of the domestic courts.
58. Moreover, the burden of evidence, whether there were remedies which were not
exhausted lies upon the state. 37 Respondent is thus obliged to prove that in its legal
system were other domestic remedies available whereto FPS could have revoked. 38
VII. THE BIT DOES NOT PROHIBIT TO INITIATE ARBITRAL PROCEEDINGS, BECAUSE ITS ART.
11(3)(B) IS NOT APPLICABLE ONLY IN THE CONTEXT OF AN ADMINISTRATIVE AUTHORITY.
59. Respondent counterclaims that the recourse by FPS to the Sylvanian MoE, deprives
Claimant of his right to bring a claim before the Tribunal. Respondent relies on the
provisions of BIT, namely Art. 11(3), which stipulates that the dispute in question is to
be previously brought
„before the courts having jurisdiction within the territory of the
Contracting Party that is a party to the dispute.‟
60. BIT, Art. 11(3), letter (b) requires the dispute to be excluded from the jurisdiction of
the Tribunal to be brought before the courts of the host state. There is no uniform and
commonly accepted definition of the term „court‟ in the international law, as every
state has power to shape by itself its internal bodies and relations between them. This
obviously transpires from the principle of state-sovereignty. 39
61. However, there are some common criteria which should be taken into consideration
36 Ibidem, §26.
while determining the scope of the term „court‟ for purposes of the case. The BIT
37 LOEWENFELD, p. 517.
38 See: ELSI, §63.
39 S.S. „Lotus”.
12

itself does not contain the definition of the term as well. This term is defined in Art. 2
UNICITRAL Model Law, which has been adopted by the Republic of Flatland, which
is the place of the arbitration. According to UNICITRAL Model Law a „court‟ means
a body or organ of the judicial system of a State.
62. The criteria enabling to define the „judicial system‟ in the international law could be
find in case-law and doctrine. The distinction has to be drawn between judicial and
administrative 40 or political (diplomatic) 41 remedies. MoE being an administrative
body does not constitute a part of judicial system, thus it cannot be perceived as a
„court‟ in the meaning of the investment law, namely BIT.
63. The provisions of the BIT and other international treaties should be interpreted in
accordance with the VCLT, namely its Art. 31 et seq. 42
64. Literal interpretation is preponderant in the international law and as such should be
followed while determining the scope of the term „court‟. Restrictive interpretation of
the treaty terms is an effective remedy protecting rights of the investors against omni-
potent state. The investor-friendly interpretation enables to lessen inequality of arms
between the parties to the dispute. 43
65. Moreover, such interpretation is commonly accepted by tribunals as it is also
beneficial in long term for the host state, because „[T]o protect investments is to
protect general interest of development and of developing countries‟ 44 .
66. The purpose interpretation of the treaty is admissible only as a supplementary means
of interpretation. 45 As to the other means of interpretation, the significant rule was
expressed by the Tribunal in Noble Ventures:
40 SULLIVAN, p. 4-5.
41 AES Corporation, §65.
42 DOLZER, SCHREUER, p. 31.
43 Ibidem, p. 32.
44 Amco, Jurisdiction, §23.
13

„[R]ecourse may be had to supplementary means of interpretation,
(…), only in order to confirm the meaning resulting from the
application of the aforementioned methods of interpretation.
Reference should also be made to the principle of effectiveness,
which, too plays an important role in interpreting treaties‟ 46 .
67. Other interpretation of the BIT constitutes contra legem interpretation and deprives the
Treaty of application to the present case, i.e. its effectiveness. The Tribunal in Plama v
Bulgaria expressed careful approach towards teleological interpretation of BITs and
invoked Sir Ian Sinclair‟s warning against
„the risk that the placing of undue emphasis on the „object and
purpose‟ of a treaty will encourage teleological methods of
interpretation [which], in some of its more extreme forms, will even
deny the relevance of the intentions of the parties‟ 47 .
68. However, even allowing teleological interpretation of the BIT provisions concerning
the application of a particular term in the treaty, it has to be borne in mind that the
purpose of the treaty is to be expressed in the text, esp. the preamble (VCLT, Art.
31(2)) 48 . The preamble to the Freedonia-Sylvania BIT invokes such values as
„encouragement and mutual protection to such investments based on international
agreements‟.
69. Wide interpretation of the term „court‟ can groundlessly deprive the investor of BIT
protection and make ICC jurisdiction dependant on conduct of Respondent. Such
situation is unacceptable in the international investment law and is definitely not
accordant with the purpose of the BIT.
45 Saluka, §299.
46 Noble Ventures, §50.
47 Plama, §193.
48 Lauder, §292.
14

MERITS
B. NPCS’ ACTIONS ARE ATTRIBUTABLE TO RESPONDENT
I. AS NPCS IS A STATE ENTITY, RESPONDENT IS RESPONSIBLE FOR ITS ACTS
70. In according to customary international law a state is undoubtedly responsible for its
own acts. 49 As the state is an abstract concept it acts by its organs and for actions of
these organs is responsible. 50 This rule of the customary character 51 is codified in Art.
4(1) of DARSIWA: „The conduct of any State organ shall be considered an act of that
State under international law (…)‟. In the view of Claimant NPCS constitutes de facto
a state entity, not the private company, thus its actions are attributable to the Republic
of Sylvania.
71. Respondent will certainly indicate Art. 4(2) of DARSIWA 52 , however Respondent‟s
contention that he is not liable for NPCS‟ conduct 53 is disingenuous, as the status of
the entity is not the decisive factor and it can significantly vary under municipal and
international law.
72. Subsequently, during defining the state organ, the factual realities should be taken into
account. 54 This view is well grounded in established case law. 55 The corporate veil of
49 DARSIWA p.40, §1
50 SMUTNY, p. 17
51 CRAWFORD, Commentaries, p. 95.
52 „An organ includes any person or entity which has that status in accordance with the
internal law of the State.‟
53 ToR, c. II.
54 SASSON, p. 17.
55 EnCana, Maffezzini, Salini.
15

private entity may not be utilized by a state to avoid responsibility. Sasson 56 provides
that
„if the entity or the individual is not a de jure organ, this entity or
individual can still be organ under international law, if it is controlled
by and dependent on the State‟.
73. Thus, the question arises - what factors are decisive for determination of NPCS‟s legal
nature? In Maffezzini, the tribunal, by applying „the structural‟ and „the functional‟
tests, 57 examined the following factors: (1) the classification of the entity in national
law, (2) the control over the company, (3) its objectives and (4) the functions which
the company performs. 58 The position adopted by the tribunal in Maffezzini finds
grounds in the customary international law 59 and jurisprudence as well. 60 All
abovementioned factors should be then taken into consideration.
1. It is of legal consequence that NPCS acted in the governmental capacity and on the
basis of authorization
a. Acts of NPCS were governmental, not commercial and as such were not aimed to
obtain profit
74. In a theory, NPCS‟s actions should be aimed at achieving profit. However, by its
action NPCS reached not commercial, but stricte governmental targets, concerning
mainly protection of natural environment what remains in connection with the
protection of national economy. 61 The premises were took over „in order to undertake
the necessary remedial works (…)‟, 62 what is indicated as the only and sole object of
56 SASSON, p. 24.
57 See: §26 supra.
58 Idem.
59 DARSIWA.
60 SASSON, p. 7; see also: SMUTNY.
61 Facts, §§8, 21.
62 Facts, §23.
16

