london court of international arbitration · brigham & daves eugene f brigham & philip r...

TEAM RUDA

LONDON COURT OF INTERNATIONAL ARBITRATION

VASIUKI LLC

Claimant

v.

REPUBLIC OF BARANCASIA

Respondent

ARBITRATION No. 00/2014

MEMORIAL FOR THE CLAIMANT

TABLE OF CONTENTS

LIST OF AUTHORITIES ............................................................................................................. i

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

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

ARGUMENTS............................................................................................................................... 5

I. THE TRIBUNAL HAS JURISDICTION IN THE PRESENT MATTER ................... 5

A. THE BIT HAS NOT BEEN EXPRESSLY TERMINATED IN ACCORDANCE

WITH ITS OWN PROVISIONS.......................................................................................... 5

i. There is no unilateral right to denunciation .................................................................. 5

ii. The notice of termination sent by the Respondent is premature and therefore invalid ... 6

B. IT HAS NOT BECOME OBSOLETE DUE TO INCONSISTENCIES WITH THE

EU LEGAL ORDER ............................................................................................................. 7

i. None of the requirements of Art. 59 have been fulfilled .............................................. 8

a. Interpretation of Art. 59 ............................................................................................ 8

b. Non-fulfillment of the requirement of same subject-matter ..................................... 9

aa. Lack of identical overall objective between the BIT and the TFEU ...................... 9

ab. Lack of a comparable degree of generality between the BIT and the TFEU ...... 10

c. Non-fulfillment of the requirement of common intention .......................................... 11

d. Non-fulfillment of the requirement of incompatibility .............................................. 13

II. THE RESPONDENT IS LIABLE FOR VIOLATING THE FAIR AND

EQUITABLE TREATMENT STANDARD OF THE BILATERAL INVESTMENT

TREATY .................................................................................................................................. 16

A. THE FET STANDARD CONTAINED IN ARTICLE 2(2) OF THE BIT IS AN

AUTONOMOUS STANDARD .......................................................................................... 16

B. THE RESPONDENT ARBITRARILY DENIED LICENSE TO CLAIMANT’S

ALFA PROJECT ................................................................................................................. 18

i. Respondent‘s measure of denying license to Claimant‘s Alfa project was arbitrary . 18

a. The denial of license was not based on legal standards .......................................... 19

b. The denial of license did not meet the requirement of due procedure ..................... 19

ii. Intent to act arbitrarily is not a necessary condition to a finding of arbitrariness ......... 20

iii. There is no requirement of exhaustion of local remedies under the BIT ..................... 21

C. THE RESPONDENT BREACHED CLAIMANT’S LEGITIMATE

EXPECTATIONS ................................................................................................................ 21

i. Legitimate expectations of the Claimant arose from the regulatory framework of the

Respondent ......................................................................................................................... 22

ii. The Claimant relied upon the expectations generated from the regulatory framework 23

iii. The claimant‘s reliance was reasonable ....................................................................... 23

iv. The drastic modification of the regulatory framework frustrated Claimant‘s legitimate

expectations........................................................................................................................ 24

III. THE RESPONDENT’S ACTIONS ARE NOT EXEMPTED ON THE BASIS

THAT THEY WERE NECESSARY FOR BARANCASIA ................................................ 26

A. RESPONDENT’S ACTIONS ARE NOT EXEMPT UNDER THE BIT ................ 26

B. RESPONDENT’S ACTIONS ARE NOT EXEMPT UNDER THE NECESSITY

DEFENCE OF CUSTOMARY INTERNATIONAL LAW............................................. 27

i. There was no Grave and imminent peril .................................................................... 27

ii. The amendment to LRE was not the only way to address the situation ........................ 28

iii. Respondent contributed to the effects of the situation ................................................. 28

C. RESPONDENT IS NOT EXCUSED FROM LIABILITY ACCORDING TO THE

EU LAW ............................................................................................................................... 29

i. Amendment to Article 4 of the LRE was not necessary for Respondent to adhere to

the EU law.......................................................................................................................... 29

ii. In any case, EU law would not justify or excuse breaches of the Barancasia-Cogitatia

BIT. .................................................................................................................................... 30

IV. THE RESPONDENT SHALL BE ORDERED TO RESCIND THE LRE

AMENDED ART 4 OR TO CONTINUE TO PAY THE PRE-2013 FEED-IN TARIFF

TO CLAIMANT ...................................................................................................................... 32

A. THE STATE RESPONSIBLE FOR AN INTERNATIONALLY WRONGFUL

ACT IS OBLIGATED TO PUT AN END TO THAT ACT ............................................ 32

B. ARBITRAL TRIBUNALS HAVE THE POWER TO GRANT SPECIFIC

PERFORMANCE AGAINST STATES ............................................................................ 33

C. SPECIFIC PERFORMANCE IS THE APPROPRIATE REMEDY IN THE

PRESENT CASE ................................................................................................................. 34

i. Specific performance is not materially impossible in the present case ...................... 34

ii. Specific performance will not impose a disproportionate burden upon the Respondent

compared to monetary compensation ................................................................................ 35

V. IN THE ALTERNATIVE, THE RESPONDENT MUST BE ORDERED TO PAY

DAMAGES TO THE CLAIMANT FOR ITS LOSSES ...................................................... 37

A. THE TRIBUNAL SHOULD APPLY THE STANDARD OF FULL

REPARATION FOR COMPENSATION ......................................................................... 37

B. ALFA AND BETA PROJECTS ................................................................................. 38

i. Project Alfa ..................................................................................................................... 38

ii. Project Beta .................................................................................................................... 38

C. WASTED EXPENDITURE ........................................................................................ 39

D. LOST PROFITS FOR FUTURE PROJECTS THAT WERE TO BE

DEVELOPED BY VASIUKI RELYING ON THE LRE ................................................ 39

E. INTEREST SHALL ALSO BE ADDED TO MAKE THE CLAIMANT WHOLE

FOR ITS DAMAGES. ......................................................................................................... 41

PRAYER FOR RELIEF............................................................................................................. 42

i

LIST OF AUTHORITIES

ARTICLES

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C Gray(II) Christine Gray, "The Choice between Restitution and

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Dolzer & Schreuer Rudolph Dolzer and Christoph Schreuer,

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iv

( 2009)

LIST OF LEGAL SOURCES

STATUTES AND TREATIES

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ILC Articles International Law Commission, Articles on R esponsibility

of States for Internationally Wrongful Acts,

annexed to the General Assembly Resolution 56/83, UN

Doc A/RES/56/83, 12 December 2001

NAFTA North American Free Trade Agreement,

Dec. 17, 1992, 32 Int‘l Legal Material 289 (1993)

TFEU Consolidated Version of the Treaty on the Functioning of

the European Union, Official Journal C115/47.

US Model BIT US Model Bilateral Investment Treaty of 2004

VCLT Vienna Convention on the Law of treaties 23 May 1969

1155 U.N.T.S. 331

ARBITRAL TRIBUNAL DECISIONS

ADF v USA ADF Group Inc. v United States of America, Award of 9

January 2003, 6 ICSID Reports 470.

Al Bahloul v Taikistan Mohammad Ammar Al-Bahloul v The Republic

of Tajikistan, SCC Case No. V (064/2008).

Aucoven v Venezuela Autopista concesionada de venezuela ca aucoven v

Bolivarian republic of venezuela, ICSID Case No

ARB/00/5, IIC 20 (2003), Award, 2003.

Azurix v Argentina Azurix Corp. v Argentine Republic,

ICSID Case No. ARB/01/12, Decision on Jurisdiction,

(Dec. 8 2003)

Bayinder v Pakistan Bayindir Insaat Turizm Ticaret Ve Sanayi A.Ş. v Islamic

v

Republic of Pakistan, ICSID Case No. ARB/03/29, (Aug

27, 2009)

Beaumont case Beaumont Case (Eilenroc II)—Decision No. 19 of

October 26, 1953, (1965) 14 UNRIAA 174 et seq.

[Italian-American Conciliation Commission]

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

Final Award, December 2007.

Binder v Czech Republic Binder v Czech Republic, UNCITRAL Award on

Jurisdiction, 6 June 2007.

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

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

2007), 14 ICSID Rep. 251 (2009)

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

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

Deutsche Bank v Sri Lanka Deutsche Bank AG v Democratic Socialist Republic of Sri

Lanka, Award, ICSID Case No. ARB/09/2

Duke Energy v Equador Duke Energy Electroquil Partners v Republic of Ecuador,

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

SCC No. 088/2004, Partial Award, 27 March 2007

El Paso v Argentina El Paso Energy Int’l Co. v Argentine Republic,

ICSID Case No. ARB/03/15, Award, (Oct. 31, 2011)

Enron v Argentina Enron Corporation and Ponderosa Assets, L.P. v

Argentine Republic (ICSID Case No. ARB/01/3),

Decision on Jurisdiction of 14 January 2004.

Eureko v Slovak Republic Eureko B.V. v Slovak Republic, PCA Case No. 2008-13,

Award on Jurisdiction, Arbitrability and Suspension, 26

October 2010

European Bank v Slovak Republic European American Investment Bank v Slovak Republic,

vi

PCA Case No. 2010-17, Award on Jurisdiction, 22

October 2012

Factory at Chorzow Factory at Chorzow, Award on Merits, 1928, P.C.I.J.,

Series A, No, 17.

GAMI v Mexico GAMI Investments Inc. v Government of United Mexican

States, International Legal Materials

Vol. 44, No. 3 (May 2005), Final Award, UNCITRAL,

November 2004.

Gemplus v Mexico Gemplus Industrial S.A. de C.V. v The United Mexican

States, ICSID Case No. ARB(AF)/04/3, Award 2010.

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

The Republic of Estonia, Award, ICSID Case No.

ARB/99/2

Goetz v Burundi Antoine Goetz et consorts v Burundi, Award, 10 February

1999, (2000) 15 ICSID Rev. 457

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

UNRIAA 1405.

Lauder v Czech Republic Ronald S. Lauder v Czech Republic,

Final Award, (Sept. 3, 2001)

Lemire v Ukraine Joseph Charles Lemire v Ukraine, ICSID Case No.

ARB/06/18, Award November 2011.

LG&E v Argentina LG&E Energy Corp. v Argentine Republic, ICSID Case

No ARB/02/1, Decision on Liability, (Oct. 3, 2006)

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Burundi, Ad Hoc Arbitration, 96 Int‘l Law Rep. 279, 319

(Mar. 4, 1991)

Loewen v USA The Loewen Group, Inc. and Raymond L. Loewen v

United States of America, Award of 26 June 2003 (Case

No. ARB(AF)/98/3)

vii

(Martini case)

Italy v Venezuela

Italy v Venezuela, Award on Merits, 3 May 1930, (1931)

25 AJIL 554

Metalclad v Mexico Metalclad Corporation v The United Mexican States,

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

Micula v Romania(I) Micula and Others v Romania, ICSID Case No.

ARB/05/20, Award, 11 December 2013

Micula v Romania(II) Ioan Micula and Ors. v Romania (ICSID Case No.

ARB/05/20), Award, 11 December 2013.

