Memorial for Respondent

Transcription

1 Ninth Annual Foreign Direct Investment Arbitration Moot Court Buenos Aires 3-6 November 2016 Memorial for Respondent ICC International Court of Arbitration ICC Case 28000/AC On behalf of Against Republic of Oceania Peter Explosive (Respondent) (Claimant)

2 Table of Contents Table of Contents... ii List of Abbreviations... v List of Authorities... vii Legal Sources... xiii Statement of Facts... 1 Arguments... 4 Issue 1: Arguments on the Tribunal s jurisdiction... 4 A The Tribunal lacks jurisdiction under the Euroasia BIT because Peter Explosive is not a Euroasian national Euroasia s discretion to grant its nationality to Claimant is subject to the limitations imposed by international law The Citizenship Act exceeds the limits set by international law as it is part of an illegal aggression by Euroasia against Eastasia Euroasia engaged in aggression when it annexed Fairyland The regional authority of Fairyland could not legitimise Euroasia s use of force The referendum declaring secession from Eastasia was unlawful Fairyland does not have the right to external self-determination The Citizenship Act formed an integral part of the illegal annexation Claimant s purported Euroasian nationality does not follow from the rules on succession of states either ii

3 B This Tribunal lacks jurisdiction because Claimant failed to comply with Article 9 Euroasia BIT The pre-arbitral steps contained in Article 9 Euroasia BIT are mandatory The mandatory nature follows from the structure of Article 9 Euroasia BIT The use of the term may in Article 9(2) Euroasia BIT does not indicate that Article 9(3) Euroasia BIT is optional Claimant s potential argument that the pre-arbitral steps are futile must be rejected.. 13 C Claimant cannot invoke Article 8 Eastasia BIT pursuant to Article 3 Euroasia BIT to overcome the Tribunal s lack of jurisdiction Careful interpretation of Article 3 Euroasia BIT reveals that it does not extend to dispute settlement provisions At the time the BIT was concluded, the ordinary meaning of the term treatment did not encompass dispute settlement provisions The context of Article 3 Euroasia BIT shows that the term treatment does not extend to dispute settlement provisions The term other investment matters has no relevance for the application of the MFN clause to dispute settlement provisions Even if the MFN clause could in general cover dispute settlement provisions, its application to the local courts requirement in particular would be inappropriate Issue 2: Arguments on the merits of the dispute D Claimant did not make a protected investment because he built Rocket Bombs upon the bribery of an Oceanian official Claimant s BIT protection is subject to a legality requirement Article 1(1) Eastasia BIT contains an explicit legality requirement Article 1(1) Euroasia BIT contains an implicit legality requirement The evidence is sufficient to determine that Claimant violated Oceanian law when he made his investment iii

4 E Respondent is not liable to pay compensation for an expropriation Respondent did not expropriate Claimant s investment The sanctions were a legitimate exercise of Respondent s police powers which does not give rise to compensation Economic sanctions are non-compensable measures in the sense of the police powers doctrine The sanctions do not fail against a proportionality requirement In any event, Respondent is excused by Article 10 Euroasia BIT F Claimant contributed to the damages he suffered Concluding the new weapons supply contract was negligent The negligence contributed to Claimant s damage G Request for Relief iv

5 List of Abbreviations Abbreviation ARfA BIT e.g. et seq./seqq. ExC1/R1/C2 EU GATT ICJ ICSID i.e. MFN NEAO OECD Explanation Answer to Request for Arbitration Bilateral Investment Treaty exempli gratia, for example et sequens/sequential, the following Exhibit C1/R1/C2 European Union General Agreement on Tariffs and Trade International Court of Justice International Centre for Settlement of Investment Disputes id est, that is to say Most-Favoured-Nation National Environment Authority of Oceania Organisation for Economic Co-operation and Development p. Page para. PCIJ Paragraph Permanent Court of International Justice PO2 Procedural Order No 2 PO3 Procedural Order No 3 RfA Request for Arbitration v

6 UN Uncontested Facts UNCITRAL UNCTAD US USA USD v United Nations Statement of Uncontested Facts United Nations Commission on International Trade Law United Nations Conference on Trade and Development United States United States of America United States Dollar versus VCLT Vienna Convention on the Law of Treaties, 1969 vi

7 List of Authorities Commentary on Draft Articles on State Responsibility Corten, The Law against War Council of the European Union, Factsheet EU restrictive measures Crawford, State Responsibility Crawford, The Creation of States in International Law Dolzer/Schreuer, Principles of International Investment Law Douglas, The MFN Clause in Investment Arbitration Ellis, General Principles and Comparative Law Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, 2001, Yearbook of the International Law Commission, 2001, Vol.II Part Two Oliver Corten, The Law against War A Prohibition on the Use of Force in Contemporary International Law, 2010 Council of the European Union, Factsheet EU restrictive measures, 29 April 2014 James Crawford, State Responsibility, in Max Planck Encyclopedia of Public International Law, September 2006 James Crawford, The Creation of States in International Law, Second Edition, 2006 Rudolf Dolzer/Christoph Schreuer, Principles of International Investment Law, Oxford University Press, 2008 Zachary Douglas, The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails, Journal of International Dispute Settlement, Vol.2 No.1 (2011), pp , Jaye Ellis, General Principles and Comparative Law, The European Journal of International Law, Vol.22 No.4 (2011), pp vii