activities. Only leaking wells were transferred to NPCS 63 . Thus, like in Maffezzini 64 ,
the conduct of NPCS shall be deemed as purely governmental, non commercial.
75. What is more, NPCS acted on the basis of the clear, explicit authorization 65 issued by
the President of Sylvania. Respondent let the enterprise to act on its behalf delegating
its authority, thus, to perform some public functions. NPCS did not exceed the scope
of the official authorization and acted on its basis and within its frames. Also the legal
validity of the authorization is indisputable. 66
2. NPCS is controlled by Respondent in direct and indirect way
76. First, it should be recognized that Respondent in fact controls NPCS. Such view is
justified by the numerous facts. (1) The creation of NPCS was provided by particular
legislation. (2) It is indisputably the fully state-owned company. 67 In many cases
tribunals have already attributed actions by stated-owned persons, even whereas a
State was not the only shareholder of a company. 68 The existence of the factual
relationship between Respondent and NPCS in such circumstances is undeniable.
What is more, (3) the Government of Sylvania appoints the Board of Directors. 69
Respondent possess then factual control over the members of BoD, and thus, in
indirect way, over whole NPCS. Similar findings have already led to the conclusion
that an entity was de facto a State‟s agent. 70
63 Responses II, 56.
64 Maffezzini, Award §52.
65 Order, Section 2.
66 Order, preamble §6.
67 Facts, §19.
68 Maffezzini, Award § 31-33, Metalcald, § 73, Klockner, Salini.
69 Responses I, No. 11.
70 Wintershall, §809.
17

77. Indeed, the sole fact of possessing the control over the enterprise might be not
convincing enough. In this case, however, (4) the control was effectively exercised in
the direct way by the Sylvanian Government. The management and operating teams
were „sent by the Government (…)‟. 71 These words explicitly indicate that NPCS was
not acting only on the basis of authorization, but under direct control and on
Respondent‟s command as well.
78. In conclusion, the aforementioned facts lead to the adoption of the conclusion that
NPCS, in fact constitutes the organ of the state on the basis of factual relationship. 72
II. NPCS EXERCISES GOVERNMENTAL AUTHORITY AND IS CONTROLLED BY RESPONDENT,
THUS ITS ACTIONS ARE ATTRIBUTABLE TO RESPONDENT
79. Despite the fact, that NPCS constitutes de facto the state organ, its actions are
attributable to Respondent on the basis of two other alternative grounds also, provided
by DARSIWA. It should have been borne in mind that the legal relevance of
DARSIWA is undeniable. Even though they were never officially adopted, they have
been consistently used by international tribunals. 73 They constitute the codification of
rules of customary international law and are worldwide recognized as applicable to
investor-state disputes.
80. Art. 5 stipulates as follows:
„The conduct of a person (…) which is empowered by the law of that
State to exercise elements of the governmental authority shall be
considered an act of the State under international law (...)„
81. It covers the factual, existing situation, in which NPCS exercises governmental
71 Facts, §23.
authority on the basis of explicit authorization, what was proved above.
72 DARSIWA, p. 47, §1
73 Maffezini, Noble Ventures, Eureko.
18

82. Alternatively, these acts shall be attributed to the Republic of Sylvania on the ground
of Art. 8 of DARSIWA 74 NPCS acted on the instructions of Respondent and its
command as well, what has already been shown above.
83. Finally, in Claimant‟s views 75 all the actions of NPCS are attributable to Respondent
by virtue of the three alternative grounds provided by Art. 4, 5 and 8 of DARSIWA.
C. RESPONDENT MATERIALLY BREACHED ITS CONFIDENTIALITY
OBLIGATIONS
84. In the absence of confidentiality provision in BIT, pursuing the Art. 20 (7) of ICC
Arbitration Rules, the matter shall be decided by the Tribunal. Depending on the
information and documents at stake, different considerations of confidentiality,
transparency, public information may apply, requiring a differentiated treatment. 76
85. In the present case the urge for keeping the dispute out of public judgment is
undeniable. The facts of the case accurately depicts sequence of cause and effect that
occurred between Respondent‟s actions and results which are highly detrimental to the
proceedings, such as politicization of the dispute and adjusting the public opinion
against Claimant which ipso facto violated Claimant‟s rights under international law.
I. RESPONDENT BY ITS ACTIONS AGGRAVATED THE DISPUTE
86. Right to non-aggravation of the dispute is a well – established, self – standing right in
international investment arbitration practice. It is referred to as the good and fair
practical rule, according to which Parties should refrain, in their own interest, to do
anything that could aggravate or exacerbate the dispute thus rendering its solution
more difficult 77 . The principle in question was re – affirmed in the numerous cases. 78
74 „The conduct of a person (…) shall be considered an act of a State under international law
if the person (…) is in fact acting on the instructions of, or under the direction or control of,
that State in carrying out the conduct.‟
75 ToR, (c)(i).
76 Giovanna Beccara, §80.
77 Amco, Decision on request for provisional measures, p.412.
19

87. Furthermore, as established in international investment arbitration court practice:
„(…) transparency considerations shall not justify actions that
exacerbate the dispute or otherwise compromise the integrity of the
arbitration proceedings.‟ 79
Claimant thus argues that Respondent‟s actions resulted in aggravation of the dispute
and actually deteriorated Claimant‟s position in the dispute.
1. Respondent failed to preserve the confidentiality of the report
88. The report, excerpts of which were posted by the leading Sylvanian newspaper 80 , was
confidential under Sylvanian domestic law. It is a generally acknowledged principle
that information, which are protected under legal privilege, shall not be disclosed. 81
Therefore Claimant contends that Respondent by a gross negligence failed to fulfill its
domestic confidentiality obligations.
89. Sylvanian Government as a drawer of the report in question, by all means should have
not allowed the leak, particularly keeping in mind the fact that FPS and its personnel
provided testimony for the report, thereby delivering statements that were detrimental
for Claimant‟s position in the proceedings.
90. Furthermore, argument of acting in the public interest does not merit taking into
account in the present dispute. It has been indicated that transparency considerations
may not prevail over the protection of information which is privileged or otherwise
protected from disclosure under a Party‟s domestic law. 82
91. The leak actually presented FPS to the public opinion as the subject solely responsible
for the accident, began adverse publicity against Claimant (i.e. as one of the motives
78 Occidental, Decision on provisional measures, §96, City Oriente, §55., Burlington, §61-68.
79 Giovanna Beccara, §72.
80 Facts, §9.
81 MISTELIS, p. 182
82 Giovanna Beccara, §72.
20