Mondev v USA Mondev Int’l Ltd. v United States,

ICSID Case No. ARB(AF)/99/2, Award, (Oct. 11, 2002)

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

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

National Grid v Argentina National Grid Plc v The Argentine Republic,

UNCITRAL, Award November 2008.

Occidental v Equador Occidental Petroleum Corporation and Occidental

Exploration and Production Company v The Republic of

Ecuador, ICSID Case No. ARB/06/11.

Oostergetel v Slovak Republic Oostergetel v Slovak Republic, UNCITRAL Decision on

Jurisdiction, 30 April 2010

Parkerings v Lithuana Parkerings-Compagniet AS v Republic of Lithuania,

ICSID Case No. ARB/05/8

PSEG v Turkey PSEF Global Inc. v Republic of Turk.,

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

Rainbow Warrior Case Case Concerning the Rainbow Warrior Affair (New

Zealand v France), Award, 30 April 1990, 20 RIAA 217.

S D Myers v Canada S. D. Myers v Government of Canada, Partial Award,

UNCITRAL, November 2000.

Saiga case M/V Saiga (No. 2) Case, International Tribunal for the

Law of the Sea, 38 ILM 1323 (1999)

viii

Saluka v Czech Republic Saluka Invs. BV (The Neth.) v Czech Republic,

Partial Award, (Mar. 17, 2006)

Sempra v Argentina Sempra Energy Int’l v Argentine Republic,

ICSID Case No. ARB/02/16,

Award, (September 28, 2007)

SPP v Egypt Southern Pacific Properties (Middle East) Ltd v Arab Republic

of Egypt (ICSID Case No. ARB/84/3), Award, 20 May 1992, 3

ICSID Rep 189.

Tecmed v Mexico Tecnicas Medioambientales Tecmed S.A. v

United Mexican States, ICSID Case No. ARB(AF)/00/2,

Award, (May 29, 2003)

Texaco v Libya Texaco Overseas Petroleum Company and California

Asiatic Oil Company v Government of the Libyan Arab

Republic, Award on the Merits, 19 January 1977, 53 ILR

389

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ARB/04/01, Decision on Liability (27 December 2010)

Toto v Lebanon Toto Costruzioni Generali SpA v Lebanon ICSID Case

No. ARB/07/12 , 2012.

(Trail Smelter case)

United States v Canada

United States v Canada, Award, 16 April 1938 and 11

March 1941, 3 RIAA 1905.

Waste Management v Mexico Waste Management Inc. v United Mexican States, Award,

Case No. ARB(AF)/00/3, 2004.

Wena Hotels v Egypt Wena Hotels Ltd. v Arab Republic of Egypt, ICSID Case

No. ARB/98/4 , Award, 2000.

ECHR DECISIONS

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(Democratic Republic of Congo v Belgium) [2002] ICJ

Rep. 33.

ix

Assanidze v Georgia Assanidze v Georgia [Grand Chamber], Judgment, 8 April

2004, ECHR 2004-II

Broniowski v Poland Broniowski v Poland [GC], Judgment, 22 June 2004,

ECHR 2004-V

Gabcikovo-Nagymaros Project

(Hungary v Slovakia)

Gabcikovo-Nagymaros Project (Hungary v Slovakia)

Judgment 1997 I.C.J. 7(Sept. 25)

ICJ DECISIONS

LaGrand case LaGrand Case (Germany v US) Judgment, 27 June 2001,

ICJ Reports 2001, 466

Mexico v US Case Concerning Avena and other Mexican Nationals

(Mexico v US) Judgment, 31 March 2004, ICJ Reports

2004, 12

Oil platform case Case Concerning Oil Platforms (Iran v U.S.A) 2003 I.C.J.

No. 90 (Nov. 6)

Scozzari v Italy Scozzari and Giunta v Italy [GC], Judgment, 13 July

2000, ECHR 2000-VIII

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Temple case Case Concerning the Temple of Preah Vihear (Cambodia

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WEBSITES

Jurgen Kurtz Jurgen Kurtz, Adjudging the Exceptional at International

Law: Security, Public Order and Financial Crisis, Jean

Monnet Working Paper 06/08, p. 18, available at

http://jeanmonnetprogram.org/wp-

content/uploads/2014/12/080601.pdf

UNCTAD FET UNCTAD Series on Issues in International Investment

Agreements II, available at

http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf

UNCTAD(I) UNCTAD, INTERNATIONAL INVESTMENT

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http://jeanmonnetprogram.org/wp-content/uploads/2014/12/080601.pdf

x

POLICYMAKING IN TRANSITION: CHALLENGES AND

OPPORTUNITIES OF TREATY RENEWAL, available at

http://unctad.org/diae

MISCELLANEOUS

CJEC Press Release Court of Justice of the European Communities, Press

Release No. 104/09, Luxembourg, 30 November 2009.

1

STATEMENT OF FACTS

Parties to the Dispute

1. Vasiuki LLC, incorporated under the laws of Cogitatia in 2002, is the Claimant. Vasiuki

has been engaged in the development of renewable energy facilities in Cogitatia and

elsewhere in the region, including Barancasia. Republic of Barancasia is the Respondent.

Entry into force of the BIT and Accession to the EU

2. A Bilateral Investment Treaty (henceforth, ‗BIT‘) between Cogitatia and Barancasia

entered into force on 1 August 2002. Both Cogitatia and Barancasia joined the European

Union (henceforth, ‗EU‘) on 1 May 2004.

Provisions of the BIT

3. The BIT provided for the protection of investments made by nationals of one contracting

party in the territory of the other contracting party, and laid down a ten-year period

during which the BIT would remain in force, after which it would continue to remain in

force for 12 months after either Contracting Party sent a written notification of intention

to terminate the BIT. Art. 2 of the BIT provided for fair and equitable treatment to all

investments made by investors of one contracting party in the territory of the other.

Actions by Barancasian authorities regarding the BIT

4. On 15 November 2006, Barancasia announced its intention to terminate its BITs with

other members of the EU (‗intra-EU BITs‘). On 11 December 2006, Barancasia formally

resolved to terminate all its intra-EU BITs. On 29 June 2007, Barancasia notified

Cogitatia of its intention to immediately terminate the Cogitatia-Barancasia BIT.

5. Commencement of operations by Vasiuki in Barancasia

Aware that Barancasia was making strides in promoting renewable energy sources, in

May 2009, Vasiuki purchased land plots in Barancasia and launched an experimental

solar project, calling it ‗Alfa‘. In January 2010, Alfa became operational with certain

2

initial losses and Vasiuki‘s managers became aware that the Barancasian government‘s

proposed ‗Law on Renewable Energy‘ (henceforth, ‗LRE‘) provided hope for Alfa to

survive. Vasiuki applied for an LRE license which was wrongfully denied to it.

Adoption of the LRE

6. In May 2010, Barancasia adopted the LRE, which aimed at encouraging the development

of renewable energy technology and provided that such development would be

encouraged by fixing general ‗feed-in tariffs‘ (FIT) for renewable energy providers who

receive a license from the Barancasia Energy Authority (henceforth, ‗BEA‘). Art 4 of the

LRE guaranteed that the FIT announced at the time of issuance of license would apply

for twelve years. On 1 July 2010 the BEA announced the FIT to be 0.44 EUR/kWh.

7. Claimant‘s subsequent investments

Vasiuki‘s second photovoltaic project, Beta, was granted LRE license on 25 August 2010

with a fixed FIT of 0.44 EUR/kWh. Beta became operational on 30 January 2011. During

2011, a ground-breaking technology was developed which made solar panels easier to

manufacture and develop. Vasiuki decided to launch 12 new photovoltaic projects using

the new technology, for which it borrowed substantial sums from banks, acquired land

plots for development and obtained construction permits. On 1 July 2012, Vasiuki

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

with an approved rate of 0.44 EUR/kWh. It ordered solar panels and began construction.

8. Violations of the BIT

On 3 January 2013, the Barancasian Parliament adopted an amendment to the LRE that

allowed for annual review of the fixed FIT. The BEA drastically reduced the FIT to 0.15

EUR/kWh, to be applicable retroactively from 1 January 2013. By that time Vasiuki had

made considerable investments in its solar projects. Moreover, the arbitrary denial of

license to Vasiuki‘s project Alfa had caused losses to Vasiuki.

9. On 2 November 2014, Vasiuki commenced arbitral proceedings against the Republic of

Barancasia before the London Court of International Arbitration pursuant to Art. 8(2)(d)

of the BIT.

3

SUMMARY OF ARGUMENTS

Jurisdiction

The LCIA Tribunal has jurisdiction to hear the present dispute as the Bilateral Investment Treaty

(BIT) that vests the Tribunal with jurisdiction is currently in force. Firstly, the BIT has not been

expressly terminated in accordance with its own provisions. This is because (a.) there exists no

unilateral right to denunciation in this case, and (b.) the notification of termination sent by the

Respondent is premature and therefore invalid. Secondly, the BIT has not become obsolete due to

inconsistencies with the EU legal order as a consequence of Cogitatia and Barancasia acceding to

the EU. There could be a loss of jurisdiction only through the application of Art. 59 or Art. 30 of

the VCLT, which has not happened in the present dispute because (a.) none of the requirements

of Art. 59 of the VCLT have been fulfilled, and (b.) the provision in the BIT vesting the Tribunal

with jurisdiction continues to be valid even if Art. 30 of the VCLT were to apply.

Merits

The Respondent has violated its obligations under the FET standard; firstly, through its arbitrary

denial of the LRE license to the Claimant‘s project Alfa and secondly, by failing to provide a

stable and predictable legal and business environment for the Claimant‘s investments. The

Claimant relied upon the expectations generated from the LRE regime which was later

drastically amended by the Respondent retroactively, and without reasonable justification.

The Respondent‘s breach of the FET standard cannot be excused by means of; firstly, the treaty

standard under Article 11 of the BIT, because there was no essential security interest involved

and by international peace and security was in no way threatened; secondly, the Necessity

defence of Customary International Law as there was no grave and imminent peril, the

amendment to the LRE was not the ‗only way‘ to address the Respondent State‘s situation, the

Respondent contributed to the effects of the situation; thirdly, the EU law obligations because the

amendment to Article 4 of the LRE was not necessary for Respondent to adhere to the EU law

and in any case, EU law would not justify the breaches of the BIT.

4

Remedies

The remedy of Specific performance must be granted because the state responsible for an

internationally wrongful act is obligated to put an end to that act and an International Tribunal

has the power to grant specific performance. Moreover, Specific performance is the appropriate

remedy in the present case; neither is the remedy materially impossible nor will it impose a

disproportionate burden upon the Respondent compared to monetary compensation.

The claimants submit that they should be restituted for breach of the BIT and ask for damages

according to the full reparation standard laid down by the Chorzow Factory case, along with

interest in lieu of the same. These damages are asked for under three heads, first is with regard to

the Alpha and Beta projects at a rate of 0.44/kwH. The second is with respect to the wasted

expenditure for investment in 12 projects made by Vasiuki or in the alternative a DCF method

evaluation. The third is lucrum cessans or lost profits for future projects that were to be

developed by Vasiuki relying on the LRE.

