team azevedo foreign direct investment …saipem saipem s.p.a. v. the people’s republic of...
TRANSCRIPT
TEAM AZEVEDO
FOREIGN DIRECT INVESTMENT
INTERNATIONAL MOOT COMPETITION
29 OCTOBER – 1 NOVEMBER 2015
________________________________________________________________________
ARBITRATION PURSUANT TO THE RULES OF ARBITRATION OF THE
LONDON COURT OF INTERNATIONAL ARBITRATION
Vasiuki LLC (Claimant)
v.
The Republic of Barancasia (Respondent)
MEMORIAL FOR CLAIMANT
19 September 2015
i
TABLE OF CONTENTS
LIST OF LEGAL SOURCES ..................................................................................................... iii
LIST OF AUTHORITIES ......................................................................................................... viii
LIST OF ABBREVIATIONS ...................................................................................................... x
SUMMARY OF FACTS AND ARGUMENT ............................................................................ 1
I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMS AND THE CLAIMS ARE
ADMISSIBLE ................................................................................................................................ 5
A. Claimant’s Projects Meet the BIT’s Jurisdictional Requirements ................................... 5 1. Claimant Meets the BIT’s Definition of “Investor” .................................................................. 5 2. Claimant’s Projects Meet the BIT’s Definition of “Investment” .............................................. 5
B. Claimant’s Claims are Admissible .................................................................................. 7 C. The BIT Is in Force Between the Contracting Parties ..................................................... 7
1. The Contracting Parties’ Accession to the EU Did Not Terminate the BIT .............................. 7 2. Respondent Did Not Terminate the BIT Through Its Actions .................................................. 11 3. Claimant’s Investments Are Protected Even if the BIT Was Terminated ................................ 12
II. RESPONDENT’S ACTIONS BREACHED ITS OBLIGATION TO ACCORD CLAIMANT’S
INVESTMENT FAIR AND EQUITABLE TREATMENT ................................................................... 12
A. Respondent’s Actions Violated the Legitimate Expectations that Formed the Basis of Claimant’s Investments ......................................................................................................... 13
1. Respondent’s Actions Violated Claimant’s Reasonable and Legitimate Expectations of Stability and Predictability .............................................................................................................. 13 2. Respondent’s Breach of the Stabilization Clause in the LRE Amounted to a FET Violation as a Matter of Law ............................................................................................................................... 16
B. Respondent Did Not Accord Due Process to Claimant and Its Investments ................. 17 C. Respondent Acted Arbitrarily and Without Transparency ............................................ 17
III. THE DOCTRINE OF NECESSITY DOES NOT RELIEVE RESPONDENT OF ITS TREATY
OBLIGATIONS ............................................................................................................................ 18
A. The BIT’s Necessity Defense Is Not Applicable ........................................................... 19 1. The Situation in Barancasia Does Not Qualify as a State of Necessity Under the BIT ........... 19 2. The “State of Necessity” Clause in the BIT Is Not Self-Judging ............................................. 22 3. Even In a State of Necessity Under the BIT, Restitution or Just and Adequate Compensation is Required ...................................................................................................................................... 22
B. The Necessity Defense Under Customary International Law Does Not Apply ............ 23 C. There Is No Conflict With EU Law that Excuses Respondent From Its Obligations Under the BIT ........................................................................................................................ 25
ii
IV. THE TRIBUNAL SHOULD ORDER RESPONDENT TO COMPLY WITH ITS TREATY
OBLIGATIONS ............................................................................................................................ 26
A. This Tribunal Should Order Respondent to Rescind the LRE Amendment .................. 27 1. The Tribunal Has the Power to Order Rescission ................................................................... 27 2. Ordering Rescission of the LRE Amendment Will Not Unduly Infringe on Respondent’s Sovereignty ...................................................................................................................................... 29
B. Alternatively, This Tribunal Should Order Respondent to Pay Claimant the Pre-2013 Feed-In Tariff Rate for Twelve Years From the Date of Licensing ...................................... 31
V. CLAIMANT IS ENTITLED TO FULL COMPENSATION FOR ITS LOSSES RESULTING FROM
RESPONDENT’S BREACH OF THE BIT. ..................................................................................... 32
A. Claimant Is Entitled to the Net Present Value of the Profits Alfa and Beta Would Have Generated Under a 0.44EUR/kWh Tariff .............................................................................. 33
1. Use of the Income Approach Discounted Cash Flow (DCF) Method Provides the Correct Valuation of Claimant’s Losses for Alfa and Beta .......................................................................... 33 2. WACC Is the Correct Discount Rate ....................................................................................... 34
B. Claimant Is Entitled to the Net Present Value of the Profits Its Twelve Additional Projects Would Have Generated Under a 0.44EUR/kWh tariff, or the Reliance Expenditures It Made on Land and Equipment ........................................................................................... 35
1. Claimant Is Entitled to the Net Present Value of the Profits Its Twelve Additional Projects Would Have Generated Under a 0.44EUR/kWh Tariff ................................................................... 35 2. Claimant Is Entitled to Compensation for the Reliance Expenditures It Made in Land and Equipment. ...................................................................................................................................... 36
C. Claimant Is Entitled to the Fair Market Value of the Lost Business Opportunity for the Follow-On Solar Installations It Planned to Pursue Under the LRE ..................................... 37
REQUEST FOR RELIEF .......................................................................................................... 39
iii
LIST OF LEGAL SOURCES
ARBITRAL DECISIONS
ADC ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award (2 October 2006).