of CSE‟s actions) and thus contributed to exacerbation of the dispute before the
proceedings actually began.
92. The fact that the leak has taken place before the actual arbitration proceedings is
inappreciable. With the influence on the proceedings as proven before, this Tribunal‟s
mandate is to ensure that the proceedings will be conducted in a future in a regular,
fair and orderly manner, which extends to attempting to reduce the risk of future
aggravation and exacerbation of the dispute. 83 Accordingly, there is no obligation
imposed on Claimant to manifest the actual harm for the proceedings, as the risk
necessarily involves probabilities, not certainties. 84
93. Consequently, Respondent‟s adverse publicity as well as the mere general media
interest itself is regarded a sufficient risk of harm, prejudice and aggravation. 85
2. Respondent further exacerbated the dispute by the President’s declaration
94. In the same manner as the leak to „La Reforma‟ shall be interpreted the Sylvanian
President‟s declaration to the press. 86 Claimant finds unacceptable the fact that
Respondent‟s state official virtually offends the investor. It must be stressed that
situation as such seems to be a climax of social campaign against FPS, which from the
very beginning stands against the very foundations of the BIT, such as encouragement
and mutual protection of investments 87 .
II. RESPONDENT VIOLATED THE PROVISIONS OF ICC RULES OF
ARBITRATION
83 Biwater Gauff, Procedural Order No. 3, §145.
84 Ibidem.
85 Ibidem, §146.
86 Facts, §20.
87 BIT, preamble
21

95. President‟s declaration resulted in drawing the public opinion‟s interest, along with
CSE, which was then granted by a Sylvanian Court of Administrative Matters an
access to the confidential documents concerning the ICC proceedings. 88
96. Pursuant to Art. 6 of ICC Rules of Arbitration, Appendix I , it is the International
Court of Arbitration that lays down the rules regarding the persons who are entitled to,
inter alia, have access to the materials submitted to the Court and its Secretariat.
Accordingly, in compliance with Art. 1(3) of the ICC Rules of Arbitration Appendix
II, the documents in question are communicated only to the members of the Court and
to the Secretariat and to persons authorized by the Chairman to attend Court sessions.
97. In the present case, the Sylvanian Court of Administrative Matters acted without the
consent, or even notification to the ICA or Arbitral Tribunal, which is a flagrant
violation of the above – mentioned provisions.
98. Claimant thus contends that matters of confidentiality and third party participation are
crucial for the conduct of the arbitration proceedings and as such, shall be decided
fully with both Parties cooperation. Depriving Claimant of the power to decide upon
them, puts Claimant in an unequal position in relation to Respondent, as well as
violates the very nature of the arbitration proceedings.
III. CSE SHOULD NOT BE PERMITTED TO PARTICIPATE IN ANY WAY IN THE CONFIDENTIAL
ICC PROCEEDINGS.
99. According to Art. 21(3) ICC Arbitration Rules, save with the approval of the Arbitral
Tribunal and the parties, persons not involved in the proceedings shall not be
admitted. Claimant hereby objects to the requests of the CSE, particularly to be
present at the hearings, to submit documents and to be heard as a non – disputing
party.
1. CSE’s participation is unnecessary for the proceedings.
100. Claimant argues that in the present case, the CSE demonstrated the lack of
88 Facts, §33.
independence and neutrality, as it fully supports Respondent. Its participation will
22

stand against the very idea of the amicus curiae and will expose Claimant to the need
of arguing not only against Respondent, but the NGO as well. Accordingly, in
Methanex , the tribunal emphasized the need to ensure that third-party participation
does not impose any additional burdens on the parties or the arbitral process
generally. 89
101. Furthermore, CSE‟s participation is needless as it does not offer expertise and
perspectives that materially differ from those of the two contending parties, and as
such does not provide a useful contribution to the proceedings. 90 Accordingly,
Claimant argues that CSE submission do not offer any novelty and is based
predominantly on illegally obtained information. 91
102. Consequently, the additional costs and delays of the proceedings must be considered 92 .
The nature of arbitral proceedings shall be taken into account as allowing third party
poses a risk of losing its main attributes of more cost – efficient and speedy
adjudication. Due to low CSE‟s utility for the Tribunal, such risk is unnecessary.
2. Allowing CSE to the proceedings would be detrimental to Claimant’s position in the
dispute.
103. Moreover, CSE participation is most likely to cause adverse publicity and put on risk
Claimant‟s confidential business information and thus contribute to re – politicizing 93
the dispute. It is often indicated that third-party involvement could lead to the
arbitration becoming a „court of public opinion‟ and to a lessening of settlement
opportunities, as claims gain exposure to the public domain. 94 It is highly probable
89 Methanex §50
90 Biwater Gauff, Award, §359.
91 Namely by leak of the confidential report and unlawful release of written pleadings by the
Sylvanian Court of Administrative Matters.
92 Costs of openness in RUBINS, p. 217.
93 TIENHAARA, p. 230.
94 RUBINS, 218-219.
23

that such strong public interest lobby support as CSE‟s, may put additional pressure on
Respondent and form a significant barrier to amicable settlement.
104. Consequently, allowing CSE to the proceedings will transfer the dispute as a whole to
the public domain and inevitably lead to further aggravation of the dispute. As it was
already argued, the risk of aggravation of the dispute can justify restrictions of public
disclosure.
D. RESPONDENT VIOLATED INTERNATIONAL LAW, PARTICULARLY THE
BIT
I. RESPONDENT DID NOT ACCORD CLAIMANT FET
105. Pursuant to Art. 2(2) of the BIT and Art. 10(1) of the ECT, Respondent shall at all
times ensure fair and equitable treatment towards Claimant‟s investment.
106. Regarded by some as the primary standard in foreign investments protection 95 and
reaching further than the customary standard of minimum treatment of aliens 96 , FET
involves the host state‟s conduct towards the investment that follows a set of patterns
construed and developed in the practice of arbitral tribunals 97 .
107. Claimant thus contends that Respondent violated a series of distinctive sub-standards
of (1) Claimant‟s legitimate expectations, (2) bona fide conduct and (3) the obligation
to accord due process, found by the esteemed arbitrators as contrary to FET.
1. Respondent frustrated Claimant’s legitimate expectations
108. It is inherent under FET standard 98 , regarded even as its dominant element 99 , for a host
state
95 TUDOR, p. 250.
96 Occidental, §§189-190.
97 Tecmed, §154.
98 FIETTA, p. 375; Waste Management, §98; Occidental, §183.
99 Saluka, §302.
24