5

ARGUMENTS

I. THE TRIBUNAL HAS JURISDICTION IN THE PRESENT MATTER

1. The present proceedings have been initiated 1 pursuant to Article 8 of the BIT.

2 Article 8

contains the Respondent‘s standing offer to arbitrate, which has been accepted by the

Claimant, thus concluding a valid arbitration agreement.3 However, the Respondent is not

satisfied as to the jurisdiction of the present Tribunal over the claim that has been brought

forward, on the grounds that the Tribunal derives its jurisdiction from the BIT, and the BIT is

no longer in force. 4 To allay the Respondent‘s concerns, the Claimant shall establish that the

BIT continues to be in force because it has not been expressly terminated in accordance with

its own provisions (A). Further, it has not become obsolete due to inconsistencies with the

EU legal order, as contended by the Respondent (B).

A. THE BIT HAS NOT BEEN EXPRESSLY TERMINATED IN ACCORDANCE

WITH ITS OWN PROVISIONS

2. Article 42 of the Vienna Convention on the Law of Treaties (hereinafter ‗VCLT‘) states that

a treaty may be terminated only in conformity with the provisions in that treaty or in

accordance with the VCLT. The Claimant shall establish that the BIT has not been expressly

terminated in accordance with its own provisions on termination as:

i. There is no unilateral right to denunciation

ii. The notice of termination sent by the Respondent is premature and therefore invalid

i. There is no unilateral right to denunciation

1 FDI Moot Problem, 2015, at pp. 3-6.

2 FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, at pp. 25-31.

3FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, Art. 8. It states: ―Settlement of Investment Disputes

between a Contracting Party and an Investor of the other Contracting Party … 2. If any dispute between an

investor of one Contracting Party and the other Contracting Party cannot be thus settled within a period of six

months from the written notification of a claim, the investor shall be entitled to submit the case, at his choice, for

settlement to: … or (d) the London Court of International Arbitration for arbitration under its Rules….‖ 4 FDI Moot Problem, 2015,Response to Request for Arbitration, at pp. 10-12.

6

3. The BIT provision on termination may be found in Art. 13(2), which specifies that the treaty

shall remain in force for a period of 10 years.5 Such a clause specifying an initial validity

period of ten years is responsible for categorizing the BIT as a fixed term treaty.6 During this

lock-in period of ten years, the parties cannot derogate from the terms of the treaty and there

is no unilateral right to denunciation of the treaty during the fixed-term.7 Under the principle

of pacta sunt servanda, which is contained under Art. 26 of the VCLT8, the treaty must be

performed in good faith, and parties cannot release themselves of their treaty obligation at

will.9 The sending of the notice of intention to terminate by Barancasia, therefore, is an

attempt by Barancasia to release itself of its treaty obligation at will, and is in violation of the

principle of pacta sunt servanda. The sending of the notice constitutes an attempt to assert a

unilateral right to termination of the treaty during the fixed term of ten years provided in the

treaty. Since no such right exists, the attempt at termination of the treaty by Barancasia is

futile.

ii. The notice of termination sent by the Respondent is premature and therefore

invalid

4. Art. 13 of the BIT provides that termination may be effected by the sending of a notice of

intention to terminate, after the initial validity period of ten years. 10

In the present case, the

BIT entered into force on 1 August 2002 11

, meaning that the ten-year validity period ran

until 1 August 2012. Barancasia‘s notification to Cogitatia of its intention to terminate the

BIT was sent on 29 June 2007 12

, and replied to by Cogitatia on 28 September 2007. 13

There

is no record of any written notification of intention to terminate being sent by Barancasia to

Cogitatia after 2007.

5FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, Art. 13(2). It states: ―This Agreement shall remain in force for

a period of ten years. Thereafter, it shall remain in force until the expiration of a twelve month period from the date

either Contracting Party notifies the other in writing of its intention to terminate the Agreement.‖ 6UNCTAD(I) at p. 5.

7 Duzer, Simons, Mayeda, at p. 506; Brown , at p. 286.

8 Article 26, VCLT. It states: ―Pacta sunt servanda

Every treaty in force is binding upon the parties to it and must be performed by them in good faith.‖ 9 Villiger, at p. 684.

10 FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, Art. 13(2).

11 FDI Moot Problem, 2015, Procedural Order No. 2, at p. 57.

12 FDI Moot Problem, 2015, at para 9.

13 FDI Moot Problem, 2015, at para10.

7

5. Since this notification was sent prior to the end of the mandatory ten-year period, this attempt

at termination by Barancasia is premature and therefore invalid. This is based on the

principle that a notification of termination is invalid if it is prematurely given, which was laid

down by the ICJ in Hungary v. Slovakia 14

, thus:

Hungary’s notification of 19 May 1992 of the termination of the 1977 Treaty did not have

the effect of terminating it, as the notification is found to have been premature.

6. In Hungary v. Slovakia, the notification of termination of the treaty was premature as it was

given before any breach of treaty by Slovakia occurred.15

In other words, the notification was

premature because it was given before the applicable event for termination occurred, with the

applicable event being breach of the treaty. In the present case, the applicable event for

termination is the end of the ten-year period.16

Since the notification was given before the

applicable event occurred, the notification is premature and therefore invalid.

7. Therefore, since (i.) Barancasia‘s notification of intention to terminate the BIT is an attempt

to assert a non-existent right of unilateral termination, and (ii.) the notification of termination

is premature and therefore invalid, there has been no express termination of the BIT in

accordance with the BIT.

B. IT HAS NOT BECOME OBSOLETE DUE TO INCONSISTENCIES WITH

THE EU LEGAL ORDER

8. Any conflict between the BIT and the EU treaties must be resolved by the application of

relevant international law, which in this case is the VCLT. 17

As a Convention signed by both

Cogitatia and Barancasia18

, the VCLT is applicable to this dispute. Under the VCLT, a treaty

prior in time can be considered terminated completely or inapplicable partially only in

14

Gabčíkovo-Nagymaros Project (Hungary v Slovakia), at paras 108, 109. 15

Gabčíkovo-Nagymaros Project (Hungary v Slovakia), at paras 108, 109. 16

FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, Art. 13(2). It states: ―This Agreement shall remain in force

for a period of ten years. Thereafter, it shall remain in force until the expiration of a twelve month period from the

date either Contracting Party notifies the other in writing of its intention to terminate the Agreement.‖ 17

VCLT, Art. 31 (3)(c). It states: ―General rule of interpretation

…3. There shall be taken into account, together with the context:

…(c) any relevant rules of international law applicable in the relations between the parties. …‖ 18

FDI Moot Problem, 2015, Procedural Order No. 2, at p. 58.

8

accordance with Art. 59 or Art. 30 of the VCLT. However, the Respondent cannot rely on

either of those Articles in the present case because:

i. None of the requirements of Art. 59 have been fulfilled, and

ii. There is no loss of jurisdiction as a result of the application of Art. 30

i. None of the requirements of Art. 59 have been fulfilled

9. This shall be established through the following four sub-heads: (a) Interpretation of Art. 59

(b) Non-fulfillment of the requirement of same subject-matter (c) Non-fulfillment of the

requirement of common intention (d) Non-fulfillment of the requirement of incompatibility

a. Interpretation of Art. 59

10. Article 59 provides that when two parties to an earlier treaty are also parties to a later treaty,

the earlier treaty is considered terminated if certain conditions are met. 19

11. The mandatory condition is that both treaties must relate to the same subject matter

Additionally, either one of the following two conditions must also be fulfilled. Either it must

appear from the later treaty or be otherwise established that the parties intended that the

matter should be governed by that treaty, or the provisions of the two treaties must be so far

incompatible that they are not capable of being applied at the same time.

12.The two treaties in the present case are the BIT and the Treaty on the Functioning of the

European Union (hereinafter the ‗TFEU‘). The BIT entered into force on 1 August 2002 20

,

whereas the current version of the TFEU entered into force on 01 December 2009 21

.

Therefore, the ‗earlier treaty‘ as referred to in Art. 59 of the VCLT would refer to the BIT in

the present case, while the ‗later treaty‘ as mentioned in Art. 59 of the VCLT would

correspond to the TFEU in the present case.

19

VCLT, Article 59. It states:

―Termination or suspension of the operation of a treaty implied by conclusion of a later treaty

1. A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-

matter and:

(a) it appears from the later treaty or is otherwise established that the parties intended that the matter should be

governed by that treaty; or (b) the provisions of the later treaty are so far incompatible with those of the earlier one

that the two treaties are not capable of being applied at the same time.…‖ 20

FDI Moot Problem, 2015, Procedural Order No. 2, at p. 57. 21

CJEC Press Release.

9

13.The question for examination, therefore, is whether the requirements of Art 59 of the VCLT

have been met in the present case. It is the Claimant‘s case that none of the requirements

have been met. Arbitral tribunals have consistently held, on similar facts, that none of these

conditions have been met with respect to the BITs in question in those cases and the

European Community Treaty, which is now the TFEU. 22

b. Non-fulfillment of the requirement of same subject-matter

14.In the case at hand, the BIT and the TFEU do not relate to the same subject-matter. The test

for whether two treaties relate to the same subject matter is that they must have (a.) an

identical overall objective and (b.) share a comparable degree of generality. As held by the

Tribunal in the Oostergetel 23

case:

The requirement of Article 59 of the Vienna Convention that the two treaties relate to the

"same subject matter'' has to be construed in line with the dominant view expressed in

scholarly writings to the effect that two treaties can be considered to relate to the "same

subject matter" only if the overall objective of these treaties is identical and they share a

degree of general comparability.

15.This interpretation has been accepted by unimpeachable authorities in the field. 24

In the

present case, the BIT and the TFEU share neither an identical overall objective nor a

comparable degree of generality.

aa. Lack of identical overall objective between the BIT and the TFEU

16.Article 31(2) of the VCLT indicates that in order to interpret both treaties, the Preamble of

both treaties may be examined, apart from the treaty text. 25

The Preamble of the BIT

indicates objectives such as mutually beneficial economic cooperation and the creation and

maintenance of favourable conditions for investments. 26

The Preamble of the TFEU, on the

other hand, aims to create a closer Union among the people of Europe, contribute to the

abolition of restrictions on international trade by means of a common commercial policy, to

increase knowledge of the European people through access to education, to ensure socio-

22

Eastern Sugar v Czech Republic ; Eureko v Slovak Republic; Oostergetel v Slovak Republic ; Binder v Czech

Republic. 23

Oostergetel v Slovak Republic, at para 79. 24

Corten, Klein, at p. 2107; Aust, at p. 229. 25

VCLT, Art. 31 (2). 26

FDI Moot Problem, 2015, at p. 24.

10

economic progress by common action that eliminates intra-European barriers and to

strengthen the unity of European economies.27

Additionally, the TFEU has as an essential

objective the constant improvement of the living and working condition of their people.28

17.While the objective of the BIT is quite specific and most importantly relates only to Cogitatia

and Barancasia, the objectives of the TFEU are far more general and relate to the entire EU.

