THE REPUBLIC OF MERCURIA

Transcription

1 Foreign Direct Investment International Arbitration Moot 2017 Team Lacharriere PERMANENT COURT OF ARBITRATION PCA CASE NO Between: ATTON BORO LIMITED (CLAIMANT) THE REPUBLIC OF MERCURIA (RESPONDENT) MEMORIAL FOR THE CLAIMANT

2 TABLE OF CONTENTS LIST OF ABBREVIATIONS... iv LIST OF AUTHORITIES... v INDEX OF LEGAL SOURCES... vi STATEMENT OF FACTS... 1 ARGUMENTS... 3 PART ONE: JURISDICTION... 3 I. THIS TRIBUNAL HAS JURISDICTION OVER THE DISPUTE... 3 A. Claimant is a qualified investor within the meaning of the BIT... 3 B. Claimant s claims arise out of its investment protected under the BIT The patent is qualified as investment under Article 1.1 BIT The LTA is qualified as investment under Article 1.1 BIT The Award is qualified as investment under Article 1.1 BIT... 4 II. RESPONDENT HAS NOT EFFECTIVELY DENIED CLAIMANT THE BENEFITS OF THE BIT... 6 A. Respondent did not timely exercise the Denial of Benefits clause... 6 B. Alternatively, the criteria of the Denial of Benefits clause are not fulfilled Respondent cannot establish that Claimant is owned or controlled by citizens or nationals of a third state Claimant has substantial business activities in the territory of Basheera... 8 III. THE ARBITRATION PROCEEDINGS BETWEEN CLAIMANT AND THE NHA UNDER THE LTA CANNOT PRECLUDE THIS TRIBUNAL S JURISDICTION OVER CLAIMANT S CLAIM REGARDING THE LTA... 9 A. Claimant sought different requests (petitum) in the two proceedings... 9 B. The Causes of action (causa petendi) in the two proceedings are different... 9 PART TWO: MERITS I. RESPONDENT S ENACTMENT OF LAW NO. 8458/09 AND ISSUANCE OF THE LICENSE VIOLATED THE FET STANDARD UNDER THE BIT A. Respondent violated FET by having frustrated Claimant s legitimate expectations Claimant has legitimate expectations that Respondent will maintain a legal framework that is stable and consistent with the TRIPS Agreement Respondent s amendment of its IP law and issuance of the license frustrated Claimant s legitimate expectations B. Respondent cannot justify its wrongful act ii

3 1. Respondent cannot rely on Art. 12 BIT Respondent cannot invoke necessity defence under CIL II. RESPONDENT S JUDICIARY CONDUCT IN THE ENFORCEMENT PROCEEDING AMOUNTED TO DENIAL OF JUSTICE A. Conduct of Mercuria s judiciary in relation to the enforcement proceeding is attributable to Respondent B. Respondent violated FET standard under Art. 3.2 as its judiciary conduct constituted a denial of justice The conduct was manifestly biased against Claimant The conduct subjected the enforcement proceeding to undue delay The requirement of exhaustion of local remedies is not applicable to Claimant s denial-of-justice claim in the present case C. Respondent s conduct cannot be justified III. THE TERMINATION OF THE LTA AMOUNTS TO A BREACH OF THE BIT A. The NHA s termination of the LTA is attributable to Respondent The NHA s act was an exercise of governmental authority empowered by law Alternatively, the NHA s termination of the LTA was done under the control of Respondent B. A breach of the LTA amounts to a breach of the umbrella clause PRAYER FOR RELIEF iii

4 LIST OF ABBREVIATIONS % Per cent [ ] Paragraph AB Atton Boro AB&C Atton Boro and Company ABG Atton Boro Group Art. Article BIT Bilateral Investment Treaty CIL Customary international law FET Fair and Equitable Treatment i.e. Id Est (that is) Ibid. Ibidem (the same place) ICJ International Court of Justice ICSID International Centre for Settlement of Investment Disputes IIA International Investment Agreement ILC International Law Commission Inter alia Among other things IP Intellectual Property LTA Long-Term Agreement No. Number p. Page PCA Permanent Court of Arbitration PO1 Procedural Order No. 1 PO2 Procedural Order No. 2 PO3 Procedural Order No. 3 UF Uncontested Facts UNCTAD United Nations Conference on Trade and Development v. Versus Vol. Volume WTO World Trade Organization iv

5 LIST OF AUTHORITIES BOOKS Dolzer & Schreuer Jan Paulsson Newcombe & Paradell R. Dolzer and C. Schreuer, Principles of International Investment Law (Oxford University Press, 2008) J. Paulsson, Denial of Justice in International Law (Cambridge University Press, 2005) A. Newcombe and L. Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International, 2009) REPORTS UNCTAD Series FET UNCTAD, Fair and Equitable Treatment (UNCTAD Series on Issues in International Investment Agreements II, UNCTAD/DIAE/IA/2011/5, United Nations Publication, 2012) JOURNALS Klopschinski Schreuer Simon Klopschinski, The WTOs DSU Article 23 as Guiding Principle for the Systemic Interpretation of International Investment Agreements in the Light of TRIPs (2016), Journal of International Economic Law, Vol. 19, Issue 1 Christoph Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road (2004), The Journal of World Investment and Trade, Vol. 5, No. 2 v