„to provide to international investments treatment that does not affect
the basic expectations that were taken into account by the foreign
investor to take the investment‟ 100 .
109. Therefore, Claimant submits that Respondent subverted its legitimate investment-
backed expectations pertaining to undertakings of a general kind as well as explicit
undertakings on the part of Respondent 101 .
a. Expectations created by the legal framework of Sylvania
110. That the investor‟s legitimate expectations are „grounded […] in the legal order of the
host state as it stands at the time when the investor acquires the investment‟ 102 has
been beyond contention in recent jurisprudence 103 .
111. An essential host state‟s obligation subsumed under the general concept of legitimate
expectations is the duty to maintain a stable and predictable legal environment 104 . This
includes the investor‟s freedom not only from alteration of the rules and regulations
that „were crucial for the investment decision‟ 105 , but also even from a change in the
interpretation of relevant legal provisions 106 .
112. In the case at hand, there is no evidence to the effect that Claimant did not, as a
reasonable and prudent investor, thoroughly assess beforehand the legal framework
regulating its investment. Hence, the incentivizing features relied upon Claimant prior
100 Tecmed, §183.
101 DOLZER, SCHREUER, p. 104.
102 DOLZER, SCHREUER, p. 134.
103 Occidental, §191; LG&E, §131.
104 Parkerings, §§326 et seq.; JUILLARD.
105 CMS, §275.
106 Occidental, §§184-186.
25

to entering into the Agreement were the extent of damages, SD 75 million liability cap
and other pertinent provisions of the OPA 107 as of 26 May 2007 108 at the latest.
113. As a result, by way of a material and, notably, retroactive 109 , amendment of the OPA,
Respondent significantly changed the legal order that was taken into account by
Claimant to make the investment and, as such, subverted its legitimate expectations
created by the initial content of the OPA, in breach of Art. 2(2) BIT.
b. Expectations arising out of the Agreement
114. In further justification of the breach of legitimate expectations on the part of
Respondent, it must be submitted that the aforementioned general undertakings were
substantiated in the wording of Clause 18 and 22 of the Agreement, by virtue whereof
„any modifications of the terms and conditions of this Agreement may only be made
by mutual written consent of the parties‟, the Agreement having „the force of law‟ 110 .
115. Apart from constituting a breach of the umbrella clause under the BIT 111 and ECT 112 ,
acting contrary to the invoked provisions forms a separate violation of Claimant‟s
legitimate expectations that arose out of direct representation 113 not to alter its
substantive obligations prescribed by the Agreement, save by mutual written consent.
107 Facts, §§11-14.
108 Facts, §4.
109 Facts, §15.
110 Facts, §6.
111 BIT, Art. 10.
112 ECT, Art. 10(1).
113 NEWCOMBE, p. 279.
26

116. This contractual content was manifestly interfered with as regards the security duties
and the scope of liability, unjustifiably broadened by amending the OPA. Said
amendment produced an excessive amount of damages owed by Claimant 114 .
117. Therefore, Respondent‟s treatment of Claimant‟s investment „is in breach of
representations made by the host State which were reasonably relied on by
Claimant‟ 115 and are thus contrary to BIT and ECT.
2. Bad faith on the part of Respondent
118. It clearly transpires from the recent arbitral awards that failure to act bona fide
constitutes an independent violation of FET standard 116 .
119. In particular, the description of good faith drafted in Saluka implicated state‟s conduct
that „does not manifestly violate the requirements of consistency [and]
transparency‟ 117 .
120. Therefore, Respondent‟s acts, including the wells takeover and the retroactivity of the
OPA amendment, undertaken clearly inconsistently and opaquely, were ipso facto
contrary to FET standard.
121. Should Respondent claim to act in good faith, albeit extremely dubiously, even such a
successful defense may in no way affect the finding of other FET violations, bearing
in mind numerous arbitral rulings to this effect 118 .
3. Respondent did not satisfy the standard of due process
114 NEWCOMBE, p. 281.
115 Waste Management, §98.
116 Genin, §241; Waste Management, §138.
117 Saluka, §307.
118 Mondev, §116; Tecmed, §153; Loewen, §132; Occidental, §186; Azurix, §372.
27

122. As a fundamental element of the rule of law, the requirement of due process is
inseparable from FET 119 . Its basic content can be described by referring to the
obligation
„not to deny justice in criminal, civil, or administrative adjudicatory
proceedings in accordance with the principle of due process embodied
in the principal legal systems of the world‟ 120 .
123. However, this duty is not restricted to judicial activity 121 , but any of the three branches
of government may commit a violation thereof 122 , including administrative bodies 123 .
124. Specifically, in Tecmed, as well as in Metalclad, the tribunals found a violation of the
due process standard in terms of a revocation of a license by the regulatory authority
without notice of its intentions and depriving the claimant of the opportunity to be
heard 124 .
125. Applying the standard to the factual matrix of the instant case, it must be contended
that the President, albeit not obliged by the domestic law, had been required by the
international standard of due process to allow Claimant reasonable time to present its
standpoint before the Order of the Suspension and Takeover was issued. Furthermore,
there is no evidence that under Sylvanian law a presidential order is subject to a
judicial or administrative review.
126. Hence, in view of the aforementioned facts, Claimant submits that Respondent
committed a denial of justice in contradiction to the FET standard and shall assume
international responsibility in this respect.
119 SORNARAJAH, p. 329-330; The Oxford Handbook, p. 265-266.
120 U.S. Model BIT 2004, Art. 5(2)(a).
121 DOLZER, SCHREUER, p. 142.
122 Investor-State Arbitration, p. 526; FREEMAN, p. 28.
123 Amco, §137.
124 Tecmed, §162; Metalclad, §91.
28

II. RESPONDENT DID NOT ACCORD CLAIMANT’S INVESTMENT FULL PROTECTION AND
SECURITY
127. Apart from ensuring FET, Respondent is obliged, by virtue of the same Art. 2(2) BIT
and Art. 10(1) ECT, to accord Claimant‟s investment „full‟ and „the most constant‟
protection and security, respectively.
128. Consistent arbitral practice indicates that „when the terms „protection and security‟ are
qualified by „full‟ […], they extend […] beyond physical security‟ 125 , encompassing
legal protection 126 , particularly where the definition of investment under BIT applies
also to intangible assets 127 . As such,
„the host State is obligated to ensure that neither by amendment of its
laws nor by actions of its administrative bodies is the agreed and
approved security and protection of the foreign investor‟s investment
withdrawn or devalued‟ 128 .
129. The crucial factor in determining the exercise of the standard is „due diligence‟ 129 on
the part of the host state, denoted by the state taking „all measures necessary‟ to ensure
full protection and security of the investment 130 .
130. Notably, it has been confirmed that the host state „should not be permitted to invoke its
own legislation to detract from any such obligation [of vigilance]‟ 131 .
131. In the present case, in addition to the specified violations of FET that automatically
entail an absence of full protection and security 132 , the contested acts meriting full
125 Azurix, §408.
126 Saluka, §§483-484; Ceskoslovenska Obchodni Banka, §170.
127 Siemens, §303.
128 CME, §613.
129 DOLZER, SCHREUER, p. 149-150.
130 AMT, §6.05.
131 Wena Hotels, §84.
29

protection and security include the publication of a governmental report 133 and the
request of MoE that FPS pay the fine. 134 It is beyond doubt that Respondent possessed
reasonable means of preventing both detrimental harms to Claimant‟s investment that
comprises, under Art. 1 BIT, shares price, goodwill and the expectation of gain or
profit.
132. As a result, Respondent failed to exercise due diligence to protect Claimant‟s
investment from the said acts under state control and thus breached the obligation
under BIT and ECT to provide full protection and security.
III. RESPONDENT UNLAWFULLY EXPROPRIATED CLAIMANT’S INVESTMENT
1. Respondent breached Art. 4(1) BIT by interfering in Claimant’s possession, control
and enjoyment of the investment
133. Pursuant to Art. 4(1) BIT,
„Investments […] shall not be subject to any measure which might
limit permanently or temporarily the Investor‟s ownership, possession,
control or enjoyment, save where specifically provided by law and by
[…] orders issued by any […] administrative bodies […] having
jurisdiction [emphasis added]‟.
134. Construing this provision in accordance with Art. 31 VCLT, a treaty binding upon the
Parties, the ordinary meaning of the term „specifically‟ in its context and in the light of
the object and purpose of the BIT 135 establishes a qualified legal certainty and
precision of any norm authorizing an interference with the investment. In particular,
any exception to the general freedom from limitation must be interpreted
restrictively 136 , which finds confirmation in the preamble of the BIT 137 , devoted to
establishing favorable conditions and protecting investments 138 .
132 Occidental, §187.
133 Facts, §9.
134 Facts, §18.
135 VCLT, Art. 31(1).
136 Enron, Award, §331.
30