8 Figanmeşe, The Impact of the Maffezini Decision Green, Questioning the Peremptory Status of the Prohibition of the Use of Force Henckels, Indirect Expropriation and the Right to Regulate I nci Ataman Figanmeşe, The Impact of the Maffezini Decision on the Interpretation of MFN Clauses in Investment Treaties, Ankara Law Review, Vol.8 No.2 (Winter 2011), pp James Green, Questioning the Peremptory Status of the Prohibition of the Use of Force, Michigan Journal of International Law, Vol.32 Issue 2, 2011 Caroline Henckels, Indirect Expropriation and the Right to Regulate: Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration, Journal of International Economic Law, Vol.15(1), pp Krajewski, Völkerrecht Markus Krajewski, Völkerrecht, 2017 Kriebaum, Regulatory Takings Llamzon, Corruption in International Investment Arbitration Malek, Nonviolent Sanctions and Incentives Ulrike Kriebaum, Regulatory Takings: Balancing the Interests of the Investor and the State, The Journal of World Investment and Trade, Vol.8 Issue 5, pp Aloysius Llamzon, Corruption in International Investment Arbitration, Oxford International Arbitration Series, First Edition, 2014 Cate Malek, Nonviolent Sanctions and Incentives, Updated May 2013 by Heidi Burgess, viii

9 Mann, The Right of States to Regulate and International Investment Law McLachlan/Shore/Weiniger, International Investment Arbitration: Substantive Principles OECD, Definition of Investor and Investment in International Investment Agreements Parker, A BIT at a Time Pellet, The Opinions of the Badinter Arbitration Committee Pomson/Horowitz, Humanitarian Intervention and the Clean Hands Doctrine in International Law Howard Mann, The Right of States to Regulate and International Investment Law, Comment during Expert Meeting on the Development Dimension of FDI: Policies to Enhance the Role of FDI in Support of the Competitiveness of the Enterprise Sector and the Economic Performance of Host Economies, Taking into Account the Trade/Investment Interface, in the National and International Context, 2002 Campbell McLachlan/Laurence Shore/Matthew Weiniger, International Investment Arbitration: Substantive Principles, Oxford International Arbitration Series, 2008 OECD, Chapter 1, Definition of Investor and Investment in International Investment Agreements, International Investment Law: Understanding Concepts and Tracking Innovations, 2008 Stephanie Parker, A BIT at a Time: The Proper Extension of the MFN Clause to Dispute Settlement Provisions in Bilateral Investment Treaties, American University Washington College of Law, 2012 Alain Pellet, The Opinions of the Badinter Arbitration Committee, A Second Breath for the Self-Determination of Peoples, 3 European Journal of International Law (1992), p.178 Ori Pomson and Yonatan Horowitz, Humanitarian Intervention and the Clean Hands Doctrine in International Law, Israel Law Review, Vol.48 (2015), pp ix

10 Ranjan, Using Public Law Concept of Proportionality Restat 3rd of the Foreign Relations Law of the US Rodriguez, A tool for Treaty Shopping? Sayapin, Elements of an Act of Aggression Schrijver, The Use of Force under the UN Charter: Restrictions and Loopholes Talmon, The Duty Not to Recognize as Lawful Prabhash Ranjan, Using Public Law Concept of Proportionality to Balance Investment Protection with Regulation in International Investment Law - A Critical Appraisal, Cambridge Journal of International and Comparative Law, Vol.3(3) (2014), pp Restatement of the Law, Third, Foreign Relations Law of the United States, 1987, The American Law Institute, Case Citations, Rules and Principles, Part 1 - International Law and Its Relation to United States Law, Chapter 1 - International Law: Character and Sources Alejandro Faya Rodriguez, The Most-Favoured-Nation Clause in International Investment Agreements: A tool for Treaty Shopping?, Journal of International Arbitration Vol.25(1), pp S. Sayapin, Chapter 2, Elements of an Act of Aggression: An Overview of Modern International Law and Practice, The Crime of Aggression in International Criminal Law, 2014 Nico Schrijver, The Use of Force under the UN Charter: Restrictions and Loopholes, The ACUNS 2003 John W. Holmes Memorial Lecture, 2003 Stefan Talmon, The Duty Not to Recognize as Lawful a Situation Created by the Illegal Use of Force or Other Serious Breaches of a Jus Cogens Obligation: An Obligation without Real Substance?, in The Fundamental Rules of the International Legal Order, 2005 x

11 Tancredi, The Russian Annexation of the Crimea TASS, Over 150 offices issuing Russian passports opened in Crimea Russia The Aaland Islands question (Report on Jurisdiction) The Oxford Handbook of International Investment Law Thulasidhass, Most- Favoured-Nation Treatment in International Investment Law Tsukanova, Cheney urges divided Ukraine to unite against Russia 'threat' UNCTAD, Expropriation: A Sequel UNCTAD, Most-Favoured- Nation Treatment Antonello Tancredi, The Russian Annexation of the Crimea: Questions Relating to the Use of Force, Questions of International Law, Zoom out I (2014), pp.5-34 TASS Russian News Agency, Over 150 offices issuing Russian passports opened in Crimea Russia, 8 April 2014, 23:02 UTC+3, Report of the International Committee of Jurists entrusted by the Council of the League of Nations with the task of giving an advisory opinion upon the legal aspects of the Aaland Islands question, League of Nations Official Journal, October 1920 Peter Muchlinski/Federico Ortino/Christoph Schreuer, The Oxford Handbook of International Investment Law, 2008 P. R. Thulasidhass, Most-Favoured-Nation Treatment in International Investment Law: Ascertaining the Limits through Interpretative Principles, Amsterdam Law Forum, Vol.7:1 (2015), pp.3-24 Anya Tsukanova, Cheney urges divided Ukraine to unite against Russia 'threat', 6 September :14AM, ukraine-to-unite-against-russia-threat auh.html UNCTAD, Expropriation: A Sequel, UNCTAD/DIAE/IA/2011/7, 2012 UNCTAD, Most-Favoured-Nation Treatment, UNCTAD Series on Issues in International Investment Agreements II, 2010 xi