Al-Bahloul Mohammad Ammar Al-Bahloul v. Republic of Tajikistan, SCC Case No. V(064/2008), Partial Award on Jurisdiction and Liability (8 June 2010).
Amco Amco Asia Corporation, Pan American Development Limited, PT Amco Indonesia v. Republic of Indonesia, ICSID Case No. ARB/81/1, Second Award, (31 May 1990).
Bayindir Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009).
Biloune Biloune and Marine Drive Complex Ltd v. Ghana Investments Centre and the
Government of Ghana, UNCITRAL, Award on Damages and Costs (30 June 1990).
Binder Binder v. Czech Republic, UNCITRAL, Award on Jurisdiction (6 June 2007). CME CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Partial Award,
(13 September 2001).
CMS CMS Gas Transmission Company v. Republic of Argentina, ICSID Case No. ARB/01/8, Award (12 May 2005).
Continental Casualty Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008).
Deutsche Bank Deutsche Bank AG v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/09/02, Award (31 October 2012).
Duke Energy Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 August 2008).
Eastern Sugar Eastern Sugar B.V. (Netherlands) v. The Czech Republic, SCC No. 088/2004, Partial Award (27 March 2007).
EDF EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award (8 October 2009).
Enron, Annulment Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the Argentine Republic (30 July 2010).
iv
Enron, Jurisdiction Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction (14 January 2004).
EURAM European American Investment Bank AG (Austria) [EURAM] v. The Slovak Republic, PCA Case No. 2010-17, Award on Jurisdiction (22 October 2012).
Eureko Eureko B.V. v. The Slovak Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension (26 October 2010).
Gemplus Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. v. The United Mexican States, ICSID Case No. ARB(AF)/04/3, Award (16 June 2010).
Himpurna Himpurna California Energy Ltd. V. PT. PLN, UNCITRAL, Final Award (4 May 1999).
Impregilo Impregilo S.p.A. v. Argentine Republic, ICSID Case No. ARB/07/17, Award (21 June 2011).
Lemire, Award Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (28 March 2011).
Lemire, Liability Joseph C. Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (21 January 2010).
LG&E 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).
Metalclad Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 August 2000).
Metalpar Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/05, Award on the Merits (6 June 2008).
Micula Ioan Micula, Viorel Micula, S.C. European Food S.A., S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility (24 September 2008).
Middle East Cement Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award (12 April 2002).
Mondev Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Final Award (11 October 2002).
MTD MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award (25 May 2004).
Murphy Oil Murphy Exploration and Production Company International v. Ecuador, ICSID Case No. ARB/08/4, Award on Jurisdiction (15 December 2010).
v
National Grid National Grid plc v. The Argentine Republic, UNCITRAL, Award (3 November 2008).
Occidental Exploration Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No.UN3467, Final Award (1 July 2004).
Occidental Petroleum Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Award (5 October 2012).
Oostergetel Jan Oostergetel and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Decision on Jurisdiction (30 April 2010).
Pantechniki Pantechniki S.A. Contractors & Engineers (Greece) v. The Republic of Albania, ICSID Case No. ARB/07/21, Award (30 July 2009).
Petrobart Petrobart Limited v. The Kyrgyz Republic, SCC Case No. 126/2003, Arbitral Award (29 March 2005).
Philip Morris Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction (2 July 2013).
Quiborax Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplun v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction (27 September 2012).
Rumeli Telecom Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award (29 July 2008).
Saipem Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures (21 March 2007).
Salini Salini Construttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (31 July 2001).
Sapphire Sapphire International Petroleums Ltd. v. National Iranian Oil Company, Award (15 March 1963).
SAUR SAUR International S.A. v. Argentine Republic, ICSID Case No. ARB/04/4, Decision on Jurisdiction and Liability (6 June 2012).
SD Myers SD Myers, Inc. v. Canada, UNCITRAL, Partial Award (13 November 2000).
Sempra, Annulment Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on the Argentine Republic’s Application for Annulment of the Award (29 June 2010).
vi
Sempra, Award Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (28 September 2007).
Siemens Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Award (17 January 2007).
Sistem Sistem Mühendislik Inşaat Sanayi ve Ticaret A.Ş. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/06/1, Award (9 September 2009).
Suez 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).