135. In the circumstances of the present case, the legal basis that led the President to issue
the Order was formulated as follows:
„The President during a declared state of emergency [is authorized] to
suspend the license of any entity conducting business within the
territory of the Republic which would in any way prevent, hinder, or
delay necessary action in coping with the emergency and to take such
steps as are necessary to address the emergency [emphasis added]‟ 139 .
136. In light of the broad and indefinite wording of this blanket provision of the Sylvanian
statutory code, Claimant argues that such a legal basis is far from clarity and certainty.
137. Therefore, as this imprecise provision failed to attain the „specificity‟ requisite of a
limitation measure under Art. 4(1) BIT, the violation whereof by Respondent must
hereby be contended.
2. Respondent has expropriated Claimant’s investment
138. Art. 4(2) BIT prescribes that investments in the territory of the host state cannot be
„nationalized, expropriated, requisitioned or subjected to any measure having similar
effect‟. Art. 13(1) ECT has got the analogous wording.
139. Considering the broad wording of both clauses referring to „effects‟, as well as the
sole-effect doctrine espoused by the scholars and jurisprudence 140 , in its arguments
Claimant need not discern indirect expropriation from the measures having similar
effects thereto and thus will consider solely the effect of any Respondent‟s measures
that shall qualify them as expropriation.
140. Therefore, as the rights under the Agreement being Claimant‟s contractual rights 141
and the property rights 142 with respect to the possession of wells and ownership of the
137 SGS v Philippines, §116.
138 BIT, preamble, §§2-3.
139 Order, §6.
140 DOLZER, p. 79; Nykomb, §4.3.1.
141 Rudloff, p. 250; Amoco, § 108.
31

equipment related to extraction both constitute Claimant‟s investment as defined under
Art. 1(2)(e) and Art. 1(2)(a) respectively, such components of the investment shall,
individually and collectively, merit protection from unlawful expropriation in any
form.
141. Claimant thus argues that Respondent, by suspending the Agreement and taking over
the wells, committed an unlawful expropriation of (a) sufficient gravity and (b)
duration.
a. Claimant was deprived of effective control over the investment
142. Accordingly, in order to find an expropriation, one need not ascertain whether the host
state performed a direct formal „taking‟ of the property, but should instead focus on
„consequential […] terms. What matters is the effect of governmental conduct‟ 143 ,
occasioning in
„any […] unreasonable interference with the use, enjoyment or
disposal of property as to justify an inference that the owner will not
be able to use, enjoy, or dispose of the property‟ 144 .
143. A constant line of arbitral jurisprudence has further described an expropriatory effect
as rendering the property rights practically useless 145 , where the investor „no longer is
in control of the investment, or where it cannot direct the day-to-day operations of the
investment‟ 146 .
142 Lauder, §200.
143 REISMAN, SLOANE, p. 121; CME, §604.
144 SOHN, BAXTER, p. 553 (Art. 10(3)(a)).
145 Starret Housing, §IV(b); Metalclad, §103.
146 LG&E, §188.
32

144. Additionally, since expropriation need not be to the obvious benefit of the host
state 147 , a determination in this regard is irrelevant to ascertaining an expropriatory
effect.
145. Last but not least, neither adopting a measure in pursuance of a purported
environmental protection purpose 148 nor acting in highly disputable good faith 149 may
prejudice the finding of an expropriation, for it is the effect of the state measure that is
to be taken into account, not the intent behind it 150 .
146. In the case at hand, Respondent, by way of the Order, suspended the Agreement for an
indefinite period of time 151 and authorized the Takeover of the wells by NPCS. From
29 November 2010 onwards, Claimant was deprived of the „effective control‟ 152 over
its investment in terms of conducting necessary remedial works as obligated under the
Agreement, transferring the extraction equipment to other venues, as well as
extracting oil from the unaffected wells.
147. Consequently, the measures produced a combined effect of an absolute neutralization
of the use and enjoyment of the investment and, to this extent, Respondent‟s actions
amounted to an unlawful expropriation, regardless of their purpose and intent or
whether any state-related entity derived profits therefrom.
b. The deprivation was not ‘merely ephemeral’
148. Considering the prerequisite of an excessive duration of the ownership impairment to
ascertain expropriation 153 , the tribunal in Wena Hotels found that an expropriatory
147 Metalclad, §103; Olguín, §84.
148 Santa Elena, §72.
149 Azurix, §§310-311.
150 Tecmed, §116; Biloune, §26.
151 Order, Section 3.
152 Revere Copper, p. 292.
153 CHRISTIE, p. 307; Phelps Dodge, 121.
33

measure lasting for nearly a year „was so profound that the expropriation was indeed a
total and permanent one‟ 154 . Moreover, in Middle East Cement, even a suspension of a
license for four months only was deemed expropriatory 155 .
149. Accordingly, the fact that the lapse of time since the wells takeover and the Agreement
suspension has already gone beyond a comparable extent (from 29 November 2010 156
to the present day) further compels the conclusion that an expropriation occurred in
the instant case.
3. Respondent did not fulfill the legality grounds under Art. 4(2)
150. Art. 4(2) stipulates that a lawful indirect expropriation must, inter alia, be (a) for
public purposes or national interest, (b) in conformity with all legal provisions and
procedures (due process of law) and (c) against immediate full and effective
compensation.
151. It is Claimant‟s submission that the expropriation was unlawful, for none of these
grounds occurred, albeit the absence of even one would render the expropriatory
measures illegal 157 .
a. Expropriating Claimant was not for public purposes nor national interest
152. This requirement, having a recognized standing in customary international law 158 , may
in no way be completely self-judged by the host state 159 . Its content is, however,
generally described as „some genuine interest of the public‟ 160 .
154 Wena Hotels, §120.
155 Middle East Cement, §108.
156 Facts, §23.
157 Siag and Vecchi, §433.
158 MALANCZUK, p. 235.
159 Siemens, §273; NEWCOMBE, p. 372.
160 ADC, §432.
34