12 Vandevelde, Bilateral Investment Treaties Waelde/Kolo, Environmental Regulation White, Equity a general principle of law recognised by civilised nations Zadorozhnii, Russian Doctrine of International Law after the Annexation of Crimea Zivkovic, Recognition of Contracts as Investments in International Investment Arbitration Kenneth Vandevelde, Bilateral Investment Treaties, History, Policy, and Interpretation, Oxford University Press, 2010 Thomas Waelde/Abba Kolo, Environmental Regulation, Investment Protection and 'Regulatory Taking' in International Law, The International and Comparative Law Quarterly, Vol.50 No.4 (2001), pp Justice Margaret White, Equity a general principle of law recognised by civilised nations, Queensland University of Technology Law & Justice Journal, Vol.4 No.1 (2004), pp Oleksandr Zadorozhnii, Russian Doctrine of International Law after the Annexation of Crimea, Monograph, 2016 Velimir Zivkovic, Recognition of Contracts as Investments in International Investment Arbitration, European Journal of Legal Studies, Vol.5 Issue 1 (Spring/Summer 2012), pp xii

13 Legal Sources Court decisions Dering v Earl of Winchelsea Dering v Earl of Winchelsea (1787) 29 Eng. Rep. pp DRC v Uganda ICJ, Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v Uganda) ICJ Reports 2005, p.168 Judgement 19 December 2005 Nicaragua v USA ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v United States of America) ICJ Reports 1986, p.14 Merits, Judgement 27 June 1986 PCIJ Advisory Opinion, Tunis v Morocco PCIJ, Nationality Decrees Issued on Tunis and Morocco Second (extraordinary) Session, No.4 7 February 1923 Reference re Secession of Quebec Supreme Court of Canada [1998] 2 S.C.R August 1998 xiii

14 Arbitral decisions AAP v Sri Lanka Asian Agricultural Products Ltd. v Republic of Sri Lanka ICSID Case No. ARB/87/3 Final Award 27 June 1990 Ambiente v Argentina Ambiente Ufficio S.P.A. and Others (Case formerly known as Giordano Alpi and Others) v Argentine Republic ICSID Case No. ARB/08/9 Decision on Jurisdiction and Admissibility 8 February 2013 Austrian Airlines v Slovakia Austrian Airlines v Slovak Republic Final Award 9 October 2009 Chemtura v Canada Chemtura Corporation (formerly Crompton Corporation) v Government of Canada Award 2 August 2010 Daimler v Argentina Daimler Financial Services AG v Argentine Republic ICSID Case No. ARB/05/1 Award 22 August 2012 EDF v Romania EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 Award 8 October 2009 xiv

15 Eureko v Poland Eureko B.V. v Republic of Poland Partial Award 19 August 2015 Feldman v Mexico Marvin Feldman v United Mexican States ICSID Case No. ARB(AF)/99/1 Award 16 December 2002 Fraport v Philippines Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines Case No. ARB/03/25 Award 16 August 2007 Fraport v Philippines II Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines ICSID Case No. ARB/11/12 Award 10 December 2014 Gemplus and Talsud v Mexico Gemplus S.A./SLP. S.A./Gemplus Industrial S.A. de C.V. and Talsud v United Mexican States Two conjoined arbitrations ICSID Cases Nos. ARB (AF)/04/3 & ARB (AF)/04/4) Award 16 June 2010 xv

16 Giovanni Alemanni v Argentina Giovanni Alemanni and Others v Argentine Republic ICSID Case No. ARB/07/8 Decision on Jurisdiction and Admissibility 17 November 2014 Global and Globex v Ukraine Global Trading Resource Corp. and Globex International, Inc. v Ukraine ICSID Case No. ARB/09/11 Award 1 December 2010 Hamester v Ghana Gustav F W Hamester GmbH & Co KG v Republic of Ghana ICSID Case No. ARB/07/24 Award 18 June 2010 ICS v Argentina ICS Inspection and Control Services Limited (United Kingdom) v Argentine Republic PCS Case No Award on Jurisdiction 10 February 2012 Impregilo v Argentina Impregilo S.p.A v Argentine Republic ICSID Case No. ARB/07/17 Award 21 June 2011 xvi

17 Inceysa v El Salvador Inceysa Vallisoletana S.L. v Republic of El Salvador ICSID Case No. ARB/03/26 Award 2 August 2006 Italy v Cuba Republic of Italy v Republic of Cuba Final Award 15 January 2008 Jan de Nul v Egypt Jan de Nul N.V. and Dredging International N.V. v Arab Republic of Egypt ICSID Case No. ARB/04/13 Decision on Jurisdiction 16 June 2006 Joy Mining v Egypt Joy Mining Machinery Limited v Arab Republic of Egypt ICSID Case No. ARB/03/11 Award on Jurisdiction 6 August 2004 Kiliç v Turkmenistan Kılıç İnşaat İthalat İhracat Sanayi ve Ticaret Anonim Şirketi v Turkmenistan ICSID Case No. ARB/10/1 Award 2 July 2013 Klöckner v Cameroon Klöckner Industrie-Anlagen GmbH and Others v United Republic of Cameroon and Société Camerounaise des Engrais ICSID Case No. ARB/81/2 Decision on Annulment 3 May 1985 xvii