Tecmed Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003).
Texaco Texaco Overseas Petroleum and California Asiatic Oil Company v. Libyan Arab Republic, Award on the Merits, 17 I.L.M. 1 (1978).
Total Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010).
Vivendi I Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award (21 November 2000).
Vivendi II Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award (20 August 2007).
INTERNATIONAL COURT CASES
Amoco Amoco Int’l Fin. Corp. v. Islamic Republic of Iran, Award No. 310-56-3, Iran-US Claims Tribunal (24 July 1987).
Arrest Warrant Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of
the Congo v. Belgium), Judgment, 2002 I.C.J. 3 (14 February). Chorzów Factory, Case Concerning the Factory at Chorzów (Germany v. Poland), Decision on Jurisdiction Jurisdiction, 1927 P.C.I.J. (ser. A) No. 9 (26 July).
Chorzów Factory, Case Concerning the Factory at Chorzów (Germany v. Poland), Judgment, 1928 Merits P.C.I.J. (ser. A) No. 17 (13 September).
Nicaragua Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v. U.S.), 1986 I.C.J. 14 (27 June).
Preah Vihear Temple of Preah Vihear (Cambodia v. Thailand), 1962, I.C.J. 6 (15 June).
vii
Rainbow Warrior Case concerning the differences between New Zealand and France concerning the interpretation or application of two agreements, concluded on 9 July 1986 between the two states and which related to the problems arising from the Rainbow Warrior Affair, 30 April 1990, 20 R.I.A.A. 215.
TREATIES
Argentina-U.S. BIT Argentina-United States Bilateral Investment Treaty (20 October 1994).
ICJ United Nations, Statute of the International Court of Justice, 18 April 1946.
ICSID Convention Convention on the Settlement of Disputes Between States and Nationals of Other States, opened for signature 18 March 1965 (entered into force 14 October 1966).
VCLT Vienna Convention on the Law of Treaties, opened for signature 23 May 1969 (entered into force 27 January 1980).
MISCELLANEOUS
ICSID Rules ICSID Regulations and Rules (as amended effective 10 April 2006).
ILC Articles International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001).
LCIA Rules LCIA Arbitration Rules (as revised in 2014).
UNCITRAL Rules UNCITRAL Arbitration Rules (as revised in 2010), G.A. Res. 65/22.
viii
LIST OF AUTHORITIES
BOOKS
Dolzer & Schreuer Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law (2008).
Gray Christine Gray, “The Different Forms of Reparation: Restitution,” in The Law of International Responsibility (eds. James Crawford, Alain Pellet, and Simon Olleson, 2010).
Kinnear Meg Kinnear, “Damages in Investment Arbitration,” in Arbitration Under International Investment Agreements (ed. Katia Yannaca-Small, Oxford Press 2010).
Sabahi Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (2011).
Schreuer, ICSID Christoph Schreuer et al, The ICSID Convention: A Commentary (2009).
Ripinsky Sergey Ripinsky and Kevin Williams, Damages in International Investment Law (2008).
ARTICLES
Abdala & Spiller Manuel A. Abdala, Pablo T. Spiller, Chorzów’s Standard Rejuvenated: Assessing Damages in Investment Treaty Arbitrations, 25 JOURNAL OF INT’L ARB. 1 (2008).
Hanson Kenneth Hanson et al, The Dabhol Power Project Settlement, INFRASTRUCTURE
JOURNAL (December 2005), http://www.chadbourne.com/files/Publication/a5aa1e52-4285-4bb5-87e6-
7201123895a0/Presentation/PublicationAttachment/352f8f09-ae96-40fc-a293-720d0b8f0ca8/Dabhol_InfrastructureJournal12_2005.pdf.
Martinez Elizabeth A. Martinez, Understanding the Debate Over Necessity: Unanswered Questions and Future Implications of Annulments in the Argentine Gas Cases, 23 DUKE J. OF COMP. & INT’L LAW 149 (2012).
Schreuer, FET Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. WORLD INV. & TRADE 357 (2005).
Schreuer, Remedies Christoph Schreuer, Non-Pecuniary Remedies in ICSID Arbitration, 20 ARB. INT’L 325 (2004).
ix
Thomson Douglas Thomson, EDF Wins Claim Against Hungary, GLOBAL ARBITRATION
REVIEW (December 2014), http://globalarbitrationreview.com/news/article/33251/edf-wins-claim-against-
hungary/.
MISCELLANEOUS
EC Press Release Commission asks Member States to terminate their intra-EU bilateral investment treaties, European Commission Press Release (18 June 2005), europa.eu/rapid/press-release_IP-15-5198_en.htm.
UNIDROIT Principles UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS (2010).