6 INDEX OF LEGAL SOURCES ARBITRAL AWARDS AMTO v. Ukraine Ascom v. Kazakhstan Azinian v. Mexico Chevron I (2008) Chevron I (2010) CMS (2003) CMS (2005) El Oro Mining and Railway Enron v. Argentina Eureko Generation Ukraine v. Ukraine Helnan v. Egypt International Thunderbird v Mexico Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008 Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan, SCC Case No. V (116/2010), Award, 19 December 2013 Robert Azinian, Kenneth Davitian, & Ellen Baca v. The United Mexican States, ICSID Case No. ARB (AF)/97/2, Award, 1 November 1999 Chevron Corporation and Texaco Petroleum Corporation v. Ecuador, PCA Case No , Interim Award, 1 December 2008 Chevron Corporation and Texaco Petroleum Corporation v. Ecuador, PCA Case No , Partial Award on the Merits, 30 March 2010 CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction, 17 July 2003 CMS Gas Transmission Co. v. Republic of Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005 El Oro Mining and Railway Company (Ltd.) (Great Britain) v. United Mexican States, Ad hoc Arbitration, Decision No. 55, 18 June 1931 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007 Eureko B.V. v. Republic of Poland, Ad hoc Arbitration, Partial Award, 19 August 2005 Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2013 Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008 International Thunderbird Gaming Corporation v. The United Mexican States, NAFTA Arbitration, Arbitral Award, 26 January 2006 vi

7 Jan de Nul Khan Resources v. Mongolia LG&E Liability Liman v. Kazakhstan Loewen Maffezini Malicorp v. Egypt Noble Venture Occidental Oil Field Pan American Energy v. Argentina Philip Morris v. Australia Plama v. Bulgaria PSEG Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008 Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. The Government of Mongolia, Ad hoc Arbitration, PCA Case No , Decision on Jurisdiction, 25 July 2012 LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006 Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Award, 22 June 2010 Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award, 26 June 2003 Emilio Augustin Maffezini v. Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000 Malicorp Limited v. The Arab Republic of Egypt, ICSID Case No. ARB/08/18, Award, 7 February 2011 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005 Occidental Exploration and Production Co. v. Republic of Ecuador, London Court of International Arbitration, Case No. UN3467, Final Award, 1 July 2004 Oil Field of Texas, Inc. v. The Government of the Islamic Republic of Iran, Interlocutory Award No. ITL FT, 1982 Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No. ARB/03/13, Decision on Preliminary Objections, 27 July 2006 Philip Morris Asia Limited v. The Commonwealth of Australia, PCA Case No , Notice of Arbitration, 21 November 2011 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Decision on Jurisdiction, 4 June 2004 vii

8 SGS v. Pakistan SGS v. Philippines Tecmed Toto Costruzioni v. Lebanon Waste Management II SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision on Objection to Jurisdiction, 6 August 2003 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, 29 January 2004 Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 Toto Costruzioni Generali S.p.A. v. The Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction, 11 September 2009 Waste Management, Inc. v. United Mexican States ("Number 2"), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 PERMANENT COURT OF INTERNATIONAL JUSTICE & INTERNATIONAL COURT OF JUSTICE DECISIONS Chorzów Factory, Opinion by M Anzilotti Corfu Channel ELSI Interpretation of Judgments Nos. 7 and 8 (Factory at Chorzów), Dissenting Opinion by M. Anzilotti Corfu Channel (United Kingdom of Great Britain and Northern Ireland v. Albania), Judgment of 15 December 1949, I.C.J Reports 1949, p. 244 Case Concerning Elettronica Sicula S.p.A (ELSI), Judgment of 20 July 1989, I.C.J. Reports 1989, p. 15 INTERNATIONAL CRIMINAL TRIBUNAL FOR THE FORMER YUGOSLAVIA DECISIONS Tadic Prosecutor v. Dusko Tadic, International Tribunal for the Former Yugoslavia, Case IT-94-1-A (1999), ILM, vol. 38, No. 6 (November 1999) viii

9 TREATIES New York Convention on the Recognition and Enforcement of Foreign Arbitral Convention Awards (1958) TRIPS The Agreement on Trade-Related Aspects of Intellectual Property Agreement Rights, Annex 1C of the WTO Agreement (1994) VCLT Vienna Convention on the Law of Treaties (1969) WTO DSU Understanding on rules and procedures governing the settlement of disputes, Annex 2 of the WTO Agreement (1994) MISCELLANEOUS Bangalore Principles Doha Declaration ILC Draft Articles UNCITRAL Guide on New York Convention The Bangalore Principles of Judicial Conduct (2002) Declaration on the TRIPS agreement and public health, WT/MIN(01)/DEC/2 (WTO Ministerial Conference, 4 th session, 9-14 November 2001), adopted on 14 November 2001 International Law Commission, Articles on Responsibility of States for Internationally Wrongful Acts (including Official Commentary) (2001) UNCITRAL, UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (United Nations Publication Sales No.: E.16.V.7, 2016 edition) ix

10 STATEMENT OF FACTS 1. Atton Boro Limited ( Claimant ) was a pharmaceutical company incorporated in Basheera in April 1998, whose name is well known for its pioneering effort to combat critical epidemic diseases that threaten the populations in the developing world. Its principal dealings involved forging public-private partnerships with State governments and State agencies for the supply of essential medicines at a competitive rate. 2. Claimant entered the Republic of Mercuria ( Respondent ) s market by concluding several of such agreements with Mercuria s National Health Authority ( NHA ), the most renowned of which was the Mercuria Comprehensive HIV/AIDS Partnership, whose success was personally lauded by the Minister for Health. 3. In May 2004, the NHA entered into the Long-Term Agreement ( LTA ) with Claimant in order to secure a long-term supply for the fixed-dose combination drug ( FDC drug ) Sanior, which contained Valtervite, an innovative greyscale treating to which Claimant holds a Patent in Mercuria granted on 21 February 1998 ( the Patent ), in Mercuria at a fixed discounted rate. 4. Claimant quickly set up its manufacturing facility and delivered its first consignment of Sanior in June Sanior was successfully delivered across Mercuria, and its demand rose progressively throughout the years. To meet the rising demand, Claimant purchased lands and machinery to expand its production scale. 5. In 2008, Claimant offered further 10% discount for the remaining duration of the LTA, but the NHA rejected, demanding 40% and threatened to terminate the LTA if not satisfied. 6. On 10 June 2008, the NHA unilaterally terminated the LTA. Claimant invoked commercial arbitration against the NHA in accordance with the terms of the LTA. In January 2009, a Tribunal seated in the People s Republic of Reef rendered an Award ( the Award ) finding the NHA violated the LTA, awarding Claimant USD 40 million in damages. 7. On 10 October 2009, the President promulgated the Law No.8458/09, which introduced a provision that allowed for the issuance of compulsory license for patented invention. 8. On 3 March 2009, Claimant filed enforcement proceeding before the High Court. The NHA entered an appearance after being absent for a year, to resist the Award on the ground of public policy. The proceeding was delayed for 7 years up until 30 October 2016 and remains pending till this very date. 1