The objectives, therefore, cannot be said to be identical. This conclusion has been accepted

by the Tribunal in the Oostergetel 29

case, where it held that:

As to the first condition, the Tribunal agrees with the argument advanced by the

Claimants that the EC Treaty's objective to create a common market between all EU

Member States is different from the objectives of a BIT, which provides for specific

guarantees for the investor's investment in the host country pursuant to a bilateral

agreement made between two countries.

18.Although the ‗later treaty‘ in the Oostergetel case was the EC Treaty, the objectives of the

TFEU have remained largely the same and continue to be centered around the creation of a

common market between EU Member States.

ab. Lack of a comparable degree of generality between the BIT and the

TFEU

19.Further, there is also a lack of a ‗comparable degree of generality‘ between the BIT and the

TFEU. This is evidenced by several facts. Firstly, that there is no equivalent in the TFEU to

the mechanism on investor-State dispute settlement that is present in the BIT by means of

Art. 8. Considering that such dispute settlement clauses are fundamental to BITs30

, the lack

of such a provision in the TFEU is highly significant. The typical remedy for the Claimant,

had the investor-State dispute settlement mechanism not been available, would have been to

approach the national courts of the Respondent- a remedy that would not have offered the

same level of protection and confidence to the Claimant.31

27

TFEU, Preamble. 28

Ibid. 29

Oostergetel v Slovak Republic, at para 75. 30

Oostergetel v Slovak Republic, at para 77; Eastern Sugar v Czech Republic, at pp. 35-36. 31

Dolzer & Schreuer, at pp. 214, 215.

11

20.Secondly, it may be noted that the BIT contains protection in the form of a guarantee of fair

and equitable treatment to the investor, as provided in Articles 2(2) and 3(1) of the BIT.32

While the TFEU contains a prohibition on discrimination through Art. 18 33

, the BIT‘s

guarantee of fair and equitable treatment is not entirely covered by the TFEU prohibition on

discrimination, as treatment can be unfair and inequitable even if imposed on everyone

regardless of nationality. 34

21.Thirdly, the right to full protection and security under the BIT35

is not exhausted by the

freedom of establishment clause found under Art. 49 of the TFEU.36

While the freedom of

establishment as guaranteed by the TFEU entails various rights, it has been held that these

rights do not cover the entire ground that the right to full protection and security might be

said to cover. 37

22.Fourthly, acceding to an economic community cannot be equated with setting up a specific

investment protection regime that provides for investor-State Arbitration. 38

23.Since the two treaties cannot be said to have either an identical overall objective or share a

comparable degree of generality, the test for whether the two treaties relate to the same

subject matter, has not been satisfied. Since this is a mandatory condition for the application

of Art. 59, the BIT cannot be considered terminated in accordance with Art. 59. 39

Assuming,

but not admitting, that the mandatory condition has been met, neither the requirement of

common intention nor the requirement of incompatibility given in Art. 59 have been

satisfied.

c. Non-fulfillment of the requirement of common intention

32

FDI Moot Problem, 2015, Cogitatia-Barancasia BIT, Art. 2(2).; Cogitatia-Barancasia BIT, Art. 3(1). 33

Art. 18, TFEU. It states: ―Within the scope of application of the Treaties, and without prejudice to any special

provisions contained therein, any discrimination on grounds of nationality shall be prohibited.

The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt

rules designed to prohibit such discrimination.‖ 34

Eureko B.V. v Slovak Republic, at paras 250, 251. 35

FDI Moot Problem, 2015,Cogitatia-Barancasia BIT, Art. 2(2). 36

Art. 49, TFEU. It states: ―Within the framework of the provisions set out below, restrictions on the freedom of

establishment of nationals of a Member State in the territory of another Member State shall be prohibited….‖ 37

Eureko v Slovak Republic, at para 260. 38

European Bank v Slovak Republic, at paras 184, 185. 39

Ibid., at paras 169, 184, 185.

12

24.With regard to common intention, Art. 59(1)(a) of the VCLT may be referred to. It states: ―It

appears from the later treaty or is otherwise established that the parties intended the matter to

be governed by that treaty.‖

25.There is nothing in the latter treaty that deals with the supersession of previous agreements

between member States. Further, the following three points indicate that it is not ‗otherwise

established‘, as allowed for by Art. 59(1)(a).

26.Firstly, the BIT protections on fair and equitable treatment, full protection and security and

the right to approach an independent arbitral tribunal, as provided for in Articles 2(2), 3(1)

and 8 of the BIT, are not offered by the TFEU, and if at all they are offered, then not to the

same degree, as argued in the previous section. Given this fact, and in the absence of any

overt act of the parties to show otherwise, it is unrealistic to impute intention on Cogitatia to

the effect that it would have wanted to deprive its investors of the wide protections under the

BIT. 40

27.Secondly, Article 10 of the BIT states:

Application of Other Rules and Special Commitments

1. When a matter is governed simultaneously both by this Agreement and by another

international agreement to which both Contracting Parties are parties, nothing in this

Agreement shall prevent either Contracting Party or any of its investors who own

investments in the territory of the other Contracting Party from taking advantage of

whichever rules are more favourable to his case.

2. If the treatment to be accorded by one Contracting Party to investors of the other

Contracting Party in accordance with its laws and regulations or other specific

provisions of a contract is more favourable than that accorded by the Agreement, the

latter shall be accorded.

This provision indicates that the parties foresaw the possibility of rules other than those from

the BIT applying to factual situations covered by the BIT, and expressly provided for what

40

Eureko v Slovak Republic, at para 245.

13

would happen in such a case. It is inconceivable, therefore, to declare that the parties

intended for such other rules to have the effect of overriding or terminating the BIT, but

simply omitted to state such an essential rule.

28.Thirdly, even if Barancasia can be said to have expressed such an intention, there is not an

iota of evidence to indicate such intention on the part of Cogitatia. The requisite common

intention under Article 59(1)(a), therefore, does not exist in the present case. 41

d. Non-fulfillment of the requirement of incompatibility

29.Art. 59 (1)(b) of the VCLT states:

The provisions of the later treaty are so far incompatible with those of the earlier one

that the two treaties are not capable of being applied at the same time.

The Claimant categorically asserts a lack of such incompatibility. Although the Respondent

might attempt to argue that the protections in both treaties differ slightly, or that the investor-

State dispute settlement mechanism in the BIT is not explicitly provided for in the TFEU, the

Claimant maintains that such differences are not enough to bar the two treaties from being

applied together. As established by the Tribunal in the Euro American Investment Bank

case42

, incompatibility is limited to a scenario where one treaty requires what the other treaty

prohibits, and does not extend to a situation where something that is forbidden under the BIT

is merely permitted by EU law, or vice versa.

30.There is no provision in the BIT whose application would necessitate a breach of the TFEU.

Although the BIT protections might cover more ground than the TFEU protections, there is

no prohibition on applying the BIT protections in addition to those offered by the TFEU.

Further, if the BIT gives rights to Cogitatian investors that it does not give other EU

41

European Bank v Slovak Republic, at para192, 193, 198, Micula v Romania; Oostergetel v Slovak Republic, paras

83, 85. 42

European Bank v Slovak Republic, at para 216.

14

countries and investors, it will be for those other countries‘ investors to claim their equal

rights. But the fact that these rights are unequal does not make them incompatible. 43

31.With respect to the provision on investor-State arbitration contained within Art. 8 of the BIT,

the Claimant submits that there is no corresponding prohibition within the TFEU. The TFEU

merely provides for enforcement of Union law by Member States.44

As explicitly held by the

Tribunal in the Binder 45

dispute,

The fact that, when there is a BIT, such national remedy is replaced or supplemented by

an international arbitration mechanism does not, in the Arbitral Tribunal's view, involve

any discrimination and is not otherwise incompatible with EC rules and principles.

32.It has been established that:

Firstly, the BIT, which is the earlier treaty for the purposes of Art. 59, and the TFEU, which

is the later treaty for the purposes of Art. 59, do not have the same subject matter. Secondly,

it does not appear from the later treaty and has not been otherwise established that the parties

intended the matter to be governed by that treaty. Thirdly, the provisions of the two treaties

are not so far incompatible that they are incapable of being applied at the same time.

Since none of the conditions required for the application of Art. 59 of the VCLT have been

satisfied, the BIT has not been terminated as a result of Cogitatia and Barancasia acceding to

the EU and becoming parties to the TFEU.

ii. There is no loss of jurisdiction as a result of the application of Art. 30

33.The Respondent might attempt to assert the application of Art. 30 of the VCLT to prove the

termination of the BIT, as an alternative to Art. 59. Art. 30 of the VCLT reads as follows:

Application of successive treaties relating to the same subject-matter

43

Eureko v Slovak Republic, at para 263; Eastern Sugar v Czech Republic, at paras 169,170; Oostergetel v Slovak

Republic, at para 87. 44

Art. 197, TFEU. 45

Binder v Czech Republic, at para 65.

15

1. Subject to Article 103 of the Charter of the United Nations, the rights and obligations

of States parties to successive treaties relating to the same subject-matter shall be

determined in accordance with the following paragraphs.

2. When a treaty specifies that it is subject to, or that it is not to be considered as

incompatible with, an earlier or later treaty, the provisions of that other treaty

prevail.

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

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

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

latter treaty.

34.As can be seen from the Art. 30(1) above, Art. 30 of the VCLT restricts itself to successive

treaties that relate to the same subject matter. As established in the preceding sections, the

BIT and the TFEU do not relate to the same subject matter. In arguendo, even if we were to

assume that the subject matter is the same, the inapplicability of the BIT is restricted to those

provisions in the BIT that are incompatible with those of the TFEU, as explicitly stated in

Art. 30(3) above. Therefore, in order to deprive the Tribunal of jurisdiction, the provision in

the BIT that vests the Tribunal with jurisdiction would have to be proved incompatible with

the TFEU. The relevant provision in the BIT is Art. 8, which, as established in the preceding

sections, is not incompatible with the TFEU. The BIT would therefore continue to apply with

respect to Art. 8, thereby protecting the Tribunal‘s jurisdiction.

35.In conclusion, the Claimant submits that the Tribunal does have jurisdiction to decide the

present dispute, because the BIT which vests the Tribunal with jurisdiction continues to

remain in force. It has not been expressly terminated in accordance with its own provisions

on termination, since the only notice of intention to terminate that was sent by Barancasia

was sent prematurely and is therefore invalid. Additionally, the BIT has not been rendered

obsolete due to the accession of both Cogitatia and Barancasia to the European Union. The

BIT may only be rendered obsolete as a result of the accession if Art. 59 of the VCLT is

attracted. In the present case, given that none of the conditions required for Art. 59 to apply

have been fulfilled, the BIT has not been terminated due to EU accession. Lastly, the

provision in the BIT that vests the Tribunal with jurisdiction continues to remain in force

16

individually as well, not having been rendered inapplicable due to the operation of Art. 30 of

the VCLT.