18 LG&E v Argentina LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc. v Argentine Republic ICSID Case No. ARB/02/1 Decision on Liability 3 October 2006 Maffezini v Spain Emilio Augustín Maffezini v Kingdom of Spain ICSID Case No. ARB/97/7 Decision of the Tribunal on Objections to Jurisdiction 25 January 2000 Metalclad v Mexico Metalclad Corporation v United Mexican States ICSID Case No. ARB(AF)/97/1 Award 30 August 2000 Metal-Tech v Uzbekistan Metal-Tech Ltd. v Republic of Uzbekistan ICSID Case No. ARB/10/3 Award 4 October 2013 Methanex v USA Methanex Corporation v United States of America Final Award of the Tribunal on Jurisdiction and Merits 3 August 2005 Middle East Cement v Egypt Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt ICSID Case No. ARB/99/6 Award 12 April 2002 xviii

19 MTD v Chile MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile ICSID Case No. ARB/01/7 Award 25 May 2004 Noble Ventures v Romania Noble Ventures, Inc. v Romania ICSID Case No. ARB/01/11 Award 12 October 2005 Occidental v Ecuador Occidental Petroleum Corporation, Occidental Exploration and Production Company v Republic of Ecuador ICSID Case No. ARB/06/11 Award 5 October 2012 Olguin v Paraguay Mr. Eudoro Armando Olguín v Republic of Paraguay ICSID Case No. ARB/98/5 Award 26 July 2001 Oostergetel v Slovakia Oostergetel v Republic of Slovakia Final Award 23 April 2012 Petrobart v Kyrgyzstan Petrobart Limited v Republic of Kyrgyzia Award 13 February 2003 xix

20 Phoenix Action v Czech Republic Phoenix Action, Ltd. v Czech Republic ICSID Case No. ARB/06/5 Award 15 April 2009 Plama v Bulgaria Plama Consortium Limited v Republic of Bulgaria ICSID Case No. ARB/03/24 Decision on Jurisdiction 8 February 2005 Plama v Bulgaria (Merits) Plama Consortium Limited v Republic of Bulgaria ICSID Case No. ARB/03/24 Award 27 August 2008 Renta 4 v Russia Renta 4 S.V.S.A:, Ahorro Corporación Emergentes F.I., Ahorro Corporación Eurofondo F.I., Rovime Inversiones SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v Russian Federation Award on Preliminary Objections 20 March 2009 Salini v Jordan Salini Costruttori S.p.A. and Italstrade S.p.A. v Jordan ICSID Case No. ARB/02/13 Award 31 January 2006 xx

21 Salini v Marocco Salini Construttori S.P.A. and Italstrade S.P.A. v Kingdom of Morocco ICSID Case No. ARB/00/4 Decision on Jurisdiction 23 July 2001 Saluka v Czech Republic Saluka Investments BV (The Netherlands) v Czech Republic Partial Award 17 March 2006 SD Myers v Canada S.D. Myers Inc. v Government of Canada Partial Award 13 November 2000 Soufraki v United Arab Emirates Hussein Nuaman Soufraki v United Arab Emirates ICSID Case No. ARB/02/7 Award 7 July 2004 ST-AD v Bulgaria ST-AD GmbH v Republic of Bulgaria PCA Case No (ST-BG) Award on Jurisdiction 18 July 2013 SuezVivendi v Argentina Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v Argentine Republic ICSID Case No. ARB/03/19 Decision on Liability 30 July 2010 xxi

22 Tecmed v Mexico Tecnicas Medioambientales Tecmed S.A. v United Mexican States ICSID Case No. ARB (AF)/00/02 Award 29 May 2003 Telenor v Hungary Telenor Mobile Communications A.S. v Republic of Hungary ICSID Case No. ARB/04/15 Award 13 September 2006 Tokios v Ukraine Tokios Tokelės v Ukraine ICSID Case No. ARB/02/18 Award 26 July 2007 Total v Argentina Total S.A. v Argentine Republic ICSID Case No. ARB/04/1 Decision on Liability 27 December 2010 Wintershall v Argentina Wintershall Aktiengesellschaft v Argentine Republic ICSID Case No. ARB/04/14 Award 8 December 2008 xxii

23 Yukos v Russia Yukos Universal Limited (Isle of Man) v Russian Federation PCA Case No. AA 227 Final Award 18 July 2014 Statutes Articles on Nationality Articles on State Responsibility Definition of Aggression, Annex to A/RES/3314 (XXIX) Draft Articles on Nationality Draft Articles on State Responsibility ICJ Statute Nationality of Natural Persons in relation to the Succession of States, 1999, annex to General Assembly resolution 55/153 (A/RES/55/153 - Resolution adopted by the UN General Assembly on the report of the Sixth Committee (A/55/610)), 30 January 2001 Responsibility of States for Internationally Wrongful Acts, 2001, Yearbook of the International Law Commission, 2001, Vol.II (Part Two) Definition of Aggression, Annex to A/RES/3314 (XXIX), 2319th plenary meeting, 14 December 1974 Draft Articles on Nationality of Natural Persons in relation to the Succession of States, with commentaries, 1999, Yearbook of the International Law Commission, 1999, Vol.II Part Two Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, 2001, Yearbook of the International Law Commission, 2001, Vol.II Part Two Statute of the International Court of Justice, annexed to the UN Charter xxiii

24 UN Charter Charter of the United Nations, 1945 Miscellaneous Executive Order of 19 December 2014 Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to the Crimea Region of Ukraine, Executive Order of 19 December 2014, Federal Register Vol.79 No.247 General Assembly Resolutions A/RES/20/2131 A/RES/25/2625 Resolution adopted by the United Nations General Assembly, Declaration on the Inadmissibility of Intervention in the Domestic Affairs of States and the Protection of Their Independence and Sovereignty, 21 December 1965 Resolution adopted by the United Nations General Assembly on a Report from the Sixth Committee (A/8082), Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations, 24 October 1970 Security Council Resolutions S/RES/497 (1981) Security Council Resolution 497 (1981), Adopted by the Security Council at its 2319th meeting, on 17 December 1981 xxiv