11 9. In November 2009, HG-Pharma, a Mercurian generic drug manufacturer whose 50% of the share was held by Respondent, applied for compulsory license before the High Court of Mercuria. The Court heard the application through a fast-track process and granted a license for HG-Pharma to produce generic FDC drug on 17 April 2010, at the meager royalty rate of 1% total earnings to be paid to Claimant. 10. On 10 January 2012, Respondent s Parliament passed the Commercial Courts Act, directing the High Court to constitute Commercial Benches in order to expeditiously dispose of commercial matters. However, on 1 September 2013, the Supreme Court of Mercuria ruled that the Commercial Bench had no jurisdiction on enforcement proceeding, causing all enforcement applications to be transferred back to the regular bench of the High Court. 11. By 2014, Claimant had lost nearly two-thirds of its share in the greyscale medicine market to the generic FDC drug produced by HG-Pharma, as well as several distributors to which Claimant had long-standing relationship with. Realizing the unsustainability of its business, in February 2015, Claimant announced that it would cease to supply Sanior in Mercuria. 12. On 7 November 2016, Claimant initiated arbitration under the Basheera-Mercuria BIT ( the BIT ) by sending the Notice of Arbitration to Respondent. 2

12 ARGUMENTS PART ONE: JURISDICTION 1. First and foremost, Claimant argues that (I) The Tribunal has jurisdiction over the present dispute. 2. Moreover, as Respondent sought to deny Claimant s claims by invoking the Denial of Benefits clause in Article 2 BIT, Claimant will demonstrate that (II) Respondent has not effectively denied Claimant the benefits of the BIT; 3. Finally, Respondent may argue that this Tribunal should refrain from adjudicating Claimant s claim regarding the NHA s termination of the LTA, since this has already been decided by the tribunal established under the LTA. However, Claimant contends that (III) The arbitration proceedings between Claimant and the NHA under the LTA cannot preclude this Tribunal s jurisdiction over Claimant s claim regarding the LTA. I. THIS TRIBUNAL HAS JURISDICTION OVER THE DISPUTE 4. According to Article 8 of the BIT, the PCA Tribunal has jurisdiction over this dispute because (A) Claimant is a qualified investor within the meaning of the BIT; and (B) Claimant s claims arise out of its investment protected under the BIT. A. Claimant is a qualified investor within the meaning of the BIT 5. Atton Boro was duly established in accordance with Basheeran law, 1 thus being a protected investor under Article 1.2.b BIT. B. Claimant s claims arise out of its investment protected under the BIT 6. In the present case, Claimant made 3 claims against Respondent: (1) Respondent s enactment of Law No. 8458/09 and granting of the compulsory license violated the FET standard under the BIT; (2) Mercuria is liable under Article 3 BIT for the conduct of its judiciary in the enforcement proceeding; and (3) the NHA s termination of the LTA violates Article 3.3 BIT. 2 These claims arise out of Claimant s investments protected under the BIT, namely respectively: (1) the Mercurian patent for Valtervite; (2) the LTA and (3) the Award issued by the tribunal seated in Reef (hereinafter the Award ). 1 UF, [4] 2 See Part II: Merits 3

13 1. The patent is qualified as investment under Article 1.1 BIT 7. The Mercurian patent for Valtervite was assigned to Atton Boro; 3 therefore, it is an asset held by Claimant in the territory of Mercuria, in accordance with Mercurian laws. Moreover, the patent, being an intellectual property right, falls into Article 1.1.d as an example of investment. Consequently, the patent is a qualified investment under Art. 1.1 BIT. 2. The LTA is qualified as investment under Article 1.1 BIT 8. The LTA is a contract between Claimant and the NHA, under which Claimant supplies Sanior to the NHA and be purchased. 4 This is a right conferred under contract to undertake an economic or commercial activity, 5 which is qualified as investment under the BIT. 9. Respondent may argue that the LTA is only a sale contract, which is different from traditional investment agreements such as construction, exploitation or concession contracts, therefore must be excluded from BIT protection. However, Claimant submits that whether the LTA is a purely commercial agreement is irrelevant, as Art. 1.1.e expressly allows rights to conduct any economic or commercial activity under a contract to be protected investment. 3. The Award is qualified as investment under Article 1.1 BIT 10. An investment within the meaning of the BIT is any kind of asset held or invested [ ] by an investor of one Contracting Party in the territory of the other Contracting Party, in accordance with the latter s laws, which includes, inter alia, rights conferred under contract to undertake an economic or commercial activity, 6 and claims to money Firstly, the Award is held by Claimant in the territory of Mercuria, in accordance with Mercurian law. 12. According to Art. 1.4 BIT, in order for the Award to be held in Mercuria s territory, it must be subject to Mercuria s sovereignty, sovereign rights, and jurisdiction in accordance with international law. In the present case, The Award is currently subject to the enforcement proceeding before the High Court of Mercuria, 8 who has jurisdiction 3 UF, [4] 4 UF, [9, 10] 5 BIT, Art. 1.1.e 6 Ibid 7 BIT, Art. 1.1.c 8 UF, [18]; PO3, line