II. THE RESPONDENT IS LIABLE FOR VIOLATING THE FAIR AND

EQUITABLE TREATMENT STANDARD OF THE BILATERAL

INVESTMENT TREATY

36.Barancasia‘s effective destruction of Vasiuki‘s business in Barancasia, through its arbitrary

denial of a license to Vasiuki for the Alfa project and subsequent changes to Barancasia‘s

renewable energy laws which harmed Vasiuki‘s other projects, violates the standard of fair

and equitable treatment (―FET‖) provided in Art. 2(2) of the Barancasia-Cogitatia BIT.46

37.It is submitted that [A] the FET standard, which is contained in Article 2(2) of the BIT is an

autonomous standard. Respondent‘s violation of Art. 2(2) had two dimensions: [B] The

Respondent arbitrarily denied license to Claimant‘s Alfa project; [C] the Respondent

breached Claimant‘s legitimate expectations.

A. THE FET STANDARD CONTAINED IN ARTICLE 2(2) OF THE BIT IS AN

AUTONOMOUS STANDARD

38.Article 2(2) BIT reads as follows:

Investments of Investors of either Contracting Party shall at all times be accorded

fair and equitable treatment…

39.Since there is no reference to either the Minimum Standard of Treatment or to the

international law regime,47 the FET clause in the present case is an unqualified one48 and

should be understood as an independent treaty standard with an autonomous meaning.49

40.It is submitted that the interpretation of the treaty provision should start from the normal

canons of treaty interpretation as contained in Articles 31 and 32 of the VCLT, which include

46

FDI Moot Problem,2015, Request for Arbitration at para 7. 47

Tecmed v Mexico, at para 155; Azurix v Argentina, at para 325. 48

UNCTAD FET, at p. 17. 49

Newcombe & Paradell, at p 265; Dolzer & Schreuer, at p.126; Tecmed v Mexico, at paras.155-56; MTD v Chile, at

paras. 110-13; Saluka v Czech Republic, at paras. 286-95; Enron v Argentina, at para 258; Deutsche Bank v Sri

Lanka, at para 418.

17

the ordinary meaning of the treaty‘s terms, their context, and the object and purpose of the

treaty, the preamble being of particular importance.50

41.The object and purpose of the BIT is reflected in its Preamble.51 The Preamble expresses the

Parties‘ desire

to develop economic co-operation to the mutual benefit of both Contracting

Parties and to maintain favourable conditions for investments of investors of one

Contracting Party in the territory of the other Contracting Party

and recognizes,

that the promotion and protection of such investments favour the expansion of the

economic relations between the two Contracting Parties and stimulate investment

initiatives…

42.As a result, any interpretation of the FET standard should be generally favourable to the

intensification of economic cooperation between the two countries, help promote and protect

investments, be conducive to expanding the economic relations between the two countries

and stimulate investment initiatives.52 In this regard, it is submitted that attracting investors

through guaranteed fixed feed-in tariffs that are promised for a certain period of time, and

withdrawing these incentives unilaterally, is neither conducive to the intensification of

economic cooperation nor the stimulation of investment initiatives.

43.It is submitted that Barancasia‘s treatment of the Claimant‘s investments fell below the

standard of treatment required by the FET obligation of the BIT. Specifically, it is submitted

that firstly, Respondent arbitrarily denied license to Claimant‘s Alfa project; secondly, the

Respondent failed to provide a stable and predictable legal framework and violated the

Claimant‘s legitimate expectations.

50

VCLT, art. 31(1); MTD v Chile, at para 109; Azurix v Argentina, at para 266 ; Mondev v USA, at para 190 ; GAMI

Investments v Mexico, at para 103. 51

FDI Moot Problem,2015, Barancasia-Cogitatia BIT, Preamble. 52

FDI Moot Problem,2015, Barancasia-Cogitatia BIT, Preamble.

18

B. THE RESPONDENT ARBITRARILY DENIED LICENSE TO CLAIMANT’S

ALFA PROJECT

44.Respondent violated the BIT‘s FET clause by arbitrarily denying the LRE license to Vasiuki

for the Alfa project,53 as a result of which the Claimant was denied the tariff of 0.44/kWh

which was set for photovoltaic solar installations as of 1 July 2010.54 While denying the

license, the state made an arbitrary distinction between similarly situated investments which

led to losses to Claimant‘s Alfa project.

45.It is submitted that [i] Respondent‘s measures were arbitrary; [ii] intent to act arbitrarily is not

a necessary condition to a finding of arbitrariness; [iii] there is no requirement of exhaustion

of local remedies under the BIT.

i. Respondent’s measure of denying license to Claimant’s Alfa project was

arbitrary

46.Arbitrary conduct is also unfair and inequitable.55 If the investment has been subject to

arbitrary or capricious treatment by the host State, the fair and equitable standard is held to

be violated.56 The El Paso57 tribunal held that ―a state‘s obligation to refrain from arbitrary

conduct is included in its obligation to provide fair and equitable treatment.‖58 It was further

elaborated in CMS59 that an arbitrary measure in itself contravenes the basic principle of

FET.60

47.The tribunal in Saluka61 defined arbitrariness, as conduct which ―manifestly violates the

requirements of consistency, transparency, even-handedness and non-discrimination‖.

53

FDI Moot Problem,2015, Request for Arbitration, at para 6. 54

FDI Moot Problem,2015, Expert Report of Marco Kovic, at para 7. 55

Waste Management v Mexico, at para 98; SD Myers v Canada, at para 263; Genin v Estonia, at para 36. 56

UNCTAD, FET ; Dugan, Wallace, Rubins & Sabahi, at p. 87. 57

El Paso v Argentina, at para 230. 58

Jacob Stone, p. 77. 59

CMS v Argentina, at para 290. 60

Lauder v Czech Republic, at para 221. 61

Saluka v Argentina, at para 307.

19

48. The Lemire62 tribunal has defined as arbitrary; (a) A measure that is not based on legal

standards but on discretion, prejudice or personal preference; (b) A measure taken in wilful

disregard of due process and proper procedure.

49.In the present case, the denial of license was [a] neither based on legal standards; [b] nor met

the requirement of due procedure.

a. The denial of license was not based on legal standards

50.According to the Law on Renewable Energy63 (―LRE‖) and Photovoltaic Sector Regulation,64

Vasiuki‘s project Alfa should have been entitled to the fixed feed-tariff. Article 5 of the LRE

stipulates that

Existing capacity of electricity production from renewable energy sources may be

developed … only upon obtaining a license from the BEA

51.This shows that the existing investments were in fact eligible for the LRE license. Still, when

Vasiuki applied for a license for the Alfa project, the Barancasia Energy Authority (―BEA‖)

denied this request citing that a fixed feed-in tariff would only be available for new projects,

not for existing ones.65 It should be noted that NOTHING in LRE itself states this

limitation.

52.The denial of license by the BEA is an arbitrary action without base on the LRE and impaired

the operation of Claimant‘s investment Alfa which suffered from the implementation of a

rate less than half that of the other solar providers; even though they were alike and were

similarly placed.

b. The denial of license did not meet the requirement of due

procedure

53.On the said requirement, the tribunal in Tecmed66 concluded that

The foreign investor expects the host State to act in a consistent manner, free from

ambiguity and totally transparently in its relations with the foreign investor, so

62

Lemire v Ukraine, at para 262. 63

FDI Moot Problem,2015, LRE, Art 5. 64

FDI Moot Problem,2015, Photovoltaic Sector Regulation, Art. 3. 65

FDI Moot Problem,2015, Uncontested Facts, at para 22. 66

Tecmed v Mexico, at para 154.

20

that it may know beforehand all the rules that will govern its investments, to be

able to plan its investments and comply with such regulations.

54.Moreover, the tribunal in Lemire67 held Ukraine‘s practice of secretly awarding the licenses to

be violative of the FET standard because it did do without transparency, with total disregard

of the due process of law. The practice was held to be arbitrary.

55.In the present case, the conduct of the BEA manifestly violates the requirements of

consistency and transparency and amounts to wilful disregard of due process of law.68 This is

because the denial of license was based on neither reason nor fact69 and when an inquiry was

made regarding the reasons for criteria used for denial of the license, the BEA declined to

disclose any criteria that had been applied in the approval procedure, citing ‗confidentiality

obligations‘.70

ii. Intent to act arbitrarily is not a necessary condition to a finding of

arbitrariness

56.The Tribunal in Occidental71 concluded that it is not necessary for the Respondent to have

intended to act in a prejudicial or preferential manner, to deem the measure arbitrary. Hence

the Claimant does not have the burden of establishing Respondent‘s intent. The effect of the

measure and its unfair and unjust result on Vasiuki‘s investment is sufficient for the tribunal

to declare a breach of the FET clause of the Barancasia-Cogitatia BIT.

57.In the present case, when the Energy Law was implemented, tariff of 0.44/kWh was set for

photovoltaic solar installations as of 1 July 2010.72 Alfa, however, was denied this rate.73 Its

measure of harm is the difference between the said tariff that others have been allowed, and

the allowed rate for Alfa.74

67


Loewen v USA, at paras. 124-8 ; ADF Group Inc. v USA 527-8. 69

Azurix v Argentina, at para 392. 70

FDI Moot Problem,2015, Procedural Order, Point 16. 71

Occidental v Ecuador, at para 163. 72

FDI Moot Problem Uncontested Facts, at para 21.. 73

FDI Moot Problem2015, Uncontested Facts, at para 22. 74

FDI Moot Problem,2015, Expert Report of Marko Kovic, para 7.

21

iii. There is no requirement of exhaustion of local remedies under the BIT

58.Even though the Claimant did not challenge the denial of license by the BEA, it is not

precluded from presenting its claim in this arbitration.

59.The starting point of the Tribunal‘s analysis must be the text of the BIT.75 The BIT – unlike

other Treaties – does not include any clause requiring the initiation or exhaustion of local

remedies before the filing of an investment arbitration.76 This implies that even if a party has

had (and has not exercised) the right to judicial review, such omission is irrelevant in an

investment arbitration deciding whether the measure is arbitrary or discriminatory.

60.The consequence is that in an arbitration under the Barancasia-Cogitatia BIT, the possibility

to file a claim against a specific measure, is not burdened by any requirement to previously

appeal to the national Courts. Therefore, eligibility of Vasiuki to file claim in Barancasia‘s

administrative courts,77 would not disqualify it to present the claim in the present arbitration.

C. THE RESPONDENT BREACHED CLAIMANT’S LEGITIMATE

EXPECTATIONS

61.The Respondent failed to provide a stable and predictable legal and business environment for

the Claimant‘s investments,78 and undermined its legitimate expectations with respect to the

regulatory framework. It breached the legitimate expectations of the Claimant when it

drastically amended the most essential feature of the LRE regime which committed long-

term guaranteed tariffs to the photovoltaic investors. It had induced the investors by

providing guaranteed fixed feed-in tariff which it later failed to maintain.

75

Lemire v Ukraine(I), at para 277. 76

Ibid. 77

FDI Moot Problem,2015, Procedural Order 2, Point 23. 78

Occidental v Equador, at para 163.