25 UN Documents GA/10794 UN Doc. A/51/18 (1996) World Bank Guidelines GA/10794, General Assembly Adopts Broad Range of Texts, 26 in All, On Recommendation of its Fourth Committee, including on Decolonization, Information, Palestine Refugees, General Assembly Plenary, 64th Meeting (AM), 5 December 2008 Committee on the Elimination of Racial Discrimination, General Recommendation 21, The right to selfdetermination (Forty-eighth session, 1996), Document A/51/18, annex VIII at 125, adopted on 8 March 1996 World Bank Guidelines on the Treatment of Foreign Direct Investment, 1992 xxv

26 Statement of Facts 1 The Republic of Oceania ( Oceania, Respondent ) concluded a BIT with both the Republic of Euroasia ( Euroasia ) on 1 January 1995 and the Republic of Eastasia ( Eastasia ) on 1 January The investment 2 In 1998, Peter Explosive ( Claimant ), a resident of Fairyland and Eastasian national, became the 100% shareholder and president of the arms producer Rocket Bombs Ltd. ( Rocket Bombs ). 2 The Oceanian company had lost its environmental license containing an approval for arms production because its production line was not in compliance with the Environment Act Without the license, the company was decrepit. 4 The Environmental License In order to resume arms production, Rocket Bombs was required to obtain a new license from the National Environment Authority of Oceania ( NEAO ). 5 The Environment Act required adjustments to the production line that Claimant was not able to afford. 6 Ordinarily, the process of adjusting a production line and the administrative procedure to obtain an environmental decision from the NEAO are very long and time consuming. 7 In order to expedite this decision, Claimant had a private meeting with the President of the NEAO in July On 23 July 1998, the NEAO granted the environmental license without further explanation, 9 even though Rocket Bombs did not comply with the law. 10 The necessary modernisation of Rocket Bombs to comply with the Environmental Act took Claimant fourteen years and was only completed in January Uncontested Facts, para.1. 2 Uncontested Facts, para.2. 3 Uncontested Facts, para.2. 4 Uncontested Facts, para.2. 5 Uncontested Facts, para.4. 6 Uncontested Facts, para.4. 7 Uncontested Facts, para.6. 8 Uncontested Facts, para.6. 9 Uncontested Facts, para Uncontested Facts, paras.11, Uncontested Facts, para.13. 1

27 The Euroasian weapons contracts 7 8 Claimant concluded his first contract with Euroasia on 23 December 1998 for a period of fifteen years. 12 This contract was facilitated through a private meeting between the Minister of National Defence in Euroasia, John Defenceless, and Claimant. 13 The two men were close friends. 14 After receiving an advance payment from Euroasia, Claimant recommenced arms production. 15 On 28 February 2014, one day before Euroasia invaded Eastasia, Claimant concluded a new weapons contract for another six years with John Defenceless, still Minister of the National Defence of Euroasia. 16 The reunification of Fairyland with Euroasia On 1 November 2013, the authorities of Fairyland held a referendum on the secession of Fairyland from Eastasia. 17 The Eastasian Constitution does not allow such referenda. 18 The residents of Fairyland voted in favour of secession. 19 The national government of Eastasia declared the referendum unlawful. 20 Despite the illegality of the referendum, the authorities of Fairyland purported to invite Euroasia to intervene militarily. 21 Euroasia sent its military into Eastasian territory and seized Fairyland on 1 March Prior to the invasion, the deliberations of the Euroasian Parliament on the Government s proposal to intervene were broadcast on Euroasian public television. 23 Euroasia issued an official declaration of annexation on 23 March Eastasia declared this annexation to be illegal and broke off diplomatic relations with Euroasia Uncontested Facts, para Uncontested Facts, paras.8, Uncontested Facts, paras.8, Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para PO2, para Uncontested Facts, para.14. 2

28 The sanctions Oceania and many other countries do not recognise the Euroasian annexation of Fairyland. 25 On 1 May 2014, in order to protect essential security interests, the President of Oceania issued the Executive Order on Blocking Property of Persons Contributing to the Situation in Eastasia ( Executive Order ). 26 The Executive Order introduced a system of sanctions directed against persons engaged in certain sectors of the Euroasian economy, including the arms production sector. 27 The sanctions included a ban on business operations with such persons, suspending existing contracts and making future contracts with them illegal. 28 The property of sanctioned persons was also blocked and could not be transferred or otherwise dealt in. 29 Because of the second weapons contract Claimant had concluded with Euroasia, he was one of the affected persons. Corruption in the NEAO Throughout 2013, the General Prosecutor s Office of Oceania conducted an investigation regarding the corruption and bribery in the NEAO. 30 Criminal proceedings against those officials, including the President of the authority, commenced on 21 November The President of the NEAO was, along with other officials, convicted of accepting bribes in February He named Claimant as a person from whom he has received bribes and against whom he is willing to testify. 33 After being under investigation with regard to the environmental license, criminal proceedings were initiated against Claimant which are ongoing Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para ExC2, p.52, Section 1(a). 30 Uncontested Facts, para Uncontested Facts, para Uncontested Facts, para PO2, para Uncontested Facts, para.19. 3