14 to decide whether the Award can be enforced in Mercuria, who can also invoke public order to refuse to enforce the Award. This demonstrates Mercuria s exercise of sovereignty, sovereign rights, and jurisdiction over the Award. 13. Similarly, as the Award is currently subject to the enforcement proceeding before Mercurian High Court, it is held by Claimant in accordance with Mercurian law, particularly the law governing the enforcement proceeding. 14. Having explained that the Award satisfies the chapeau of Art. 1, for greater clarity, Claimant will demonstrate that (a) The Award is a transformation of Claimant s rights to manufacture and supply Sanior under the LTA; alternatively (b) The Award itself is claims to money, and therefore qualified as investment under the BIT. a. The Award is a transformation of Claimant s rights to manufacture and supply Sanior under the LTA 15. As submitted above, Claimant s right to supply Sanior to the NHA and be purchased under the LTA is a right conferred under contract to undertake an economic or commercial activity, 9 thus qualified as investment under the BIT. 16. Art. 1.1 provides that any change in the form of an investment does not affect its character as an investment. In Chevron v. Ecuador, which has similar facts and BIT provisions with the case at hand, the tribunal upheld Claimant s argument that the lawsuits before Ecuadorian courts were a continuation of Claimant s original investment. In the words of the tribunal, Once an investment is established, it continues to exist and be protected until its ultimate disposal has been completed. 10 The tribunal found that Chevron s investments did not cease to exist because they have ongoing claims for money arising out of their oil extraction and production activities under their contracts with Ecuador It is similar to what happened in the case at hand: When the NHA prematurely terminated the LTA, Claimant s right to supply Sanior under the LTA was not nullified, but transformed into Claimant s lawsuit against the NHA, the lawsuit then transformed into the Award, under which Claimant is entitled with a payment of liquidated damages. 12 The 9 BIT, Art. 1.1.e 10 Chevron I (2008), [183] 11 Ibid, [184] 12 Notice of Arbitration, [9] 5

15 Award therefore can be seen as a transformation of Claimant s original investment, which is the right to supply Sanior under the LTA. 18. This interpretation of Art. 1.1 is consistent with the preamble and other provisions of the BIT. Article 3.2 protects investments through their management, maintenance, use, enjoyment or disposal, while the BIT preamble guarantees the importance of providing effective means of asserting claims and enforcing rights with respect to investment. Altogether, these provisions indicate as the tribunal in Chevron case opine the BIT intends a broad coverage of protecting investment, which closes any possible gaps in the protection of that investment as it proceeds in time and potentially changes form. 13 b. Alternatively, the Award itself includes claims to money, which are qualified investment under the BIT 19. The Award itself can be classified as claims to money under Art. 1.1.c, as it entitles Claimant with 40 million USD in damages. 14 Indeed, the Chevron tribunal, while recognizing Chevron s lawsuit to be a change in form of its original investment, also classified such investment as claims to money. 15 II. RESPONDENT HAS NOT EFFECTIVELY DENIED CLAIMANT THE BENEFITS OF THE BIT 20. Respondent has not effectively denied Claimant the benefits of the BIT because: (A) Respondent did not timely exercise the Denial of Benefits clause; (B) Alternatively, the criteria of the Denial of Benefits clause are not fulfilled. A. Respondent did not timely exercise the Denial of Benefits clause 21. The first and only occasion that Respondent exercised its right to deny benefits is on 26 November 2016 in its Response to the Notice of Arbitration, after Claimant initiated the arbitration. 22. The Tribunal in Plama v. Bulgaria decided that the right s exercise should not have retrospective effect, but only prospective effect from the date s exercise onwards, after weighing 2 factors: firstly, a foreign investor has legitimate expectations of the BIT s advantages until the host state exercises the right to deny; and secondly, the object and purpose of the BIT in question is to promote long-term co-operation [in the energy 13 Chevron I (2008), [183] 14 Notice of Arbitration, [9] 15 Chevron I (2008), [184] 6

16 field] (emphasis supplied). 16 This holding was afterwards widely followed by other tribunals dealing with the denial of benefits clause, citing the same reasons The circumstances in Plama are similar to those in the present case. The object and purpose of Mercuria-Basheera BIT, as reflected in its preamble, is to promote greater economic cooperation [between the two Contracting Parties]. 18 Furthermore, as Claimant s investment is part of the long-term Product Development Partnership with Respondent, in which Respondent committed to empower right holders like Claimant, 19 Claimant has legitimate expectations of the BIT s advantages, which should not be later frustrated by a retrospective application of the denial of benefits clause. 24. For the reasons above, Respondent s exercise of the right to deny benefits had no effect upon Claimant. B. Alternatively, the criteria of the Denial of Benefits clause are not fulfilled 25. As a preliminary matter, Respondent bears the burden of proof to establish third state ownership or control, as well as Claimant s lack of substantial business activities, since it is the party who invokes the right to deny 20 conferred by the BIT Therefore, in order to deny Claimant the benefits of the BIT, Respondent must establish that: (1) Claimant is owned or controlled by citizens or nationals of a third state; and (2) Claimant has no substantial business activities in Basheera. Neither condition is met in the present case. 1. Respondent cannot establish that Claimant is owned or controlled by citizens or nationals of a third state 27. The BIT provides no definition of third state. However, the term is used in Art. 2, as well as Art. 1, in contrast to Contracting Party, which suggests that a third state is any state but a Contracting Party to the BIT Plama v. Bulgaria, [161] 17 Liman v. Kazakhstan, [225]; Ascom v. Kazakhstan, [745]; Pan American Energy v. Argentina, [204]; Khan Resources v. Mongolia, [410-31] 18 BIT, Preamble, lines Annex No. 2, [4] 20 BIT, Art. 2, line Generation Ukraine v. Ukraine, [15.7] 22 AMTO v. Ukraine, [62] 7