22

62.It has been held that the failure to maintain a stable and predictable legal framework could

frustrate an investor‘s legitimate expectations.79 To ensure a stable and predictable legal

framework is the core element of the fair and equitable treatment obligation.80

63.In the present case, [i] Legitimate expectations of the Claimant arose from the regulatory

framework of the Respondent; [ii] The Claimant relied upon the expectations generated from

the regulatory framework; [iii] the Claimant‘s reliance was reasonable; [iv] drastic

modification of the regulatory framework frustrated Claimant‘s legitimate expectations

i. Legitimate expectations of the Claimant arose from the regulatory framework

of the Respondent

64.Legitimate expectations are based on host State‘s legal framework.81 Legitimate expectations

can therefore arise from ―rules that are not specifically addressed to a particular investor but

which are put in place with a specific aim to induce foreign investments.‖82

65.In the present case, Ever since the adoption of the 2020 climate and energy package83 by the

EU, Barancasia had been making strides in promoting renewable energy sources.84 It was

pursuant to this, that in May 2010 Respondent adopted the LRE.85 The LRE provided that the

development of renewable energy sources would be encouraged by fixing general ―feed-in

tariffs‖ for renewable energy providers86 and the feed-in tariff announced would apply for 12

years.87

66.Not only was the assurance that the feed-in tariff would be fixed for 12 years made to

investors, in general,88 the Claimant was specifically promised the rate of €0.44/kWh for its

79

CMS v Argentina, at para 276; Parkerings v Lithuana, at para 332. 80

Metalclad v Mexico, at para 99 ; CMS v Argentina at paras. 276,277; Bayindir v Pakistan, at para 179, LG&E v

Argentina, at para 124-125, Duke Energy v Ecuador, at para 270, PSEG v Turkey, at para 240; Enron v Argentina,

at paras. 259,260 ; BG Group v Argentina, at para 307 ; 81

Total v Argentina, at para 116 ; National Grid v Argentina, at paras. 168, 170. 82

UNCTAD, FET ; Laird, Sabahi, Sourgens, Weiler, at p. 155. 83

FDI Moot Problem,2015, Uncontested Facts, para 6. 84



FDI Moot Problem,2015, LRE, Art. 3. 87


FDI Moot Problem,2015, Uncontested Facts, para 21.

23

solar projects when the LRE license was issued for them on 25 August 201089 and 1 July

201290 respectively.

67.The LRE regime and the subsequent granting of the license gave rise to the legitimate

expectation of the Claimant that the same would apply for 12 years.

ii. The Claimant relied upon the expectations generated from the regulatory

framework

68.The Claimant relied upon the said regulatory framework91 when deciding to invest in second

photovoltaic project, Beta, and then 12 more projects. Absent the LRE regime providing

guaranteed tariff for 12 years, the Claimant would not have invested in the manner, scale and

speed that it did.

69.Investments in PV sector only made economic sense if the Claimant could count on the

benefits of the LRE regime for the 12-year period. Economic support systems in form of

feed-in tariffs are required to bolster these industries since there are a number of barriers92 to

clean-energy investment.93 Hence, it was the LRE regime that actually induced the Claimant

to invest in Beta and 12 more PV projects.

iii. The claimant’s reliance was reasonable

70.The Claimant‘s reliance was reasonable because of the circumstances surrounding its

investments. Firstly, the Purpose and Aim of the LRE94 shows that it was adopted to ensure

sustainable development of the use of renewable energy sources, promote development and

introduction of innovative technologies …to reduce dependence on fossil energy sources.

Art. 2 provides that production from renewable energy shall be incentivized by state

measures until the share of electricity from renewable energy sources amounts to no less than

20 percent.95 Moreover, the Regulation for implementing the LRE stipulates that A

renewable energy provider … upon obtaining a license … is entitled to the feed-in tariff

89



El Paso v Argentina, at para 511. 92

Ottinger, at pp. 183-186. 93

Nathanson, at p. 67. 94


FDI Moot Problem,2015, LRE, Art. 2.

24

announced by the BEA … for duration specified by the LRE.96 In addition to the foregoing,

the fact that the LRE was adopted after accession to the EU represented to the investors that

the LRE/ FITs were consistent with those requirements. And lastly, the Respondent never

suggested that the reliance on the LRE or FITs was inappropriate.

71.It‘s conduct with respect to the LRE, that even though strikes took place in June 2012,97 still

licenses were issued to the Claimant for the development of its 12 projects,98 reinforced

Claimant‘s expectation and shows that its reliance was reasonable.

iv. The drastic modification of the regulatory framework frustrated Claimant’s

legitimate expectations

72.Changes to legislation are considered to be breach of FET when the same was essential to

making an investment.99 Drastic changes to the essential features of a transaction are

understood to provide for a breach of fair and equitable treatment.100

73.In the case at hand, as already established, the feed-in tariff at the rate of €0.44/kWh for a pre-

agreed length of 12 years was essential for the Claimant to the making and significantly

expanding its investment in the Respondent State. The Respondent however, breached the

legitimate expectations by modifying the legal and economic framework of Claimant‘s

investments; by amending Article 4,101 the most important feature of the LRE, by directly

hitting at the profitability of the Claimant‘s investments by imposing a draconian reduction to

the tariff of €0.15/kWh.102

74.Not only this, the amendment will apply retroactively,103 which means that older plants like

Beta and the 12 projects that were awarded licenses under the 2010 LRE will also be

affected, the feed in tariff for them also slashed to a meagre 0.15EUR/kWh.

75.This retroactive change amounts to a total alteration of the legal framework in which the

Claimant made its investment. It has changed the revenue streams upon which the Claimant

made its project development decisions and has permanently affected its confidence in the

96

FDI Moot Problem,2015, Photovoltaic Sector Regulation, Art. 3. 97



Toto v Lebanon, at para 244. 100

Ibid; Micula v Romania(II), at paras. 527-529. 101

FDI Moot Problem,2015, Law on the Amendment of Article 4 of the LRE, Annex No. 4 102


FDI Moot Problem,2015, Uncontested Facts, at para 35.

25

stability of the Respondent‘s regulatory environment. Investors like Claimant are left

wondering whether further reductions in their remuneration may occur.

76.Having regard to the totality of the circumstances, the Respondent shall be held to frustrate

the Claimant‘s legitimate expectations, just as the LG&E tribunal held Argentina liable for

breach of FET when it held, ―Argentina went too far by completely dismantling the very

legal framework constructed to attract investors‖.104

104

LG&E v Argentina, at para 139.

26

III. THE RESPONDENT’S ACTIONS ARE NOT EXEMPTED ON THE BASIS

THAT THEY WERE NECESSARY FOR BARANCASIA

77.Respondent‘s breach of the FET Standard cannot be excused by means of [A] the treaty

standard under Article 11 of the BIT; [B] the Necessity defence of Customary International

Law; [C] the EU Law obligations.

A. RESPONDENT’S ACTIONS ARE NOT EXEMPT UNDER THE BIT

78.Respondent‘s breach of the FET towards Vasiuki does not fall under the scope of the

Barancasia-Cogitatia BIT‘s ‗Essential Security Interests‘ clause. Article 11 provides:

Nothing in this Agreement shall be construed to prevent either Contracting Party

from taking measures to fulfil its obligations with respect to the maintenance of

international peace or security.

79.According to the provision, in order to excuse Respondent‘s derogations under the BIT, the

measures must be taken to protect an essential security interest or to fulfil its obligations with

respect to the maintenance of international peace or security.105

80.It is submitted that the Respondent‘s financial situation does not qualify as an essential

security issue,106 and the measures were not necessary for international peace or security.107

The Tribunal in CMS108 held that to analyze whether an essential interest of the State is

involved requires the determination of the gravity of the crisis. It was further held that the

need to prevent a major breakdown, with all its social and political implications might have

entailed an essential interest of the State. However, the facts of the present case do not meet

such high threshold. There was no breakdown of the state; no part of the Barancasian budget

was diverted from education to fund the solar programme, rather the issue was future

allocations of the budget.109 There was no danger of total economic collapse for a finding of

issue of essential interest.110

105

Continental v Argentina, at paras. 163-64, 169. 106

Burke-White & Staden, at p. 350. 107

Ibid, at p. 356. 108


FDI Moot Problem,2015, Procedural Order No 3, Point 1. 110

CMS v Argentina, at para 322.

27

81.The situation did not qualify as an essential security interest unlike a military conflict or

severe political unrest that threatens the survival of the state.111 Moreover, there was no

armed conflict, political turmoil or social upheaval that threatened international peace.112

82.Therefore, it is submitted that the Respondent cannot utilize the said defence.

B. RESPONDENT’S ACTIONS ARE NOT EXEMPT UNDER THE NECESSITY

DEFENCE OF CUSTOMARY INTERNATIONAL LAW

83. Respondent has not expressly invoked Article 25 of the ILC Articles, but in any event it does

not apply. Barancasia has not proven the ―necessity‖ of its alleged compliance with its EU

law obligations in the terms of Article 25.

84.There is a consensus to the effect that the ground of necessity is an exceptional one and has to

be addressed in a prudent manner to avoid abuse.113 Case law,114 State practice and scholarly

writings115 amply support the restrictive approach to the operation of necessity. This is

because if strict and demanding conditions are not required or are loosely applied, any State

could invoke necessity to elude its international obligations, which would certainly be

contrary to the stability and predictability of the law.

85.The customary standard of ‗necessity‘ has been defined under Art 25 of the ILC Articles. It

has three requirements; (i) Grave and Imminent Peril; (ii) the measure adopted by the host

State must be the ―only way‖ available; (iii) The host state must not have ‗contributed to the

situation of necessity‘.

86.In the present case, it is submitted that [i] there was no grave and imminent peril; [ii] the

amendment to the LRE was not the only way to address the situation; [iii] the Respondent

contributed to the effects of the situation.

i. There was no Grave and imminent peril

87.Article 25 only authorizes a state to safeguard an ―essential interest against a grave and

imminent peril‖, which means that the interest itself must have a degree of seriousness

111

CMS v Argentina, at paras. 318-22. 112

Oil Platforms Case, at para 32. 113


LG&E v Argentina, at para 168; Continental v Argentina, at para 248; Sempra v Argentina, at para. 388 ; CMS v

Argentina, at paras. 355 - 388. 115

Thjoernelund, at p. 434 ; Alvarez & Brink, at pp. 320-322 ; Alvarez & Khamsi, at pp. 379–478; Bjorklund, at p.

459 ; Muchlinski, Ortino & Schreuer at p. 43 ; Dolzer, at p. 305.