World Bank “Guidelines on the Treatment of Foreign Direct Investment” in World Bank, Guidelines Legal Framework for the Treatment of Foreign Investment: Report to the
Development Committee and Guidelines on the Treatment of Foreign Direct Investment, Volume II (Washington, D.C.: World Bank, 1992).
x
LIST OF ABBREVIATIONS
¶ / ¶¶ Paragraph(s)
Facts Uncontested Facts
ICJ International Court of Justice
ICSID International Centre for Settlement of Investment Disputes
ILC International Law Commission
p. / pp. Page / Pages
PCA Permanent Court of Arbitration
PCIJ Permanent Court of International Justice
PO Procedural Order
R Record
RA Request for Arbitration
UNCITRAL United National Commission on International Trade Law
1
SUMMARY OF FACTS AND ARGUMENT
1. The present dispute arises from an Agreement for the Promotion and Reciprocal
Protection of Investments (the “BIT”) entered into on 31 December 1998 between the Republic
of Barancasia (“Barancasia” or “Respondent”) and the Federal Republic of Cogitatia
(“Cogitatia”).1 Respondent concluded the BIT to attract foreign investment, but breached it by
failing to honor its obligation to accord fair and equitable treatment to Vasiuki LLC (“Vasiuki”
or “Claimant”), a Cogitatian energy company that made extensive investments in Respondent’s
territory.2
2. Claimant qualifies as an investor under the terms of the BIT and its renewable energy
projects in Barancasia are qualified investments. Although Respondent suggests otherwise, the
BIT remains in effect. It was guaranteed to be in effect until 1 August 2012, and was not
terminated with the required written notice after that date.3 Nor did either Party’s subsequent
accession to the European Union (“EU”) terminate the BIT. Regardless, Claimant’s investments
are protected under the BIT until 2023, ten years after the earliest possible date of termination.4
3. In 2004, Respondent acceded to the EU. In May 2010, Respondent adopted the Law on
Renewable Energy (“LRE”) to encourage the development of renewable energy technology and
improve the security of the energy supply in Respondent’s territory.5 The LRE provided that
feed-in tariffs for licensees would be calculated using a multitude of factors, including “variable
costs of operation . . . [and] their variation over the useful life of power plants,”6 and fixed for a
period of 12 years.7 On 1 July 2010, Respondent’s national energy regulator, the Barancasia
Energy Authority (“BEA”) announced publicly the twelve-year fixed feed-in tariff of
0.44EUR/kWh.8
4. From 2007 onwards, Claimant developed renewable energy projects in Respondent’s
territory while monitoring the regulatory environment.9 In May 2009, Claimant launched its first
1 Facts ¶1, R-20. 2 BIT Preamble, R-25. 2 BIT Preamble, R-25. 3 BIT Art. 13(2), R-31. 4 BIT Art. 13(3), R-31. 5 Facts ¶14, R-21. 6 Annex 3 Art. 2(5), R-34. 7 Facts ¶¶16–17, R-22. 8 Facts ¶21, R-22. 9 Facts ¶8, R-21.
2
solar project, Alfa, which was connected to Respondent’s electrical grid on 1 January 2010.10 In
reliance on the LRE’s guaranteed twelve-year fixed feed-in tariff of 0.44EUR/kWH, Claimant
decided to continue investing in Respondent’s renewable energy sector. On 25 August 2010,
Claimant applied for a BEA license for the Alfa project, which was arbitrarily denied.11 On that
same date, Claimant was granted a BEA license with the guaranteed 0.44EUR/kWh feed-in tariff
for its second solar project, Beta.12 Beta became operational on 30 January 2011.13 In furtherance
of its investment, Claimant borrowed substantial sums of money, bought land plots in
Barancasia, and invested heavily in new equipment.14
5. In 2011, new technology emerged that reduced manufacturing and development costs for
photovoltaic projects.15 Claimant developed twelve additional projects in Barancasia using the
new technology, and on 1 July 2012, the BEA granted Claimant all twelve licenses with the
guaranteed 0.44EUR/kWh rate.16 Claimant thus had a total of 14 projects in Respondent’s
renewable energy sector, which individually and jointly constitute investment in Respondent’s
territory.
6. The BEA also granted around 6,000 licenses to other producers as late as 3 January
2013,17 even though officials and some domestic groups complained that the LRE was creating a
solar bubble and had privileged producers starting in early 2012.18
7. In June 2012, Respondent faced teachers’ strikes and projected that it might face
budgetary difficulties in the future.19 Allegedly in response to these occurrences, and despite a
complete lack of evidence that any problems were escalating, Respondent made the unilateral
decision to renege on its guarantees to investors under the LRE through a nontransparent and
biased process. In November 2012, the Barancasian Parliament conducted private hearings with
select industry representatives, excluding Claimant, and on 3 January 2013 Respondent adopted
the Law on the Amendment of Article 4 of the LRE (“LRE Amendment”), replacing the
10 Facts ¶¶12–13, R-21. 11 Facts ¶22, R-22. 12 Facts ¶23, R-22. 13 Facts ¶23, R-22. 14 Facts ¶27, R-23. 15 Facts ¶25, R-23. 16 Facts ¶33, R-24. 17 PO2 ¶13, R-58. 18 Facts ¶¶28, 29, 32, R-23–24. 19 Facts ¶32, R-24.