17 a. ABG or its directors are not citizens or nationals of a third state 28. It is indisputable that ABG wholly owns AB; 23 however, there is no indication in the fact about ABG that support a finding of ABG or its directors being citizens or nationals of a third state. Therefore, Respondent cannot seek to deny Claimant of the BIT s benefits by establishing that AB is owned or controlled by ABG. b. ABC or its directors are not citizens or nationals of a third state 29. There is no indication in the fact that AB&C is owned or controlled by third state citizens or nationals. Indeed, AB&C shares are held by private entities and individuals of various nationalities; and its directors come from different countries, including Basheera and Mercuria, 24 which are both contracting parties of the BIT. Therefore, Respondent cannot seek to deny Claimant of the BIT s benefits by establishing that AB is owned or controlled by ABC. 2. Claimant has substantial business activities in the territory of Basheera 30. Secondly, as there is no definition of substantial business activities in the BIT, Claimant invites the Tribunal to look at previous case law, for example, the AMTO v. Ukraine. AMTO is a company registered in Latvia. It held a bank account, rented an office in Latvia, and employed 2 staffs full-time. AMTO s main business activity is in the field of financial investments by participating as a shareholder in companies in several countries. 31. The tribunal sided with AMTO and held that substantial doesn t mean large. Rather it means that the business activities are of substance, not merely of form, or existing only on paper. 25 Accordingly, the tribunal was satisfied with the claimant in that case, on the basis of its investment-related activities conducted in its home state, and the employment of a small, but permanent staff The circumstances are similar in the present case. Atton Boro had several permanent employees, 27 it rented an office space in Basheera and held a bank account; it engaged in business activities such as managing the portfolio of patents registered in South America and Africa. 28 This is an essential investment-related activity since Atton Boro s principal 23 UF, [4] 24 PO3, lines AMTO v. Ukraine, [69] 26 Ibid 27 PO2, [3] 28 Ibid 8

18 dealing is the manufacture and supply of medicines. 29 Following the tribunal s ruling in AMTO case, Claimant should be considered as having substantial activities in the territory of Basheera, and therefore Respondent has no right to deny Claimant the advantages of the BIT. III. THE ARBITRATION PROCEEDINGS BETWEEN CLAIMANT AND THE NHA UNDER THE LTA CANNOT PRECLUDE THIS TRIBUNAL S JURISDICTION OVER CLAIMANT S CLAIM REGARDING THE LTA 33. Respondent may argue that according to the principle of res judicata, which is wellrecognized as a general principle of public international law, 30 this Tribunal should refrain from adjudicating Claimant s claim regarding the NHA s termination of the LTA, since this has already been decided by the tribunal established under the LTA. However, Claimant argues to the contrary. 34. Res judicata applies when the test of triple identity is met: same parties, same request for relief and same grounds for that request. 31 The last two conditions are met in this case. A. Claimant sought different requests (petitum) in the two proceedings 35. The principle of res judicata can only apply where the same relief is sought in the two subsequent sets of proceedings. In Helnan v. Egypt case, the tribunal, when judging about res judicata, decided that although the requests sought in two proceedings ultimately aim at the same result, that was not sufficient to constitute identical requests. 32 In the present case, although Claimant s requests in both proceedings eventually aim at a payment of damages for the NHA s termination of the LTA, the two requests sought before the tribunal seated in Reef and this tribunal are different, as the former asks for a finding of contractual breach (breach of the LTA) 33, while the latter asks for a finding of treaty breach (breach of the BIT). 34 B. The Causes of action (causa petendi) in the two proceedings are different 36. Identity of cause of action, or causa petendi in two proceedings involves identity of not only the facts underlying the claims, but also the legal basis and arguments UF, [5] 30 Corfu Channel, [248]; Chorzów Factory, Opinion by M Anzilotti 31 Chorzów Factory, Opinion by M Anzilotti, [1] 32 Helnan v. Egypt, [130] 33 UF, [17] 34 Notice of Arbitration, [14] 35 Malicorp v. Egypt, [103.b] 9

19 Consequently, the causes of action under separate instruments are different ; 36 in other words, contractual claims do not have the same cause of action as Treaty claims. 37 In the present case, Claimant s claim regarding the termination of the LTA is treaty-based, while its claim before the tribunal seated in Reef was contractual-based. As a result, the causes of action in two proceedings are different. 37. For the reasons above, the principle of res judicata cannot be applied. The arbitration proceedings between Claimant and the NHA under the LTA poses no bar to this Tribunal s jurisdiction over Claimant s claim regarding the LTA. 36 CMS (2003), [80] 37 Toto Costruzioni v. Lebanon, [211]; See also SGS v. Pakistan, [182]; PSEG, [158]; Helnan v. Egypt, [124] 10