153. Whereas Claimant concedes that an immediate response to the ongoing oil spill was in
the national interest, it vehemently objects, on the other hand, that genuine public
needs would have demanded an absolute neutralization of Claimant‟s investment.
154. Specifically, as the national interest might as well have been realized in the course of
mutual cooperation in prevention and removal of the environmental damage and thus
avoiding the expropriation, it shall be deemed that the forced abandonment of the
wells by Claimant was not for public purposes nor national interest.
b. The measures were not in accordance with due process of law
155. Such criterion is expressly included in Art. 13(1) ECT and customary international
law 161 . Accordingly, the phrase „in conformity with all legal provisions and
procedures‟ should be construed, according to Art. 31(3)(c) VCLT, in light of the
customary and treaty provisions, to entail an obligation of due process of law.
156. Considering that the violation of due process was outlined above 162 , it shall only be
reiterated that by failing to provide Claimant with an opportunity to be heard and with
a means of a legal redress against the Order, Respondent did not satisfy this ground for
the legality of expropriation.
c. No compensation whatsoever was issued by Respondent
157. This final requirement is a natural and inherent consequence of an expropriation. The
grammatical meaning of the qualifiers „full‟ and „immediate‟ shall leave no doubts as
to the host state‟s obligation to provide compensation for the entire duration of the
residual expropriatory effect and to transfer the compensation payment directly after
the taking of property, without any delay.
158. Therefore, it is beyond contention in the present circumstances that Respondent failed
to compensate Claimant despite over 10 months from the measures elapsed and, in
doing so, committed an unlawful expropriation.
161 Feldman, §139; Methanex, IV(D) §7.
162 See D(I)(3) supra.
35

4. In any event, Respondent is obliged to compensate Claimant
159. Even assuming, arguendo, that the acts of Respondent constituted a lawful
expropriation in view of their justification on the grounds listed in Art. 4(2) BIT, they
must nonetheless be followed by „immediate full and effective compensation‟ for the
period of actual deprivation of enjoyment of Claimant‟s investment, i.e. from 29
November 2010, as evidenced in the practice of arbitral tribunals 163 .
E. RESPONDENT IS NOT ENTITLED TO RELY ON ITS DOMESTIC LAW AND
INTERNATIONAL LEGAL NOTIONS OF NATIONAL SECURITY AND PUBLIC
INTEREST AS DEFENCES
I. THE PRIORITY OF INTERNATIONAL OBLIGATIONS EXCLUDE ANY RELIANCE ON
CONFLICTING DOMESTIC LAW
160. Under Art. 27 of the VCLT, a state
„may not invoke the provisions of its internal law as justification for
its failure to perform a treaty.‟ 164
161. This customary principle, embodied in an instrument binding upon the Parties 165 and
read in conjunction with the pacta sunt servanda rule 166 , prescribes that the provisions
of a state‟s domestic law cannot prevail over those of the treaty 167 .
162. Hence, notwithstanding the legality of Respondent‟s actions under Sylvanian law,
Respondent assumes liability therefor with respect to the aforementioned violations of,
inter alia, BIT and ECT.
1. In particular, Respondent cannot claim that an alleged breach of domestic law ousts
the investment’s protection under the BIT
163 American International Group, p. 14-15, 21; Feldman, §98.
164 VCLT, Art. 27.
165 Responses I, No.9.
166 VCLT, Art. 26.
167 Applicability of the Obligation to Arbitrate, Advisory Opinion, §57.
36

163. Respondent might submit that Claimant violated its security obligations under the
OPA and the Agreement and, thus, its investment was not made „in conformity with
the laws and regulations‟ of Sylvania as prescribed under art. 1(1) BIT. Therefore, in
resting upon a purported violation of its domestic law by Claimant, Respondent might
conclude that the investment falls outside the BIT scope of protection.
164. Such reasoning would be clearly abusive, since, first, there is no substantive evidence
whatsoever of any failure on the part of Claimant to abide by its security obligations.
165. Secondly, assuming, for the sake of the argument, that Claimant‟s activities were not
in line with the obligations imposed, any such duty would amount to „the fundamental
principles‟ of the host State as required by the decision in LESI 168 . Therefore, in any
case, domestic law, even if breached by Claimant, still cannot constitute Respondent‟s
defense.
II. RESPONDENT CANNOT RELY ON THE NATIONAL SECURITY DEFENSE
1. Respondent could only raise the customary defense enshrined in Art. 25 DARSIWA
that shall fail to succeed
166. Respondent might rest its defense on Art. 9(2) BIT, commonly referred to as
„essential‟ or „national security‟ clause. 169 However, Respondent would significantly
err in doing so, since such argumentation remains in utter disregard of another BIT
provision, i.e. Art. 14(1), prescribing that
„Whenever any issue is governed both by this Agreement and by
another international agreement to which both the Contracting Parties
are parties, or whenever it is governed otherwise by general
international law, the most favourable provisions, case by case, shall
be applied to the Contracting Parties and to their Investors [emphasis
added]‟.
167. It must thus be noted that the national security clause in Art. 9(2) BIT extensively
overlaps with the customary law „state of necessity‟ defense, and, as such, the question
of derogating from the host state‟s obligations is governed otherwise by such
168 LESI, §83 (translation from the French original).
169 The Oxford Handbook, p. 493.
37

customary defense, embodied in Art. 25 DARSIWA. Accordingly, the latter shall take
precedence, for its application in the instant case favors Claimant more.
168. Art. 25 DARSIWA, declared by the ICJ as reflecting customary law 170 , does not allow
the state to invoke necessity to preclude „the wrongfulness of an act not in conformity
with an international obligation‟, unless the act (a) is the only means to safeguard (b)
an essential interest against (c) a grave and imminent peril, and (d) does not seriously
impair an essential interest of the state towards which the obligation exists.
169. Notwithstanding that the foregoing conditions must be met cumulatively and
offending even one implicates the overall failure of necessity defense 171 , Claimant
holds that none were satisfied by Respondent, entailing the wrongfulness of its acts
and international responsibility therefor.
a. The measures were not the only means that could have been taken to tackle the
ecological danger
170. Prof. Crawford established that in order to invoke the necessity exception, a state must
have no means to guard its vital interest other than breaching the international
obligation 172 . Accordingly, in the often cited cases of CMS, Enron and Sempra, the
tribunals confirmed that the word „only‟ in Art. 25(1)(a) DARSIWA meant that the
defense would be available only if the situation had left no other option open to the
state than the measures it took 173 .
171. Furthermore, if other steps than breaching the obligation were available, even if more
costly or difficult, then the state ought to have pursued such alternative ways; besides,
170 Israeli Security Wall, §140.
171 Gabčíkovo-Nagymaros, p. 40–41; Sempra Award, §355.
172 CRAWFORD, Commentaries, p. 184.
173 CMS Award, §§323-324, 356; Enron Award, §308; Sempra Award, §350.
38

actions beyond the bare minimum necessary to preserve the essential interest would
not be excused by necessity 174 .
172. Following this reasoning, it is obvious that Respondent possessed other readily
available and less restrictive means, as well as its actions went far beyond the
necessary minimum. Specifically, the OPA amendment, severely deteriorating
Claimant‟s financial condition, did not reasonably prevent the spreading of oil spill
and thus were excessive to attain that goal. Secondly, both the Suspension and the
Takeover could (and should) have been substituted with other measures of the same
efficacy, i.e. a joint monitoring 175 and cleanup by the FPS and NPCS, instead of
entirely ousting Claimant from controlling the wells, particularly where the said wells
had already ceased to leak 176 .
173. Therefore, this customary requirement clearly cannot be fulfilled in the instant case,
annihilating the entire defense.
b. No essential interest was being safeguarded
174. According to Professor Ago, an „essential interest‟, allowing the state to breach its
obligations, must be a vital interest, such as political or economic survival 177 . The
Argentine crisis awards concurred, holding that the situation, albeit severe, had not
„compromised the very existence of the State and its independence‟ 178 .
175. Such conclusion may be appropriately transposed to the instant case, for the ecological
impact, though affecting several branches of Sylvanian economy 179 , did not threaten
the existence of the State nor its independence and safeguarding this situation, as such,
174 CRAWFORD, Commentaries, ibid.
175 Gabčíkovo-Nagymaros, p. 43.
176 Responses II, §.
177 AGO, p. 19.
178 Enron Award, §306; Sempra Award, §348.
179 Facts, §.
39