28

(gravity) and be subject to temporal demands (imminence).116 On this requirement, the CMS,

Enron and Sempra tribunals found that even Argentina‘s severe economic crisis was not

sufficient. While the CMS tribunal presented ―a major breakdown with all its social and

political implications‖117 as operative standard; for Sempra Tribunal, the crisis would have

had to compromise the ―the very existence of the State and its independence‖118, to attract the

treaty exception.119

88.Since the situation in the present case is not even remotely close, the exception is not

attracted.

ii. The amendment to LRE was not the only way to address the situation

89.ILC Article 25 sets out a range of highly stringent conditions for the plea of necessity to

apply. Article 25(1)(a) requires that the chosen governmental measure (―act‖) be the ―only

way‖ for a state to meet that objective.120 This strict test of means-end scrutiny has been

applied to defeat invocation of the plea of necessity on many occasions.121

90.In the present case, the amendment to the LRE was not the ‗only way‘ to address the situation

of exceeding the EU-mandated borrowing limits for the relevant years.122 Firstly, occurrence

of the said situation was based on the contingency of issuance of licences to all the 7000

applicants.123 The Respondent could have very well chosen not to issue those licenses to keep

a check on its budgetary allocations. Moreover, in any scenario, a retroactive amendment was

not the need of the hour, the Respondent could have simply reduced the rates for the new

licensees and kept a check on its finances, since the BEA was competent to publicly

announce the rate of feed-in tariff at the time of issuance of license124 and no specific rate was

mentioned in the LRE or the implementing legislation.

iii. Respondent contributed to the effects of the situation

116

Jurgen Kurtz, at p. 18. 117


Sempra v Argentina, at para 348. 119

Ibid ; Enron v Argentina, at para 306. 120

Jurgen Kurtz, at p. 18. 121

Libya v Burundi, at para 279; Gabčíkovo-Nagymaros Project (Hungary v Slovakia),at para 56; Saiga case, at para

135. 122



FDI Moot Problem,2015, LRE, Art. 4; Photovoltaic Sector Regulation, Art. 1.

29

91.Respondent is also precluded from relying on Art. 25 of the ILC Articles, since its actions

contributed to the so-called situation of necessity. The ground-breaking technology came in

the year 2011,125 the alleged media interviews of the Barancasian politicians were conducted

between February and May 2012,126 and teachers of Barancasia organized strikes in June

2012,127 yet the BEA went on to issue licenses to the Claimant‘s 12 projects at the rate of

€0.44/kWh in July 2012. Not only were licenses issued to the Claimant, around 6000 licenses

were also issued to other Barancasian and foreign investors,128 which were developing

projects with the capacity of 30kWh or less and were entitled to the feed-in tariff.129

92.Therefore, even if the Respondent‘s submission that the whole renewable energy support

scheme was unsustainable130 is to be accepted, the aforementioned facts make it clear that the

Respondent itself was responsible for said state of affairs and hence is precluded from relying

on the necessity defence.

C. RESPONDENT IS NOT EXCUSED FROM LIABILITY ACCORDING TO

THE EU LAW

93.It is submitted that [i] Amendment to Article 4 of the LRE was not necessary for Respondent

to adhere to the EU law; [ii] in any case, EU law would not justify or excuse breaches of the

Barancasia-Cogitatia BIT.

i. Amendment to Article 4 of the LRE was not necessary for Respondent to adhere

to the EU law

94.The European Union made no request for the alignment of the LRE with the EU law, let alone

explicitly ordering the amendment to the LRE. No demands were issued by the Commission

on behalf of the EU that the LRE be amended.

95.Not just the EU, there was not even a domestic authority to recommend the amendment to the

LRE. There is nothing on record to show that it was the amendment to Article 4 of the LRE

was in any way ‗necessary‘ for the Respondent to adhere to its EU obligations.

125


FDI Moot Problem,2015, Procedural Order No 3, Point 3 127




FDI Moot Problem,2015, Uncontested Facts, at para 29.

30

96.Hence, it was unreasonable for Barancasia to amend the LRE without being required to do so

by any competent legal authority, without making any attempt of negotiation with the EU or

the Claimant to mitigate the damages cause by the amendment, and in contradiction of its

consistent behaviour over the years that the LRE regime was legal and satisfied EU

requirements. The Respondent‘s measure cannot be interpreted as being reasonably related to

a rational public policy objective because neither at the EU nor at the domestic level, there

was any exhortation to amend the LRE because of its capacity to violate or go against the EU

law.

ii. In any case, EU law would not justify or excuse breaches of the Barancasia-

Cogitatia BIT.

97.According to Art 12 of the ILC Articles,131 ―there is a breach of an international obligation by

a State when an act of that State is not in conformity with what is required of it by that

obligation, regardless of its origin or character.‖

98.It is submitted that the relevant international obligations here are those contained in the BIT.

Barancasia would breach those obligations even if its actions were required by EU law.

Pursuant to Article 31(1) of the ILC Articles, ―the responsible State is under an obligation to

make full reparation for the injury caused by the internationally wrongful act.‖

99.It is submitted that Barancasia‘s reasons for adopting the measure could only be relevant if

Barancasia were trying to avail itself of one of the circumstances precluding wrongfulness

described in Chapter V of the ILC Articles, i.e., force majeure (Article 23), duress (Article

24), or necessity (Article 25). However, Barancasia has not expressly invoked any of those

Articles, and in any event none of them applies. That ―Necessity‖ of the alleged compliance

with EU law obligations in terms of Article 25 doesn‘t exist has already been established.

100.Moreover, even if the doctrine of ―necessity‖ applied, Respondent would still be required to

compensate the Claimant. Article 25 only provides an excuse for an act by a State; it does not

affect state‘s obligation to pay compensation for damages caused by that act (even if

excused). It is submitted that ILC Article 27(b) leaves open whether a state relying on a

circumstance precluding wrongfulness should nonetheless be expected to make good any

material loss suffered.

131

ILC Articles, Art. 12.

31

101.Even in Micula,132 the EU law defence could not be employed in order to justify the

Respondent State‘s actions and it was held to be in violation of Fair and Equitable Treatment.

102.Therefore, it is submitted that the Respondent cannot be exempted from liability on the basis

that measures were necessary to adhere to its economic and renewable energy objectives and

EU law.

132

Micula v Romania(II), at para 328.

32

IV. THE RESPONDENT SHALL BE ORDERED TO RESCIND THE LRE

AMENDED ART 4 OR TO CONTINUE TO PAY THE PRE-2013 FEED-IN

TARIFF TO CLAIMANT

103.The Claimant is entitled to the remedy of specific performance.

104.It is submitted that [A] The state responsible for an internationally wrongful act is obligated

to put an end to that act; [B] An international tribunal has the power to grant specific

performance; [C] Specific performance is the appropriate remedy in the present case.

A. THE STATE RESPONSIBLE FOR AN INTERNATIONALLY WRONGFUL

ACT IS OBLIGATED TO PUT AN END TO THAT ACT

105.By no means are remedies in international law confined to pecuniary damages.133 In fact,

Restoration of the situation which had been disturbed by the wrongful act is the principle of

International Law.134

106.The Permanent Court of International Justice in the Chorzow Factory case stated that:

Reparation must, as far as possible, wipe out all the consequences of the illegal

act and reestablish the situation which would, in all probability, have existed if

that act had not been committed.135

107.The Chorzow Factory jurisprudence has been followed not only in the subsequent ICJ

decisions136 in cases of Temple of Preah Vihar,137 Tehran Hostages,138 Arrest Warrants,139 but

also in WTO140 and Human Rights jurisprudence141.

108.In this light, it is submitted that International Investment law is not to be read in ‗clinical

isolation‘ (just as WTO law is not), but forms part of public international law.142 In principle,

133

C Gray(I); Gray(II) at p. 416 ; Amerasinghe, at pp. 385–90, 406–22. 134

ILC Articles, Art 35; Julien Cantegreil, at pp. 441-458. 135

Factory at Chorzow, at p. 47. 136

Brownlie, at pp. 557, 562. 137

Temple Case. 138

Teheran Hostages case. 139

Arrest warrant case. 140

Bronckers & Broek, at p.101. 141

LaGrand Case, at p. 466; Mexico v US, at p. 12; Assanidze v Georgia ; Scozzari v Italy, at para 249; Broniowski v

Poland. 142

A van Aaken, at p. 91.

33

public international law norms and decisions are guiding for investment law, unless there are

specific norms in investment treaties143 or in the arbitral law applicable.

B. ARBITRAL TRIBUNALS HAVE THE POWER TO GRANT SPECIFIC

PERFORMANCE AGAINST STATES

109.International arbitration practice offers instances in which tribunals have ordered specific

performance against states. Arbitral tribunals in the Martini144 and Trail Smelter145 cases have

granted specific performance.

110.The case concerning the Rainbow Warrior Affair146 is particularly instructive for the

question of a tribunal‘s inherent power to order specific performance. The tribunal found that

there was no need for such a power to be expressly conferred upon it.147 Rather, the power to

order the cessation of the illegal behavior was inherent in the powers of a competent tribunal.

111.Moreover, the power of a court or tribunal to order specific performance is not a peculiarity

of inter-state litigation.148 Tribunals have granted orders for specific performance in Mixed

arbitration practice where the dispute is brought by an investor.149

112.The Enron150 tribunal categorically held

An examination of the powers of international courts and tribunals to order

measures concerning performance or injunction and of the ample practice that is

available in this respect, leaves this Tribunal in no doubt about the fact that these

powers are indeed available.

113.In Texaco,151 where the tribunal found that Libya by its nationalization measures had acted in

violation of the Deeds of Concession between the Claimants and the state, it was held that

Any possible award of damages should necessarily be subsidiary to the principal

remedy of performance itself.

143

US Model BIT, Art 34(1); NAFTA, Art 1135; Energy Charter Treaty, Art 26 (8). 144

Italy v Venezuela. 145

Trail Smelter Case, United States v Canada. 146

Rainbow Warrior Case, at para 217. 147

Ibid., at paras. 270-271. 148

Schreuer(I) at p. 17. 149

Goetz v Burundi, at p. 457; Texaco v Libya, at para 389 ; Luca, at pp. 1-2. 150

Enron v Argentina, at paras. 79-81. 151

Texaco v Libya, at para 508.

34

114.Accordingly, the tribunal ordered the Libyan Government to perform the contracts and to

give them full effect.

115.The Micula152 tribunal also held that it had the powers to order restitution, both under the

ICSID Convention and the BIT.153

116.In the present case too, there is no limitation to the Tribunal‘s powers to order restitution in

the BIT. The Barancasia-Cogitatia BIT is the instrument on which the consent of the parties

is based. Article 4 of the BIT, which deals with ‗Compensation for losses‘, provides for

restitution as a remedy.154 Though, the particular provision is not applicable in the present

case, it shows that the parties have in fact given the power to the present tribunal to accord

restitution for the losses sustained. Moreover, the rest of the BIT provisions do not preclude

the tribunal from ordering restitution, if and when appropriate, for a violation of other

substantive provisions.

117.Therefore, it is submitted that the requested remedy of specific performance must be

ordered.

C. SPECIFIC PERFORMANCE IS THE APPROPRIATE REMEDY IN THE

PRESENT CASE

118.The present case involves dispute arising from ongoing relationship in which award for

specific performance is appropriate.

119.According to ILC Article 35, availability of restitution is subject to two conditions; (1)

restitution must not be materially impossible;155 and (2) restitution must not ‗involve a burden

out of all proportion to the benefit deriving from restitution instead of compensation‘.156

120.It is submitted that [i] Specific performance is not materially impossible in the present case;

and [ii] Specific performance will not impose a disproportionate burden upon the Respondent

compared to monetary compensation.

i. Specific performance is not materially impossible in the present case

152

Micula v Romania(I), at para 168. 153

Ibid. 154

FDI Moot Problem, 2015, Barancasia-Cogitatia BIT, Art. 4. 155

ILC Articles, Art. 35 (a). 156

Ibid, Art. 35 (b).