20 PART TWO: MERITS 38. Respondent s measures constituted an infringement of the protections guaranteed to Claimant under the BIT. In particular, (I) The enactment of Law No. 8458/09 and issuance of the License violated the Fair and Equitable Treatment Standard ( FET ) under the BIT; (II) Respondent s judiciary conduct in the enforcement proceeding amounted to denial of justice; and (III) The termination of the LTA violates Art. 3.3 BIT (the umbrella clause). Claimant will address these claims respectively. I. RESPONDENT S ENACTMENT OF LAW NO. 8458/09 AND ISSUANCE OF THE LICENSE VIOLATED THE FET STANDARD UNDER THE BIT 39. Art. 3.2 BIT obliges Respondent to accord foreign investors FET in its territory. The provision states: Investments and returns of investors of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party 40. This is typical of a so-called unqualified FET clause, 38 of which no unified explanation has been reached so far. Nevertheless, all possible interpretations delivered by various scholars and tribunals make almost no difference Claimant is aware of ongoing discussions whether FET forms an autonomous standard or whether it should be equated to the international minimum standard of treatment. In the present case, however, Claimant submits that any of these two explanations, without prejudice to each other, lead to the same outcome that Respondent has violated its FET obligation under Art. 3.2 BIT. 42. It has long been established that frustrating Claimant s legitimate expectations constitutes a violation of the FET standard. 40 Any business when deciding to make an investment in a foreign country always legitimately expect to be welcomed by a favorable and stable legal environment. This is even more crucial for Claimant as its investment not only serves noble causes to create a medicine to treat millions of patients, but also has great value - over 1 million USD. However, those legitimate expectations were frustrated when Respondent promulgated a completely new section of law on compulsory licenses and 38 UNCTAD Series FET, p Dolzer & Schreuer, p. 126; Tecmed, [155]; Occidental, [189, 190]; CMS (2005), [ ] 40 International Thunderbird v Mexico, [147]; Tecmed, [154]; Waste Management II, [98]; Occidental, [183] 11

21 granted HG-Pharma a license over Claimant s patent (A); Respondent cannot justify its wrongful act (B). A. Respondent violated FET by having frustrated Claimant s legitimate expectations 43. Breach of legitimate expectations arises in situations where the host state s conduct creates reasonable and justifiable expectations on the part of an investor to act in reliance on said conduct, such that a subsequent failure by the host state to honor those expectations causes the investor to suffer damages Within the concept of legitimate expectations, the duty of maintaining a stable and predictable framework for investors has resonated across a significant number of decisions. 42 The tribunal in Occidental, for example, observed that stability of the legal and business framework is [ ] an essential element of fair and equitable treatment 43 and that there is certainly an obligation not to alter the legal and business environment in which the investment has been made In the present case, (1) Claimant has legitimate expectations that Respondent will maintain a legal framework that is stable and consistent with the TRIPS Agreement; however, (2) Those expectations were frustrated by Respondent s amending its IP law and issuing the license. 1. Claimant has legitimate expectations that Respondent will maintain a legal framework that is stable and consistent with the TRIPS Agreement 46. Before Claimant decided to make investments in Mercuria, it took into account and relied first and foremost upon the Basheera-Mercuria BIT, the preamble of which states that the BIT was built on the respective rights and obligations of the two countries under the Marrakesh Agreement and other international agreements, 45 including the TRIPS Agreement to which Respondent is a state party. Claimant therefore reasonably expected that Respondent would perform duly its international obligations under such treaty. 47. More importantly, Claimant also relied upon Respondent s specific commitments to a stable legal framework in 2004, shortly before Claimant decided to sign the LTA with Mercuria s NHA. In Mercurian Minister for Health s press statement on 19 January 2004, 41 International Thunderbird v Mexico, [147]; Newcombe & Paradell, p Enron v. Argentina, [260]; LG&E Liability, [124] 43 Occidental, [183] 44 Ibid, [191] 45 Annex No. 1, line

22 he explicitly praised the partnership with Atton Boro Limited, and further dictated that A stable, progressive IPR regime is essential to [tackle critical diseases]. Patents are the cornerstone of the innovative pharmaceutical industry Mercuria reaffirms its commitment to empower and engage right holders Reaffirm can only mean that Respondent had more than once made commitments with IP rights holders, which clearly include Claimant. Coupled with the direct mention of its name, 47 this representation led Claimant to believe that these commitments were directed at it and served as an assurance for its production project of greyscale medicine Sanior. Alternatively, even if such commitments were not meant to be individually addressed to Claimant but only targeted at a group of foreign investors including it, Claimant is still entitled to rely on those Further, on 20 January 2004, the President of Mercuria s himself delivered a promise via Twitter that Mercuria will do away with red tape and roll out the red carpet for investors. 49 This declaration resembles the words of the Argentine President in his presenting the BIT to the Congress in 1992 that highlight the need to establish a climate of stability and confidence to attract investments, which the BG Group v. Argentina tribunal found contributing to the investor s legitimate expectations. 50 Some commentators also opine that Any form of state conduct, in principle, can give rise to legitimate expectations In the present case, the Mercurian President s tweet is even more reliable, as his account is followed by over 40 million users, and continues to be regarded by many as a primary source of information on government activities. 52 Consequently, the Tribunal should find the above tweet sufficiently influential for an investor to take into consideration when making its investment. 51. In conclusion, a comprehensive assessment at the time Claimant made its investment reveals a legitimate expectation that Respondent would maintain a stable legal regime consistent with its international obligations. 46 Annex No. 2, [4] 47 Ibid, [3] 48 Enron v. Argentina, [ ] 49 UF, [8] 50 BG Group v. Argentina, p. 300, Newcombe & Paradell, p PO3, p. 50, line