29 Arguments Claimant is an arms producer supplying weapons to the aggressor state Euroasia which has invaded Eastasia. Respondent imposed sanctions in response to that aggression. Claimant, having been affected by these sanctions, now tries to claim compensation. However, the Tribunal does not have jurisdiction to hear this dispute. While Claimant now purports to be a national of Euroasia, the aggressor state, his purported change of nationality was ineffective (A). Also, Claimant failed to take the mandatory pre-arbitral steps which are a precondition for the Tribunal s jurisdiction (B). Claimant cannot bypass the lack of jurisdiction with the MFN clause either (C). Even if the Tribunal had jurisdiction, the claims are without merit. From the very beginning of Claimant s investment a shadow was cast over it through his own conduct. Claimant only obtained the necessary license for arms production by bribery and thus deprived himself of the BIT s protection (D). Respondent imposed the sanctions through a legitimate exercise of its regulatory freedom regarding its foreign policy. Thus, the sanctions cannot be regarded as an expropriation giving rise to compensation (E). In any event, Claimant was not an innocent victim of restrictive measures. Rather, he contributed to his own damages. Claimant acted negligently when he concluded a weapons supply contract with an aggressor state at a point in time when its plans for invasion were already on the table (F). Issue 1: Arguments on the Tribunal s jurisdiction 21 Respondent respectfully submits that this Tribunal lacks jurisdiction. Claimant failed to choose the appropriate BIT to submit his claim. As an Eastasian national, Claimant is not an investor under the Euroasia BIT. Claimant s purported change of nationality to Euroasian contradicts international law and has no influence on the present proceeding (A). Moreover, Claimant failed to submit his claim to the Oceanian courts prior to this arbitration. As this is a mandatory requirement for the Tribunal s jurisdiction, the claim must be dismissed (B). Lastly, Claimant should not be permitted to bypass the lack of jurisdiction through the operation of the MFN clause (C). 4

30 A The Tribunal lacks jurisdiction under the Euroasia BIT because Peter Explosive is not a Euroasian national Claimant is not a Euroasian national and therefore not an investor under the Euroasia BIT. An investor under Article 1(2) Euroasia BIT is any natural person having the nationality of either Contracting Party in accordance with its laws. Claimant purports to have obtained Euroasian nationality under the Euroasian Citizenship Act on 23 March Claimant s sole reliance on the Citizenship Act misses an important legal point: Euroasia s discretion to grant Claimant Euroasian nationality is subject to the limits imposed by international law (1). The Citizenship Act exceeds these limits as it is part of an illegal aggression by Euroasia against Eastasia (2). Claimant s purported Euroasian nationality cannot follow from the rules on succession of states either because these rules are not applicable (3). 1 Euroasia s discretion to grant its nationality to Claimant is subject to the limitations imposed by international law According to Article 9(7) Euroasia BIT, the Tribunal decides the dispute in accordance [ ] with the applicable principles of international law. Article 9(7) Euroasia BIT only confirms the general principle that any state s ability to grant citizenship is confined to the boundaries set by international law. The preamble of the Draft Articles on Nationality of Natural Persons in Relation to the Succession of States expresses this general understanding (tracing back to the jurisprudence of the PCIJ) 35 : nationality is essentially governed by internal law within the limits set by international law. 36 Especially the principles of non-use of force and non-intervention, codified in Article 2(4) UN Charter and recognised as jus cogens, 37 need to be observed while determining Claimant s nationality. As the tribunal in Methanex stated: [ ] as a matter of international constitutional law a tribunal has an independent duty to apply imperative principles of law or jus cogens [ ]. 38 The Tribunal is therefore bound to respect the limits set by international law when determining Claimant s nationality. 35 PCIJ Advisory Opinion, Tunis v Morocco, p Emphasis added. 37 Krajewski, Völkerrecht, 4, para.97; Restat 3rd of the Foreign Relations Law of the US, 102, Comments h. and Reporters Notes 6; Nicaragua v USA, paras.108, 205, Methanex v United States, Part IV, Chapter C, p.11, para.24. 5

31 2 The Citizenship Act exceeds the limits set by international law as it is part of an illegal aggression by Euroasia against Eastasia The Tribunal should not accept Claimant s purported change of nationality based on an isolated application of the Euroasian Citizenship Act. The Citizenship Act was part of Euroasia s aggression against Eastasia which violated jus cogens. Euroasia s actions qualify as an act of aggression under international law (2.1). Those violations cannot be legitimised by the regional authorities of Fairyland (2.2). The Euroasian Citizenship Act is an integral part of the annexation and consequently part of Euroasia s aggression (2.3). 2.1 Euroasia engaged in aggression when it annexed Fairyland 28 The annexation of Fairyland by Euroasia amounts to an aggression against Eastasia which is forbidden by international law. An aggression by a state against another state is a violation of jus cogens. 39 An aggression is defined as [ ] the use of armed force by a State against the sovereignty, territorial integrity or political independence of another State [ ] Euroasia s invasion was an act of aggression, irrespective of the bloodless and rather peaceful 41 course of events. Euroasia sent troops over the border to support the secession of Fairyland. It is irrelevant whether the armed forces meet resistance in the attacked state or not. 42 Thus, the military support of the secessionist movement in Fairyland by land forces constitutes an illegal use of armed force against the sovereignty and territorial integrity of Eastasia. 2.2 The regional authority of Fairyland could not legitimise Euroasia s use of force 30 Euroasia may argue that the intervention was justified on the basis of the invitation sent by the authorities of Fairyland. The Commentary on Article 20 of the Draft Articles on State Responsibility states the generally accepted premise that consent by a State to particular conduct by another State precludes the wrongfulness of that act in relation to the consenting State, provided the consent 39 Commentary on Draft Articles on State Responsibility, Article 27, para.5 and Article 40, para.4; Sayapin, Elements of an Act of Aggression, p Definition of Aggression, Annex to A/RES/3314 (XXIX). 41 Uncontested Facts, para.14, emphasis added. 42 Zadorozhnii, Russian Doctrine of International Law after the Annexation of Crimea, p.47; Tancredi, The Russian Annexation of the Crimea, p.33. 6