35

121.Material impossibility refers to a situation where the subject-matter of the dispute has been

destroyed,157 or has irremediably deteriorated, or under some legal systems, has passed into

the hands of a bona fide third party.158

122.In the Rhodope Forests case,159 Bulgaria unlawfully confiscated forests belonging to Greek

nationals. The tribunal denied the Greek nationals‘ prayer for restitution on the ground,

among others, that third parties had acquired rights over the forests having no knowledge of

the forests‘ true ownership.

123.In this respect, the tribunal in Al Balhoul v Tajikistan,160 noted that during the nine years

since the acts in question, licenses had been granted to others for the concession areas, and

the new licensees had made investments there.161 This situation made it ―materially

impossible to implement a remedy of specific performance,‖ so no such order was granted.

124.However, such is not the situation in the present case. Vasiuki still holds the LRE licenses

and is in a continuing relationship with the Barancasian Government

125.In the present case, the wrongful conduct occurred on 3rd

January 2013162 and restitution

would entail obliging the State to maintain the feed-in tariff which it should have granted to

Claimant‘s projects. This can only be achieved through either the repeal of the amendment or

by continuing to pay the Claimant the pre-2013 rate. The aforementioned remedies must be

granted as the implementation of the same is not materially impossible in the present case.163

ii. Specific performance will not impose a disproportionate burden upon the

Respondent compared to monetary compensation

126.Specific performance in the present case does not impose a disproportionate burden164 on the

state because according to the idea of reparation, in compensation also, the state would be

required to pay the compensation as if the breach had not been committed,165 meaning the

rate decided previously i.e. €0.44/kWh.

157

Beaumont Case, at p. 14. 158

Borzu Sabahi, at p. 210. 159

Greece v Bulgaria. 160

Al-Bahloul v Tajikistan, at para 63. 161

Al-Bahloul v Tajikistan, at paras. 56–62. 162


ILC Articles. Art 35(a), 35(b). 164

Occidental v Equador, at para 163. 165

ILC Articles, Art. 31.

36

127.It is therefore submitted that Respondent must be ordered to repeal the amendment to Article

4 of the LRE or alternatively, to continue to pay Vasiuki the €0.44/kWh feed-in tariff for 12

years.

37

V. IN THE ALTERNATIVE, THE RESPONDENT MUST BE ORDERED TO

PAY DAMAGES TO THE CLAIMANT FOR ITS LOSSES

128.The Claimant must be restituted for the breaches of the BIT and is entitled to damages along

with interest in lieu of the same. It must be awarded damages not less than €2.1 million

according to the Report of Claimant‘s Expert,166 Prof. Marko Kovic over the 12 years during

which the tariff should have remained unchanged.167

129. The Claimant must be restituted for the breaches of the BIT and is entitled to damages along

with interest in lieu of the same. It must be awarded damages not less than €2.1 million

according to the Report of Claimant‘s Expert,168 Prof. Marko Kovic over the 12 years during

which the tariff should have remained unchanged.169

130.It is submitted that [A] The standard of full reparation for compensation must be applied.

The damages are claimed under three heads; with regard to [B] the Alpha and Beta projects ;

[C] wasted expenditure for investment in 12 projects made by Vasiuki; and [D] lucrum

cessans or lost profits for future projects that were to be developed by Vasiuki relying on the

LRE. [E] Interest shall also be added to make the Claimant whole for its damages.

A. THE TRIBUNAL SHOULD APPLY THE STANDARD OF FULL

REPARATION FOR COMPENSATION

131.Reparation must as far as possible wipe out the illegal consequences of an act and re-

establish the situation which would exist had the illegal act not been committed.170 The

Chorzow factory171 standard has been upheld by tribunals172 to include value of the

investment at the time of making of the award in order to fully wipe out the consequences of

an illegal act. The same standard has also been reinforced in the ILC Articles on State

Responsibility173 which provide for full reparation of any financially assessable damages

including lost profits.174

166

FDI Moot Problem, 2015, Expert Kovic‘s Report, at para 8. 167

FDI Moot Problem ,2015, Request for Arbitration, at p. 5. 168


FDI Moot Problem ,2015, Request for Arbitration, at p. 5. 170

Rovine, at p. 71. 171

Factory at Chorzow, at p. 47. 172

ADC v Hungary ; Siemens v Argentina, at para 210. 173

ILC Articles, Art. 36. 174

Ibid.

38

132.The aforementioned standard of full reparation should be applied in the present case in order

to justifiably compensate the claimant for the illegal act of breach of fair and equitable

treatment by the Respondent. The standard must be applied to all the projects of the

Claimant which faced losses because of unfair and inequitable behavior of the Respondent.

B. ALFA AND BETA PROJECTS

i. Project Alfa

133.Project Alfa was the first project undertaken by Vasiuki LLC.175 It was arbitrarily denied a

license under the LRE and reasons for such denial were also withheld leading to a breach of

the FET standard under the BIT.176 In the present case, Alfa was denied the proposed rate of

€0.44/kWh and the Claimant demands losses as a measure of the difference between the rate

allowed to other projects and the rate at which Alpha operated.177 This is the differential178

between the but-for value and the as-is value of the project, as has been recognized as the

basis of compensation in case of investment law.179

134.Project Alfa did have certain initial hiccups, yet its capacity was growing at 2.2% per annum

designed to meet its target generation rate of 21% by 2013180 and it is entitled to the asserted

amount of damages of €120,621.181

ii. Project Beta

135.Project Beta faced a similar breach of the FET standard where it was guaranteed a rate of

€0.44/kWh which was later drastically reduced after 2 years of coming into force of the LRE.

This severely impacted Beta‘s revenues which were at its maximum projected capacity of

21%. Granting of damnum emergens, or the actual loss suffered182 in this case, would satisfy

the Chorzow factory standard of full reparation.

136.The Calculation of Net present value has been reached by using the DCF method where the

cash flows have been discounted to equity at the weighted average cost of capital (WACC), a

175

FDI Moot Problem, 2015, at para 12. 176

FDI Moot Problem, 2015, at Procedural Order, Point 16. 177


Rovine, at p. 71. 179




Marboe, at p. 5.416.

39

method of calculation that enjoys near-universal acceptance in the business community.183

The WACC is a rate which includes both debt and equity.184 Thus, in the present case, the

debt component of the rate cannot be done away with since the debt forms a substantial part

of the investment, including several bank loans undertaken by claimant.185 The correct

calculation would entail a discounting of the cash flows to WACC at the rate of 8% as set out

in the expert report. The costs calculated in that regard are a total of €123,261.186

C. WASTED EXPENDITURE

137.The second head under damages is for the wasted investment in land, photovoltaic panels

and related equipment acquired for the 12 projects placing reliance on the Energy law that

fixed tariffs for 12 years. The 12 projects had been granted licenses to operate on a tariff of

€0.44/kWh187 and subsequently, the tariff promised under the LRE for 12 years was reduced

and thus the investments made had become wasted expenditure, causing Vasiuki to now

abandon them. Thus, the Claimant has to be reparated for such losses. Wasted expenditure

analysis has been accepted as a valid measure of losses incurred by an investor even in

projects which are in their initial stages.188

138.In the alternative, a DCF analysis should be carried out at the prevailing rate of €0.44

kWh,189 similar to that of Project Beta.

D. LOST PROFITS FOR FUTURE PROJECTS THAT WERE TO BE

DEVELOPED BY VASIUKI RELYING ON THE LRE

139.The threshold of certainty with respect to lost profits is to be established with respect to the

factum of damages and not the exact quantum of damages190 since it has been held that the

fact that damages cannot be ascertained with certainty cannot be a reason for not granting of

183

Brigham & Daves, at p. 24. 184

Mellen & Evans, at p. 170. 185

FDI Moot Problem, 2015, Uncontested facts, at para 27. 186


FDI Moot Problem, 2015, Uncontested facts, at para 33. 188

SPP v Arab Republic, Biloune v Ghana, Wena Hotels v Egypt, Phelps Dodge v Iran ; Aucoven v Venezuela. 189


Lemire v Ukraine ; Sapphire v Iran, SPP v Arab Republic of Egypt.

https://www.google.co.in/search?tbo=p&tbm=bks&q=inauthor:%22Chris+M.+Mellen%22

40

damages.191 An evaluation of the ‗opportunity lost to make a commercial success of the

project‘ necessarily involves an element of subjectivism.192

140.Placing reliance on the Energy law, Vasiuki‘s management had decided to invest in

comparable projects every two years.193 This was in tune with their expansion plan of re-

creating clustered wind-farm models in the solar photo-voltaic sector194 and Vasiuki had

already launched 14 projects in total in a span of three years. Additionally, the cost of the

technology had decreased and the technological know-how acquired from project Beta and

the subsequent economies of scale were furthermore in their favour.

141.In the case of Sapphire195 it was held that,

…the judge is given a wide discretion when he has to decide ex aequo et bono the

compensation for damage whose extent and existence are not certain even though

a sufficient probability has been established, and when his assessment rests upon

conjecture.

142.The future projects of the Claimant were proximate and foreseeable owing to the prior

technological know-how acquired by it, its capacity to finance its projects, and the prior

success achieved in earlier projects, which have been held to be factors that contribute to

establishing lost profits.196

143.In Gemplus v. Mexico197 it was held

Even if there was no certain expectation of the project’s profitability, there was a

reasonable opportunity and that opportunity, however small, has a monetary

value for the purpose of compensation under Article 36 of the ILC Articles.198

144.In the present case, on basis of the evidence adduced by the claimant199, a reasonable and

probable basis for such opportunity is established, and hence the Claimant shall be awarded

191

SPP v Egypt, at para 215. 192

Ibid. 193

FDI Moot Problem, 2015,Procedural Order no. 2, Point no. 16. 194

FDI Moot Problem, 2015,Uncontested facts, at para 27. 195

Sapphire v Iran, at p. 124. 196

Lemire v. Ukraine. 197

Gemplus v Mexico, at para 13-98. 198

Ibid. 199

FDI Moot Problem, 2015,Procedural Order no. 2, Point no. 16.

41

damages totaling €765,835 for the impact of the change to the tariff structure of the LRE on

Claimant‘s future development of solar arrays.

E. INTEREST SHALL ALSO BE ADDED TO MAKE THE CLAIMANT WHOLE

FOR ITS DAMAGES.

145.Under the LCIA Rules200 the tribunal is requested to grant interest on the amount up to the

date of the award. The rate of interest should be the one at which the cash flow is discounted

in order to avoid an invalid round trip.201

200

Rule 26.4, LCIA Arbitral Rules. 201

FDI Moot Problem, 2015, Expert Kovic‘s Report, at para 12.

42

PRAYER FOR RELIEF

The Claimant respectfully requests the Tribunal to:

1. Find that the Tribunal has jurisdiction over the claims asserted by the Claimant.

2. Find the Respondent liable for the violations of the BIT; particularly the fair and

equitable treatment;

3. Find that the Respondent is not exempted from liability on the basis that its measures

were necessary;

4. Order the Respondent

a. To repeal the amendment to Article 4 of the LRE, or

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

5. In the alternative to its third claim, order Respondent to pay damages to Vasiuki for its

losses as established.

TEAM RUDA

On behalf of Claimant

Vasiuki LLC

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