3
original twelve-year feed-in tariffs with annually renewable rates.20 Without any explanation for
the new rate, and without any open consultation with Claimant—an affected investor—the BEA
then calculated and announced a new feed-in tariff of 0.15EUR/kWh, with retroactive
application from 1 January 2013.21 By then, Claimant had made significant investments in land,
personnel, and equipment in reliance on the original LRE and the licenses it had obtained from
Respondent pursuant thereto.22
8. These actions violated Respondent’s obligation under the BIT to accord fair and equitable
(“FET”) treatment to Claimant’s investments. Respondent lured investors like Claimant with the
promise of predictable returns on investments, and then unilaterally modified its obligations in
violation of Claimant’s legitimate expectations and rights to due process, transparency, and non-
arbitrary treatment.
9. Respondent’s illegal actions do not qualify for the defense of necessity. Respondent
merely faced teachers’ strikes and projected budgetary difficulties that had not yet even
materialized.23 Such mundane occurrences do not constitute the type of emergency situation that
the BIT requires for a Party to claim necessity. The customary international law (“CIL”)
doctrine of necessity also does not apply. Respondent’s decision to respond to teachers’ strikes
and potential future budgetary difficulties by unilaterally amending the LRE, which Respondent
itself had enacted and pursuant to which Respondent issued licenses to investors with the twelve-
year fixed feed-in tariff, was not the only way for Respondent to safeguard itself against
perceived peril. Even assuming there was an actual peril, Respondent itself created it. In
addition, Respondent cannot rely on its energy objectives and EU obligations to derogate from
its BIT obligations because any alleged conflict with EU law is entirely speculative.
10. Even if a state of necessity existed, Respondent is obligated to provide restitution to
Claimant. Respondent should be ordered to rescind the LRE Amendment or to pay Claimant the
tariff rate guaranteed by the LRE and the licenses that Respondent approved as late as 2012.
Ordering specific performance of Respondent’s international law obligations is expressly within
the powers of this Tribunal under the terms of the BIT, customary international law, and the
20 Facts ¶34, R-24. 21 Facts ¶35, R-24. 22 Facts ¶36, R-24. 23 Facts ¶¶29, 32, R-23–24.
4
LCIA rules, and is the most appropriate remedy to place Claimant in the position it would have
been had the breach not occurred. If the Tribunal declines to award specific performance, it
should order Respondent to pay Claimant 2,437,217EUR in compensation. This represents the
total of the net present value of the profits that Claimant’s investments would have generated
under the promised 0.44EUR/kWh tariff had Respondent not breached its obligations under the
BIT, as well as the fair market value of Claimant’s lost business opportunities.
5
ARGUMENTS
I. THE TRIBUNAL HAS JURISDICTION OVER THE CLAIMS AND THE CLAIMS ARE ADMISSIBLE
11. This Tribunal has jurisdiction over Claimant’s claims for three reasons: (A) Claimant’s
projects meet the BIT’s jurisdictional requirements, (B) Claimant’s claims are admissible, and
(C) the BIT is in force between Respondent and Cogitatia (“the Contracting Parties”).
A. Claimant’s Projects Meet the BIT’s Jurisdictional Requirements
12. Respondent has consented to binding arbitration pursuant to Article 8 of the BIT, which
grants this Tribunal jurisdiction over “[a]ny dispute which may arise between an investor of one
Contracting Party and the other Contracting Party in connection with an investment in the
territory of that other Contracting Party.” Claimant’s claims meet the jurisdictional prerequisites
under Article 1 of the BIT: (1) Claimant qualifies as an “investor,” and (2) Claimant’s projects
qualify as “investments.”
1. Claimant Meets the BIT’s Definition of “Investor”
13. Article 1(2) of the BIT provides that an “investor” must (i) be a natural or legal person,
(ii) of one Contracting Party, who (iii) invests in the territory of the other Contracting Party.
Claimant meets this rationae personae jurisdictional requirement.
14. Claimant is a legal person of Cogitatia, a Contracting Party. Claimant fulfills the
requirements of Article 1(2)(b) because it is both incorporated in Cogitatia24 and seated there, as
its headquarters are located there. Claimant’s projects constitute investments in Respondent’s
territory, as explained below.
2. Claimant’s Projects Meet the BIT’s Definition of “Investment”
15. Article 1(1) defines an investment as “compris[ing] every kind of asset invested in
connection with economic activities by an investor of one Contracting Party in the territory of
the other Contracting Party in accordance with the laws and regulations of the latter.”25 Given the
broad language of Article 1(1) (“every kind of asset”), it is clear that the Parties intended an
expansive definition of “investment.” Claimant’s photovoltaic projects fall within this definition:
the constituent turbines, solar panels, and other possessions are assets, and these assets were
24 Facts ¶3, R-20. 25 BIT Art. 1(1), R-25.
6
invested for the development of renewable energy—undoubtedly an economic activity.