32 is valid and to the extent that the conduct remains within the limits of the consent given In the case at hand, however, the consent was not valid. Whether consent is valid has to be determined by the rules of international law relating to the expression of the will of the state. 44 Principally, the consent needs to be expressed by the state s highest authorities 45 and this is generally the internationally recognised, legitimate and effective government of the sovereign state in charge of the territory. The regional authority of Fairyland could thus not legitimise the sending of Euroasian troops into the territory of Eastasia. The referendum did not vest the regional authority with the power of a legitimate state government because it was unlawful (2.2.1). Fairyland did not have the right to external self-determination either (2.2.2) The referendum declaring secession from Eastasia was unlawful The referendum did not lead to the regional authority of Fairyland having the power of a legitimate state government, because the referendum was unlawful under Eastasian constitutional law. Fairyland did not have the right to hold a referendum on secession from Eastasia. A referendum held on the secession of part of a state can only be legitimate as a matter of international law, if it is allowed under the laws of the state. 46 The International Committee of Jurists, entrusted by the Council of the League of Nations with the task of giving an advisory opinion upon the legal aspects of the Aaland Islands question, stated in its report: Generally speaking, the grant or refusal of the right to a portion of its population of determining its own political fate by plebiscite or by some other method, is, exclusively, an attribute of the sovereignty of every State which is definitively constituted Eastasian law does not allow referenda on the secession of part of the Republic, but only regional referenda pertaining to matters within the exclusive competence of that province. 48 The right to secede is not a regional matter, but one that affects the whole state. 43 Commentary on Draft Articles on State Responsibility, Article 20, para.1, emphasis added. 44 Commentary on Draft Articles on State Responsibility, Article 20, para Corten, The Law Against War, p Reference re Secession of Quebec, Question 1, p.220; compare also the situation of the Scottish Independence Referendum. 47 The Aaland Islands Question (Report On Jurisdiction), p PO2, para.2. 7

33 36 As the Eastasian Constitution does not contain provisions regulating secession from the Republic, 49 the referendum in Fairyland was illegal. In fact, the government of Eastasia declared the referendum unlawful and that it had no effect on the territorial shape of Eastasia Fairyland does not have the right to external self-determination Claimant argues that the referendum was justified by a right to self-determination of the Fairylanders. 51 However, the right of the people of Fairyland to self-determination does not extend to secession from Eastasia because international law has not recognized a general right of peoples to unilaterally declare secession from a state. 52 According to the widely cited opinion of the Canadian Supreme Court in its Reference re Secession of Quebec, the right to external self-determination only occurs in very specific circumstances: [...], a right to secession only arises under the principle of self-determination of people at international law where a people is governed as part of a colonial empire; where a people is subject to alien subjugation, domination or international exploitation; and possibly where a people is denied any meaningful exercise of its right to self-determination within the state of which it forms a part. In other circumstances, peoples are expected to achieve selfdetermination within the framework of their existing state Following its detailed analysis of international law, the Canadian Supreme Court found that international law generally expects the right to self-determination to be exercised within the territorial limits of a state. 54 That same limitation is clearly embodied in the Eastasian Constitution. 55 The Fairylanders were neither oppressed nor politically excluded nor denied internal democratic self-determination. To the contrary, residents of Fairyland have been treated as other Eastasian nationals. 56 Fairyland has its own authorities and it is allowed to organise regional referenda pertaining to matters within its exclusive competence PO2, para Uncontested Facts, p RfA, p UN Doc. A/51/18 (1996), para Reference re Secession of Quebec, emphasis added. 54 See also Pellet, The Opinions of the Badinter Arbitration Committee, p PO2, para PO3, para Uncontested Facts, para.14; PO2, para.2. 8

34 41 Consequently, a right to external self-determination does not exist in the case at hand. Eastasia is therefore entitled to maintain its territorial integrity under international law and have that territorial integrity recognised by other states In summary, the regional authorities of Fairyland were not entitled to invite Euroasia s armed forces in and their invitation cannot legitimise Euroasia s use of force. 2.3 The Citizenship Act formed an integral part of the illegal annexation The Citizenship Act, amended on 1 March 2014, the very day of the invasion, 59 is an integral part of the illegal annexation and thus itself illegal under international law. In the ICJ s DRC v Uganda decision, the ICJ affirmed that acts closely linked to an aggression, "will also, if they directly or indirectly involve the use of force, constitute a breach of the principle of non-use of force in international relations. 60 The Citizenship Act is so closely linked to the invasion of Fairyland that it must be considered to indirectly involve use of force Euroasia divided its illegal annexation in the acquisition of territory and the acquisition of nationals. Euroasia s actions in Fairyland reveal a two-step plan that has been followed before in other instances of annexations of territory. For example, Israel annexed the Golan Heights 61 and subsequently offered the residents Israeli passports and rights. 62 A similar strategy has been followed by Russia in the course of its annexation of Crimea. Russia supported the referendum in Crimea and entered the territory after a disputed invitation. Passports and national rights were offered to the residents after, and allegedly already prior to, 63 the annexation. 64 Euroasia as a first step encouraged the referendum and annexed the territory. On the very same day of the invasion, as a second step, it passed the amendment of the Citizenship Act granting nationality to the residents of the annexed territory. 65 The amended Citizenship Act 58 Compare Reference re Secession of Quebec, Question 2, p Compare PO2, para.4; Uncontested Facts, para DRC v Uganda, para.164, emphasis added. 61 S/RES/497 (1981). 62 GA/ Compare Tsukanova, Cheney urges divided Ukraine to unite against Russia 'threat'. 64 TASS, Over 150 offices issuing Russian passports opened in Crimea Russia. 65 PO2, para.4. 9