23 2. Respondent s amendment of its IP law and issuance of the license frustrated Claimant s legitimate expectations 52. On 10 October 2009, Respondent enacted the National Legislation for its IP Law, which introduced a provision allowing for compulsory license. 53 This makes a significant change in Respondent s IP legal framework as before this enactment, compulsory licenses were never provided for in Mercurian statutes. 54 Not so long after, on 17 April 2010, Mercuria High Court issued a compulsory license, fixing royalty rate at 1% Claimant is mindful that it is plausible for Respondent to alter its legal framework and issue compulsory license, especially for public purposes; however, such measures must not be unreasonable, as the tribunal in Impregilo v. Argentina observed: The legitimate expectations of foreign investors cannot be that the State will never modify the legal framework, especially in times of crisis, but certainly investors must be protected from unreasonable modifications of that legal framework In the present case, Respondent s enactment of the legislation and issuance of the license are unreasonable since they are inconsistent with the TRIPS Agreement, to which Mercuria is a party. 57 Indeed, although allowing member states to grant compulsory licenses, the TRIPS Agreement set out a number of minimum requirements that cannot be surpassed. 58 Similarly, the Doha Declaration reiterates WTO Members commitments to the TRIPS Agreement, 59 albeit affirming their rights to grant compulsory licenses to protect public health. 60 Therefore, it can be concluded that when a state provides for and issues compulsory license in a way that disregards TRIPS obligations, such acts are unreasonable, giving rise to a claim of legitimate expectations. 55. Claimant will demonstrate how Respondent s amendment of IP law and issuance of the license disregarded TRIPS obligations as below. 56. Firstly, Article 31.b TRIPS states that a government or third parties authorized by a government must have tried to obtain a patent on reasonably commercial terms prior to issuing the compulsory licence. However, there is no evidence that HG-Pharma has 53 UF, [20] 54 PO3, lines 1577, UF, [21] 56 Impregilo v. Argentina, [191] 57 PO2, [2] 58 TRIPS, Art Doha Declaration, [4, 5] 60 Ibid, [4, 5(b)] 14

24 attempted to obtain permission from Atton Boro before applying for the license. In fact, it was only when issuing the license that the High Court of Mercuria directed HG-Pharma to pay Claimant royalties. 61 Had Claimant been given a chance to negotiate the terms of compulsory license with HG-Pharma beforehand, the amount of remuneration could be much higher than 1%. Furthermore, Respondent cannot waive this requirement either on the ground of national emergency, because it did not declare the state of emergency, or on the ground of public non-commercial use. 57. Secondly, according to Art. 31.c TRIPS, the scope and duration of a compulsory license must be limited to the purpose for which it was authorized. In the present case, however, while the license was granted to HG-Pharma on the ground that Sanior is not available to the public at a reasonably affordable price, 62 it has a duration from 17 April 2010 until greyscale was no longer a threat to public health in Mercuria. 63 This is an indefinite term that does not correlate to the purpose for which the license was issued. In fact, the real problem that Mercuria faced during the period of was not insufficient medicines to meet the demand of patients, but rather shortage on health budget to purchase such medicines. This is evidenced by the fact that Atton Boro bolstered its production setup in 2007 and reassured the NHA that it was capable of meeting the rising demand, 64 yet the NHA eventually terminated the LTA when its demand of a further 40% discount was not accepted. 65 For this reason, the license s term should have ended, on the latest, in January 2012 when costs of purchasing medicines have reduced by as much as 80% and annual savings have amounted to over 1.2 billion USD, 66 so that Claimant could recover its business in Mercuria. However, there is no evidence of such term-ending until now. 58. Finally, Art. 31.h TRIPS requires that the right holder be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization. In the present case, the royalty paid to Claimant at 1% of total earnings is inadequate, given that Atton Boro has put billions of dollars into R&D UF, [21] 62 PO2, [5]; Annex No. 4, 23 C. 1) 63 UF, [21] 64 UF, [15] 65 UF, [15, 17] 66 UF, [22] 67 UF, [25] 15

25 59. At this point, Respondent may argue that this Tribunal should abstain from adjudicating any violation of the TRIPS Agreement, as it falls within the exclusive domain of WTO Dispute Settlement Body. 60. However, nothing in the WTO DSU suggests that the TRIPS Agreement cannot, in one way or another, be brought before an investment tribunal. While Art. 23 WTO DSU provides that the WTO has exclusive jurisdiction over disputes between member states concerning violations of WTO agreements, the Article does not prohibit private investors to rely on TRIPS in investment disputes, precisely when the BIT qualifies IP rights as a form of investment, 68 and provides for such investment both procedural and substantive protections. 61. Moreover, Claimant does not seek redress of Respondent s violation of TRIPS obligations, rather, it asks the Tribunal to find a breach of the FET standard under the BIT by Respondent when it violated Claimant s legitimate expectations by taking measures inconsistent with TRIPS obligations. In fact, it is suggested by commentators that although investment arbitrations cannot be turned into a mere vehicle to redress violations of TRIPS committed by the host state, 69 investment tribunals are free to resort to TRIPS as a preliminary issue or an aid of interpretation. 70 (emphasis added) In other words, Claimant is only restricted from directly claiming violations of TRIPS as violations of some standards under an IIA before an investment tribunal. That is the case, for instance, where Philip Morris argued that violations of TRIPS automatically result in breaches of the umbrella clauses of the Australia Hong Kong BIT Last but not least, referring to the TRIPS Agreement as an interpretative aid is also consistent with the arbitration rules of the current dispute, which provides that the governing law of this dispute is the Mercuria-Basheera BIT, read with applicable rules of international law, 72 (emphasis added) and the interpretation guidance set forth by Art c of the VCLT. 63. To sum up, the compulsory license has deprived the economic value of Claimant s drug manufacturing unit that worth well over one billion US dollars, 73 resulted in the loss of 68 BIT, Art. 1.1.d 69 Klopschinski, p. 221, Ibid 71 Philip Morris v Australia, [ ] 72 PO1, C) 73 UF, [5, 15, 25]; PO2, line