Additionally, as the projects were physically established within Respondent’s territory, they
clearly meet the territoriality requirement. Claimant therefore meets the rationae materiae
jurisdictional requirement.
16. Consistent with the Vienna Convention on the Law of Treaties (“VCLT”), which
governs treaty interpretation for Respondent and Cogitatia, 26 the BIT should be read to
encompass the ordinary meaning of the term “investment” (in accordance with the BIT’s object
and purpose to protect investments), which includes the development and operation of energy
infrastructure.27 Energy production and transmission projects are a common form of investment,
and have repeatedly been found to fall within the scope of investment treaties.28 If the
Contracting Parties intended to exclude energy projects from the range of covered investments,
they would have included explicit language to that effect.
17. Though not required, Claimant’s projects also meet other international law definitions of
investment. The Salini tribunal introduced a well-known list of typical hallmarks of investments:
(1) financial contribution, (2) duration, (3) risk, (4) regular profit and return, and (5) contribution
to the host state’s development.29 Although some tribunals prefer a less formulaic approach,30
Claimant’s projects satisfy all five criteria.
18. First, Claimant invested significant capital in developing the farms, turbines, and
transmission infrastructure necessary to develop energy and transmit it to Respondent’s energy
grid. Second, Claimant has operated photovoltaic projects in Respondent’s territory for over five
years, beginning in 2009 and expanding under the LRE regime.31 Other tribunals have found the
duration requirement to be met by investments of much shorter length.32 Third, Claimant
incurred significant expense in developing infrastructure up front for long-term investment, an
element that multiple tribunals have observed entails substantial risk.33 Fourth, Claimant’s
26 PO2 ¶5, R-58. 27 VCLT Art. 30(1). 28 Al-Bahloul ¶140; Petrobart pp.68–72. 29 Salini ¶52. 30 Philip Morris ¶¶204-06; Pantechniki ¶36. 31 Facts ¶¶12, 13, 23, 27, R-21–23. 32 Deutsche Bank ¶¶303–04 (12 months); Quiborax ¶234 (3 years). 33 Saipem ¶109; Salini ¶56.
7
projects were to receive regular and predictable returns through Respondent’s guaranteed tariff.34
Finally, Claimant’s production and transmission of renewable energy contributed to meeting
Respondent’s climate and energy targets.35
B. Claimant’s Claims are Admissible
19. Article 8(1) of the BIT requires investors and Contracting Parties to resolve disputes by
negotiation “if possible,” but Article 8(2) allows a party to submit a claim if a dispute is not
settled six months from the written notification of a claim.36 Claimant notified Respondent of its
claims on 20 April 2014, through correspondence with three of Respondent’s authorities: the
Ministry of Foreign Affairs, the Ministry of Economics, and the BEA.37 In that correspondence,
Claimant stated that it would not resort to legal remedies if the disputes could be resolved
through other means. Respondent refused to negotiate, and did not indicate any willingness to
resolve the dispute.38 Claimant then waited over six months before commencing the arbitration,
filing its Request on 2 November 2014. Claimant’s claims are therefore admissible and ripe for
arbitration.
C. The BIT Is in Force Between the Contracting Parties
20. Respondent suggests that the Tribunal lacks jurisdiction because the BIT is terminated.39
This is incorrect, because: (1) the Contracting Parties’ accession to the EU did not displace the
BIT, (2) Respondent’s actions did not terminate the BIT, and (3) regardless, the BIT’s
protections still apply to Claimant’s investments.
1. The Contracting Parties’ Accession to the EU Did Not Terminate the BIT
21. Claimant’s and Respondent’s accession to the EU did not terminate the BIT for three
reasons. First, the European Commission (“EC”) has acknowledged that EU accession does not
result in automatic termination of intra-EU BITs. Second, the circumstances underlying these
proceedings do not fulfill the requirements for treaty termination. Third, the BIT does not violate
Article 207 of the Treaty on the Functioning of the European Union (“EU Treaty”).