did not constitute an essential interest of Respondent that could have triggered the
state of necessity.
c. The ecological peril did not reach the requisite gravity
176. Another condition is for the danger to be both grave and imminent. Whereas Claimant
does not contest the actual emergence (imminence) 180 of the ecological crisis, the
gravity was not substantial enough to merit a breach of international obligations owed
to Claimant.
177. For it must be noted that a „grave‟ peril results in „total economic and social
collapse‟ 181 , with the events falling out of control or becoming unmanageable 182 .
178. This is not the case in the present dispute, since, when the Order was issued, the crisis
had already been contained 183 and in no way had been leading to economic or social
collapse, which clearly deprive the situation from the sufficient gravity mandatory
under Art. 25 DARSIWA.
d. The measures seriously impaired Freedonian economic prosperity and the interests of
Claimant
179. In terms of the essential interests of the entity whereto the breached obligation is due,
it was opined in Enron and Sempra that since the investment obligations are owed to
foreign investors, essential interests of the home state are to be substituted with the
interests of the investor 184 . This conclusion was approved, among others, by
BJORKLUND 185 who indicated further the broad context of the DARSIWA providing in
180 LG&E, §257.
181 CMS Award, §§354-355.
182 Enron Award, §307; Sempra Award, §349.
183 Responses II, §.
184 Enron Award, §342; Sempra Award, §391.
185 The Oxford Handbook, p. 487-488.
40