35 set the legal grounds for the taking-over of the Eastasian citizens residing in Fairyland. Thus, the granting of nationality was an integral part of Euroasia s annexation of Fairyland. 47 The Citizenship Act is therefore inseparable from the illegal use of force and should thus be considered as violating the principle of non-use of force in international relations. 3 Claimant s purported Euroasian nationality does not follow from the rules on succession of states either Claimant might try to rely in the alternative on the law on succession of states as embodied in the Articles on Nationality of Natural Persons in relation to the Succession of States ( Articles on Nationality ) to support his purported change of nationality. This argument does, however, not convince because the Articles on Nationality are not applicable in case of an illegal succession. While there is a presumption in Article 5 of the Articles on Nationality that habitual residents acquire the nationality of a successor state, that presumption does not apply to illegal territorial acquisitions. Article 3 of this convention reads: The present articles apply only to the effects of a succession of States occurring in conformity with international law and, in particular, with the principles of international law embodied in the Charter of the United Nations It has been established that Euroasia did not act in conformity with international law when it used force against Eastasia to annex Fairyland. 67 Accordingly, the Articles on Nationality are not applicable and neither the territorial change nor the change of nationality of the citizens is effective. In conclusion, this Tribunal does not have jurisdiction, because Claimant is not an investor under the Euroasia BIT. Claimant can neither derive his Euroasian nationality from the Citizenship Act nor from the law on succession of states. Both legal instruments are not applicable due to the illegal use of force by Euroasia against Eastasia. 66 Emphasis added. 67 See paras.26 et seqq. 10

36 B This Tribunal lacks jurisdiction because Claimant failed to comply with Article 9 Euroasia BIT Even if Claimant qualified as a Euroasian investor, the Tribunal nevertheless lacks jurisdiction. Claimant failed to submit the dispute to the Oceanian courts prior to this arbitration as required by Article 9(3) Euroasia BIT. Article 9(1)-(3) Euroasia BIT states: (1) Any dispute regarding an investment between an investor of one of the Contracting Parties and the other Party, arising out of or relating to this Agreement, shall, to the extent possible, be settled in an amicable consultations [sic] between the parties to the dispute. (2) If the dispute cannot be settled amicably, it may be submitted to the competent judicial or administrative courts of the Contracting Party in whose territory the investment is made. (3) Where, after twenty four [sic] months from the date of the notice on the commencement of proceedings before the courts mentioned in paragraph 2 above, the dispute between an investor and one of the Contracting Parties has not been resolved, it may be referred to international arbitration The article provides a multi-tier, sequential dispute resolution system through which an investor must run consecutively to access arbitration. Most importantly, Article 9(3) Euroasia BIT provides that an investor must pursue his claim in the Oceanian courts for two years before he can commence arbitration. It is uncontested that Claimant did not submit the dispute to the Oceanian Courts. First, the ordinary meaning of the terms used in Article 9 Euroasia BIT, in light of their structural context, shows that the local courts requirement is mandatory (1). Second, any argument by Claimant that compliance with the local courts requirement is futile must be rejected (2). 1 The pre-arbitral steps contained in Article 9 Euroasia BIT are mandatory 56 The structure of Article 9 Euroasia BIT reflects a three-step dispute resolution mechanism. Each preceding step must be fulfilled before the investor may proceed to the next step (1.1). Contrary to Claimant s arguments, the use of the term may in Article 9(2) Euroasia BIT does not indicate that the provision is optional (1.2). 11

37 1.1 The mandatory nature follows from the structure of Article 9 Euroasia BIT The way Article 9 Euroasia BIT is structured demonstrates the mandatory nature of the prearbitral steps. In essence, Article 9 Euroasia BIT is structured as follows: the first paragraph requires amicable settlement efforts. The second paragraph states that if this attempt fails, the investor may submit the dispute to the local courts. Finally, the third paragraph Article 9(3) states that where the dispute is not resolved by the courts within twenty-four months, the investor may then go to arbitration. The mandatory nature of the local courts requirement results from Article 9(3) Euroasia BIT. Once the condition precedent occurs (the elapse of twenty-fourt months after a case is filed in Oceanian courts), then the investor can commence arbitration. A very similar dispute settlement clause was interpreted in the same way in the case of Impregilo v Argentina. Article 8(2)-(3) of the Argentina-Italy BIT states: (2) If the dispute cannot be settled amicably, it may be submitted to the competent judicial or administrative courts of the Party in whose territory the investment is made. (3) Where, after eighteen months from the date of notice of commencement of proceedings before the courts mentioned in paragraph 2 above, the dispute between an investor and one of the Contracting Parties has not been resolved, it may be referred to international arbitration The similarities to the clause in the present case are striking. The Impregilo tribunal stated that if the investor wanted to submit his claim to arbitration, Article 8(3) Argentina-Italy BIT required him to go to the local courts first and wait for eighteen months. 69 This reading accords with the interpretation of other tribunals which also relied on the very same dispute settlement clause. 70 The Impregilo tribunal affirmed that the eighteen months local courts requirement in that BIT was a mandatory, jurisdictional requirement before the investor could commence ICSID arbitration Impregilo v Argentina, p.5, emphasis added. 69 Impregilo v Argentina, paras.82b, Giovanni Alemanni v Argentina, para.306; Ambiente v Argentina, para Impregilo v Argentina, paras.91, 94; compare same conclusion in Kiliç v Turkmenistan, paras (holding that the pre-arbitral steps in a similar dispute resolution article were mandatory preconditions to commencing arbitration). 12