34 Facts ¶21, R-22. 35 Facts ¶¶7–8, R-20–21. 36 BIT Art. 8, R-29. 37 RA, R-4. 38 RA, R-4. 39 Response to RA, R-11.
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22. First, accession of the Contracting Parties to the EU does not automatically terminate the
BIT. The EC has acknowledged that EU accession does not terminate a BIT without notification
and proper termination procedures—neither of which was present here. In the 2004 Eureko
proceedings, the EC’s legal expert opined that EU accession renders intra-EU BITs obsolete, but
that the parties must notify each other that they agree on this point.40 In 2006, the EC clarified
that intra-EU BITs are not automatically terminated upon accession. It stated:
[T]he effective prevalence of the EU acquis does not entail, at the same time, the automatic termination of the concerned BITs or, necessarily, the non-application of all their provisions. . . . [T]o terminate these agreements, Member States would have to strictly follow the relevant procedure provided for this in regard in the agreements themselves.41
The EC has repeatedly called for its members to terminate their intra-EU BITs and in June 2015,
the EC initiated proceedings against five member states in an attempt to convince them to
terminate their BITs.42 By repeatedly recognizing the need for member states to affirmatively
terminate their BITs, the EC has shown that EU accession does not automatically terminate intra-
EU BITs.43
23. Second, the Contracting Parties’ EU accession does not terminate the BIT under the
terms of the VCLT. The VCLT provides for automatic treaty termination in only two scenarios,
both of which require incompatibility.
24. Article 59 addresses situations where a later treaty is entirely incompatible with an earlier
treaty, and the earlier treaty cannot be enforced at all. It provides that:
A treaty shall be considered as terminated if all the parties to it conclude a later treaty relating to the same subject-matter and: (a) it appears from the later treaty or is otherwise established that the parties intended that the matter should be governed by that treaty; or (b) the provisions of the later treaty are so far incompatible with those of the earlier one that the two treaties are not capable of being applied at the same time.44
40 Eureko ¶90. 41 Eastern Sugar ¶119. 42 EC Press Release. 43 EURAM ¶208; Binder ¶64. 44 VCLT Art. 59.
9
25. Article 30(3), which states that it governs successive treaties with the same subject
matter, provides that “[w]hen all the parties to the earlier treaty are parties also to the later treaty
but the earlier treaty is not terminated or suspended in operation under Article 59, the earlier
treaty applies only to the extent that its provisions are compatible with those of the latter
treaty.”45
26. Neither Article 59 nor Article 30 applies here. First, both Article 59 and Article 30 permit
termination only where the later treaty relates to the same subject matter. The EU Treaty and the
BIT do not cover the same subject matter. The tribunal in Oostergetel explained that, as the
objective of the EU Treaty (unified state functioning) and the objective of a BIT (investment
protection) differ, the treaties cannot be considered to relate to the same subject matter.46 The
EURAM tribunal arrived at the same conclusion, only differing in finding the EU’s objective to
be the creation of an internal market.47 The Oostergetel and Eastern Sugar tribunals also
explained that the significant differences between the investment protections in the EU Treaty
and the relevant BITs in those cases foreclosed the conclusion that the treaties covered the same
subject matter.48 In particular, both tribunals highlighted that the EU Treaty does not provide for
an investor-state dispute mechanism while the BITs in question did.49
27. Furthermore, the BIT and the EU Treaty are neither entirely (Article 59), nor partially
(Article 30(3)) incompatible. The EU legal regime has existed alongside bilateral investment
treaty regimes in various member states for many years, and none of the provisions relevant to
this dispute are in conflict with the EU Treaty. No specific provision of the EU Treaty interferes
with protections to Claimant’s investments under Articles 10 (simultaneous applicability of
multiple treaties), 12 (applicability of the BIT), and 13 (entry into force and termination) of the
BIT. Article 8 of the BIT, which provides for arbitration of investor-state disputes, similarly does
not conflict with the EU Treaty. There is no evidence that the Contracting Parties intended the
EU Treaty, rather than the BIT, to govern investments by their nationals. Indeed, the EURAM
tribunal concluded that the arbitration provision in the relevant BIT in that case was not in
conflict with the EU Treaty, because the EU Treaty did not provide for investor-state dispute
45 VCLT Art. 30(3). 46 Oostergetel ¶75. 47 EURAM ¶178. 48 Oostergetel ¶77; Eastern Sugar ¶160. 49 Oostergetel ¶77; Eastern Sugar ¶¶164–66.
10
settlement.50 Finally, as the Binder and EURAM tribunals explained in a similar context, the EU
Treaty does not conflict with Respondent’s obligation to compensate investors in accordance
with Articles 4 (compensation) and 5 (expropriation) of the BIT.51
28. Moreover, Article 10(1) of the BIT explicitly envisages situations where “a matter is
governed simultaneously both by this Agreement and by another international agreement to
which both Contracting Parties are parties.” This is precisely the situation in the present dispute.
Article 10 of the BIT provides that where another set of international rules binds the Contracting
Parties, investors may take advantage of whichever set of rules is more favorable to them.
Analyzing a similar provision, the EURAM tribunal concluded that the parties intended “that
future treaties between them would complement the States Parties’ rights and obligations, and
not that such treaties would replace provisions in the BIT.”52
29. Third, the BIT is in no way inconsistent with Article 207 of the EU Treaty. Article 207(1)
calls for uniform principles for commercial aspects of foreign investment, while Article 207(2)
states that the EU common commercial policy is to be determined by the European institutions.