26 two-thirds of its market shares and long-standing business relationships, 74 and forced Claimant to stop dealing in Mercuria because of the dreadful price war with generic counterparts. 75 Valtervite was the achievement of Atton Boro after years of continuous study, trials and regulatory clearances. 76 Such intensive research and development naturally incurs the need, and expectation, of sufficient revenue, which was frustrated by Respondent s amendment of its IP law and granting of the license. Therefore, Claimant asks this Tribunal to find that Respondent s acts constituted a breach of the FET standard under Art. 3.2 BIT, which cannot be justified. B. Respondent cannot justify its wrongful act 1. Respondent cannot rely on Art. 12 BIT 64. According to Article 12 BIT, Respondent is exempt from its liability if its action was necessary for the protection of its essential security interests in time of war or armed conflict, or other emergency in international relations. In the present case, however, there is no evidence of an armed conflict or likewise emergency in international relations. 2. Respondent cannot invoke necessity defence under CIL 65. Respondent s actions do not fall within the frame of necessity defence under CIL, which is codified in Art. 25 ILC Draft Articles. Necessity may be invoked only if a state can establish that, inter alia, (a) its wrongful act is the only way to safeguard its essential interest against a grave and imminent peril; 77 and (b) the state did not contribute to the situation of necessity. 78 Neither condition above is satisfied in this case. a. Respondent s acts were not the only way to safeguard its essential interest against a grave and imminent peril 66. The only way means the sole means available, notwithstanding cost or inconvenience. 79 In the present case, the amendment of IP law and issuance of license by Respondent were not the sole solution, as it could have further negotiated with Atton Boro for a reasonable discount of Sanior and at the same time sought for financial aid from international organizations. In the worst scenario where the above measures were not sufficient to solve 74 UF, [24] 75 UF, [5, 15, 25] 76 UF, [3] 77 ILC Draft Articles, Art a 78 ILC Draft Articles, Art b 79 ILC Commentary, Art. 25, p. 83, [15] 17

27 the health crisis, compulsory license could be the last resort, though it should comply with international standards including the TRIPS Agreement. That is to say, Claimant should have been given a chance to negotiate with HG-Pharma on reasonable commercial terms before the license was granted, the royalty should have been fixed at a higher rate to be compensable for the economic value of the Valtervite patent, and the license term should have ended as soon as Mercuria s health budget recovered. b. Respondent contributed to the situation of necessity 67. Respondent has contributed to its own health crisis when the NHA s report made wrong estimations about the incidence and prevalence of greyscale, 80 which led to Mercuria being ill-prepared in terms of financial budget. 68. In conclusion, Respondent s violation of the FET standard cannot be justified. II. RESPONDENT S JUDICIARY CONDUCT IN THE ENFORCEMENT PROCEEDING AMOUNTED TO DENIAL OF JUSTICE A. Conduct of Mercuria s judiciary in relation to the enforcement proceeding is attributable to Respondent 69. Mercuria s judiciary, including the High Court and Supreme Court, is a state organ which exercises judicial function. Therefore, its conduct is attributable to Respondent. 81 B. Respondent violated FET standard under Art. 3.2 as its judiciary conduct constituted a denial of justice 70. International tribunals have affirmed that the FET standard encompasses a prohibition of denial of justice. 82 In the present case, Respondent s judiciary conduct constituted a denial of justice for three reasons: (1) The conduct was manifestly biased against Claimant; (2) The conduct subjected the enforcement proceeding to undue delay; and (3) The requirement of exhaustion of local remedies is not applicable to Claimant s denialof-justice claim in the present case. 80 UF, [14] 81 ILC Draft Articles, Art Waste Management, [98] 18

28 1. The conduct was manifestly biased against Claimant 71. The Tribunal in Loewen held that denial of justice can be found where there is a manifest injustice in the sense of a lack of due process that shocks a sense of judicial propriety. 83 In that case, confronted by a judge turning a blind eye to prejudice induced by the opposing advocate towards the investor, the Tribunal condemned such conduct with the strongest language possible, calling it a disgrace, antithesis to due process In the present case, the situation is similar, if not worse, as the High Court of Mercuria not only showed passive attitude and inaction towards the NHA s bad faith conduct, but also displayed manifest bias against Claimant. It failed to sanction deliberate attempts by the NHA to delay the proceeding via extensions, 85 adjournments on frivolous grounds, 86 or willful absences without reasons, 87 and even openly sided with the NHA on the ground that it is a public party. 88 Moreover, the Court displayed serious lack of diligence, 89 in the form of the judge taking leave on the listed dates of hearing on multiple occasions. 90 All and all, the outcome of this conduct was Claimant suffering unduly prolonged proceeding. In fact, out of 8 years of proceeding until now, 91 the NHA s recorded attempts to delay the proceeding, which the Court indulged, amounted to almost 5 years The conduct subjected the enforcement proceeding to undue delay 73. Justice delayed is justice denied. This maxim in itself is self-explanatory, putting forward the principle that a delay in the administration of justice is akin to, even more ruinous to absolute refusal of access to justice. 93 It had a similar expression in the context of investment arbitration, as the Tribunal in Azinian v. Mexico also held that denial of justice, in the investment arbitration context, could occur where a court subjects a suit to undue delay. 94 In order to determine whether the delay was unreasonable, four factors 95 must be 83 Loewen, [132] 84 Ibid, [ ] 85 Notice of Arbitration, Exhibit I, [7, 8, 17, 37] 86 Ibid, [12, 13, 42] 87 Ibid, [4-5, 19-21] 88 Ibid, [14] 89 Bangalore Principles, [6.1] The judicial duties of a judge take precedence over all other activities. 90 Notice of Arbitration, Exhibit I, [3, 33] 91 PO3, line Calculations based on Notice of Arbitration, Exhibit I 93 Jan Paulsson, p Azinian v. Mexico, [102] 95 Chevron I (2010), [250] 19