Art. 33 that the infringed rights „may accrue directly to any person or entity other than
a State‟.
180. Therefore, it must be held that, in reliance on the express wording of Art. 25(1)(b)
DARSIWA, an unjustified and excessive interference with Claimant‟s investment
materially encroached on the economic relations of the Contracting Parties under the
BIT and, referring to its preamble, diminished the „prosperity‟ 186 of Freedonia as a
state.
181. Secondly, under the approach outlined above, the economic interests of Claimant shall
be, additionally, substituted with those of Freedonia, and these having been severely
frustrated by Respondent‟s actions, as substantiated in the preceding section D.
182. Consequently, Respondent did not fulfill the non-impairment condition under Art.
25(1)(b), which ultimately defeats the necessity defense.
2. Should the Tribunal consider the treaty defense in Art. 9(2) BIT, it may be read solely
in conjunction with Art. 25 DARSIWA
183. Without prejudice to the foregoing, assuming, for the sake of the argument, that this
Tribunal should, despite the direct wording of Art. 14(1) BIT, consider the national
security defense enshrined in Art. 9(2) BIT, Claimant contends that (a) this provision
is by no means self-judging and (b) could be interpreted only in the light of the
customary international law necessity defense embodied in Art. 25 DARSIWA.
a. Invoking Art. 9(2) BIT is subject to good-faith review, in accordance with the object
and purpose of the BIT
184. Although the Art. 9(2) mentions the measures that the state considers necessary to
pursue the goals listed therein 187 , the appreciation of necessity may in no way be the
186 BIT, preamble, §3.
187 BIT, Art. 9(2).
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object of unlimited discretion of the host state, as Respondent might argue, since
under no conditions whatsoever can such a clause oust the tribunal‟s cognizance 188 .
185. Though the extensively similar Art. XI of the U.S.-Argentina BIT does not contain the
„it considers‟ phrase 189 , the arbitral tribunals found, that, even if it did, the adequacy of
the adopted measures would be reviewable by the good faith test 190 , as was previously
determined by ICJ in Gabcikovo-Nagymaros 191 and Djibouti v. France 192 . It is
noteworthy that the test would be analogous to the standard substantive review 193 , for,
according to Art. 26 VCLT, every binding obligation must be performed bona fide 194 .
186. Secondly, the tribunal in Enron observed that the object and purpose of the BIT and its
guarantees was to apply in all circumstances, inclusive of „economic difficulty and
hardship‟ and that interpreting a clause to be self-judging could not be reconciled with
this object and purpose 195 .
187. Accordingly, Art. 9(2) BIT should be construed by the Tribunal in conformity with the
fundamental good faith principle, i.e. applying the treaty „in a reasonable way and in
such a manner that its purpose can be realized‟ 196 .
b. Art. 9(2) BIT shall import the customary defense of necessity under Art. 25
DARSIWA
188 REITERER, pp. 201-202.
189 U.S.-Argentina BIT, Art. XI.
190 CMS Annulment, §§122-123; LG&E, §214.
191 Gabcikovo-Nagymaros, §51.
192 Djibouti v. France, §205.
193 LG&E, §214.
194 VCLT, Art. 26.
195 Enron, §§331-332.
196 Gabcikovo-Nagymaros, §142.
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188. In addition to the outlined methods of interpretation, reading Art. 9(2) BIT must, in
accordance with Art. 31(3)(c) VCLT, take into account the relevant rules of applicable
international law 197 .
189. It was both opined by Alvarez and Khamsi 198 and held in CMS that the only rule
capable of being the prism to see through is the customary necessity defense described
above, for,
„[i]f strict and demanding conditions are not required or are loosely
applied, any State could invoke necessity to elude its international
obligations. This would certainly be contrary to the stability and
predictability of the law‟ 199 .
190. Accordingly, the Enron and Sempra awards state that the treaty defense should be read
as importing the customary defense 200 . In particular, the arbitrators in Sempra held that
in view of the scarcity of the treaty defense language, the appropriate criteria to be met
are to be found in customary law embodied in Art. 25 DARSIWA 201 .
191. In deference to these persuasive dictae, the relevant considerations regarding the
necessity defense shall be applied in the present case to enforce the customary origin
of Art. 9(2), namely, pertaining to the only means of acting, the state‟s conduct
abiding by the strict necessity and nothing beyond, the gravity of the danger and the
interests infringed.
192. Such interpretation, including the resort to good faith and the object and purpose of the
BIT, clearly leads to a conclusion analogous to the one justified in II(1) supra, i.e. that
Respondent failed to fulfill the customary law requirements for a successful defense
and the wrongfulness of its acts may in no way be precluded.
197 VCLT, Art. 31(3)(c).
198 ALVAREZ, KHAMSI, pp. 427–35.
199 CMS Award, §317.
200 Enron Award, §§333-334; Sempra Award, §§349.
201 Sempra Award, §375.
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3. In any event, compensation for Claimant’s damages is required
193. As it was substantially evidenced above, Respondent cannot be exempted from
liability with respect to the violations of FET, full protection and security and the
freedom from expropriation. Accordingly, as any internationally wrongful act shall
merit compensation 202 , one is definitely due in the case at hand.
194. However, should the Tribunal to Claimant‟s utmost doubts find otherwise, Respondent
would nevertheless be obliged to compensate Claimant. Art. 27 DARSIWA expressly
provides that a positive determination of any circumstance precluding wrongfulness,
including the necessity defense, be „without prejudice to […] the question of
compensation for any material loss caused by the act in question‟ 203 .
195. Furthermore, the tribunal in CMS opined that it would be unconscionable if the victim
of a treaty breach would bore entirely the costs of the national security or necessity
plea and held that the host state could not be excused from compensating the
investor 204 . Reasoning to the same effect was also present in Enron 205 and Sempra 206 ,
as well as in doctrinal considerations 207 .
196. Therefore, regardless of whether the wrongfulness of Respondent‟s acts is or is not
precluded, Respondent is under the obligation to issue full and effective compensation
to remedy Claimant for its losses.
F. RESPONDENT’S COUNTERCLAIM FOR DECLARATORY RELIEF
I. RESPONDENT’S COUNTERCLAIM IS IN BREACH OF THE APPLICABLE TREATIES
202 Factory at Chorzów, p. 21.
203 DARSIWA, Art. 27(b).
204 CMS Award, §§388, 390.
205 Enron Award, §260.
206 Sempra Award, §303.
207 DOLZER, SCHREUER, p. 170; CRAWFORD, Second Report, §340.
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197. Respondent was not entitled to broaden scope of liability apart from the provision of
OPA. 208 Any party to the contract cannot set new obligations without hearing the other
contracting party, especially creating new commitments. Regardless of grounds that
motivated Respondent while amending OPA, introduction of provisions extending
Claimant‟s liability, according to events that have occurred in the Medanos Field, is a
gross violation of a contractual provision contained in Clause 18.
198. Hence, Respondent failed to fulfill obligations of ensuring protection of Claimant‟s
investment stipulated in Article 2(2) of BIT. However, undermining international
creditability of Claimant and suspected leak of confidential information to the media
cannot be considered as an observance of that provision. Also issuing a private
judgment of the person, holding the highest offices of State of Sylvania, was evidently
harmful to Claimant. Pursuant to Article 4 of DARSIWA 209 between a conduct of
organ of State and act of State as a whole exists an inseparable connection. Basing on
that rule, the opinion of the President of Sylvania shall be deemed as a state opinion.
Even more, the statement that allegedly FPS aggravated the catastrophic damage was
made on 3 November 2010, far before filing a request for arbitration.
199. Moreover, Art. 25 of DARSIWA cannot be applied. Neither state of necessity nor rule
of emergency do not release Respondent from liability in the context of breaching
contractual obligations. Respondent cannot rely on article above-mentioned because
state of necessity is the most exceptional remedy. In Sempra v Argentine 210 tribunal
held that an exception from liability based on state of necessity is subject to very strict
conditions and need to be examined whether all of these conditions were cumulatively
met. In the case at hand, amending OPA could be read as a general escape clause from
treaty obligations.
II. CLAIMANT HAS COMPLIED WITH ALL APPLICABLE SAFETY OBLIGATIONS AND IS NOT
LIABLE FOR DAMAGES TO COVER CLEANUP COSTS
208 Facts, §11-12.
209 DARSIWA, Chapter II
210 Sempra, §7
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200. Claimant strongly emphasizes that has exercised due diligence required in commercial
conditions. As soon as was informed about an oil leak in the Gulf of Libertad
Sylvania, the damaged wells were sealed by a combined team of government and
private contractors, including experts from FPS. All that remains is cleanup and
remedial work, including with respect to the wells‟ site. 211 Claimant has abided by all
contractual safety obligations in contrary to Respondent. According to RIPINSKY &
WILLIAMS 212 , in order to be taken account, victim‟s conduct must involve „a lack of
due care […] for his or her own property rights‟. Then, if eventual contributory fault is
established, the award could be reduced. However, in the case under consideration
Claimant has fulfilled all its obligations and did not cause or even contribute to any
injury to the detriment of Respondent. On the side of Claimant did not occur
contributory fault and Respondent‟s demand reduction of damage claim is completely
unfounded.
201. Claimant has abided by all provisions set forth prior in the Agreement and its
fulfillment excludes compensation claim. In response to Respondent‟s objections to
the courses of action that Claimant might have taken to avoid deterioration of
contamination, Claimant insists that there was no negligence on its side. Moreover,
FPS has fulfilled all procedures required by EPA, standing in Comprehensive
Environmental Response, Compensation and Liability Act 213 .Claimant was fully
aware how to prevent water assigned to its superintendence from uncontrolled or
hazardous contamination as well as from accidents, spills, and other emergency
releases of pollutants and contaminants into the environment.
202. Raising an argument of Claimant‟s awareness of eventual problems that may arise on
the territory given to explore, in Maffezini 214 the Tribunal rejected a claim for damage
caused by bad information contained in a feasibility study, carried out by a Spanish
211 Responses II, No.49.
212 RIPINSKY & WILLIAMS, §316.
213 CERCLA.
214 Maffezini, §§25-26.
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public body. 215 This body had carried out an economic evaluation prior to the investor
making his investment. The Tribunal held that nevertheless the party that conducted
feasibility study was responsible for his losses on the basis that „BITs are not
insurance policies against bad business judgments‟ 216 .
203. In the Tribunal‟s view, the shortcomings that existed in the evaluation did not relieve
the party to whom the outline was showed for acceptance of the business risks
inherent in any investment. Claimant has not breached any obligations to the State as
the evaluation was not intended for Respondent to rely upon. The geological surveys
were designed strictly for Claimant‟s purposes and Claimant cannot be responsible for
use that Respondent makes of the evaluation.
204. Claimant does not contradict the fact that he was responsible for installation that was
necessary to explore crude oil. Nevertheless, Claimant cannot be liable for breaches
that were not possible to be fully-controlled because of its special character. Type of
activity that Claimant runs contains an element of risk of which Respondent was
conscious concluding the Agreement. The event of force majeure caused Claimant to
be unable to perform all obligations contained in BIT. This is common sense and this
is also the ordinary understanding of the force majeure concept. Such understanding
of the consequences of an obstacle in the form of force majeure also supported the
tribunal in RSM v Granada 217 . The tribunal considers that RSM was excused from
performance of its obligations once force majeure was declared. Demanding
compensation for damages that Claimant could not have monitored or neutralized is
unjust and should be rejected as unfounded.
215 International Investment Arbitration, §337.
216 Maffezini, para 64.
217 RSM Production Corporation v Grenada, §249.
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CONCLUSION
205. In light of the foregoing, this Tribunal should find that it has jurisdiction over this
dispute. Additionally, Claimant respectfully requests the Tribunal to find that
Respondent has breached its treaty obligations under the BIT and applicable norms of
international law and that Respondent's counterclaim is neither admissible nor
justified.
RESPECTFULLY SUBMITTED ON SEPTEMBER 30, 2011 BY
Team Alvarez
On behalf of Claimant
FREEDONIA PETROLEUM LLC
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