Given the emphasis on commercial elements, the BIT does not fall within the scope of 207(1) or
207(2). As a legal agreement between states, the BIT relates to sovereign elements of foreign
investment (for example, Respondent’s regulatory decision to adjust the tariff) rather than
commercial ones. Nor does the BIT conflict with Article 207(3), which provides that “[w]here
agreements with one or more third countries or international organisations need to be negotiated
and concluded,” the European institutions must act according to certain enumerated procedures.
This provision does not apply to agreements between Cogitatia and Barancasia, both of which
are EU member states and not third countries. Moreover, Article 207 is silent as to agreements
already concluded at the time of ratification. The BIT is therefore not inconsistent with Article
207 of the EU Treaty, nor with any other provision.
30. In light of the VCLT requirements, all five tribunals that have considered the impact of
EU accession on BIT validity have held that accession does not automatically terminate a BIT.
Each of these tribunals has found that that the relevant BIT was compatible with the EU Treaty,
50 EURAM ¶¶255–67. 51 EURAM ¶279; Binder ¶¶63–65. 52 EURAM ¶196.
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deciding that both regimes applied simultaneously. There is no reason for a different finding
here.
2. Respondent Did Not Terminate the BIT Through Its Actions
31. In June 2007, Respondent notified Cogitatia of its intent to terminate the BIT, but this
notification did not comply with the BIT’s requirements for termination. Respondent’s
notification was ineffective under Article 13(2), which provides: “This Agreement shall remain
in force for a period of ten years. Thereafter, it shall remain in force until the expiration of a
twelve month period from the date either Contracting Party notifies the other in writing of its
intention to terminate the Agreement.” In accordance with Article 13(1), the BIT entered into
force on 1 August 2002, the date of the final written notification through diplomatic channels of
the fulfillment of procedures to bring the BIT into force. The BIT thus applied until at least
August 2012. After that ten-year period, the BIT remains in force until twelve months after a
Contracting Party provides written notification of termination to the other Contracting Party. The
presence of the term “[t]hereafter” in Article 13(2) confirms that notification (and therefore
termination) is not possible during the initial ten-year period. Respondent’s attempt to terminate
the BIT violated Article 13, and was therefore ineffective.53
32. The BIT also does not provide that written notification of termination before the
expiration of the ten-year period would take effect at the end of the initial ten years, so
Respondent’s supposed notice of termination did not automatically become an effective
termination in 2012. Cogitatia’s indication that it received Respondent’s notification had no
effect; it simply acknowledged receipt but did not approve early termination in 2008 or any other
adjustment to Article 13’s termination process.54 Similarly, Respondent’s informal contact with
Cogitatia regarding termination did not terminate the BIT. The most recent communication was
in 2010, more than a year before the end of the initial ten years.55 As Respondent failed to
properly terminate the BIT, the BIT remains in force.
53 Annex 5, 6, 7.1, R-36–39. 54 Annex 7.2, R-40. 55 Facts ¶¶24–25, R-22–23.
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3. Claimant’s Investments Are Protected Even if the BIT Was Terminated
33. Even if Respondent’s notification took effect on 1 August 2012 (upon the conclusion of
the ten-year period), the protections of the BIT still apply to Claimant’s investments by virtue of
the ‘sunset clause’ in Article 13(3). Article 13(3) provides that, for investments made prior to its
termination, the BIT remains in force for ten years from termination. This means that even if the
BIT was terminated in August 2013 (one year after notification on 1 August 2012), its
protections continue to apply to Claimant’s investments until 2023. All of Claimant’s projects in
Respondent’s territory began between 2009 and July 2012.56 As the BIT remained in effect until
at least August 2013, all the investments were made before the earliest possible termination date
of the BIT. Similarly, the license denial took place in 2010 and the tariff revisions in 2013, both
well within that time frame. The BIT therefore covers Claimant’s claims.
II. RESPONDENT’S ACTIONS BREACHED ITS OBLIGATION TO ACCORD CLAIMANT’S INVESTMENT FAIR AND EQUITABLE TREATMENT
34. Respondent failed to accord Claimant’s investments fair and equitable treatment as
required by the BIT. BIT Article 2(2) provides that “[i]nvestments of investors of either
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.”57
35. By their ordinary meaning, “fair” and “equitable” mean impartial, free from prejudice,
evenhanded, and just.58 Past tribunals have read FET clauses with similar language to capture
principles of transparency, stability, and protection of investors’ legitimate expectations;
compliance with contractual obligations; procedural propriety and due process; good faith; and
freedom from coercion and harassment.59 Though FET is an “inherently flexible standard,”
violation of any of the above independently constitutes a violation of FET, even in the absence of
bad faith.60
56 RA, R-5. 57 The clause is not qualified by a reference to customary international law, so this is an independent treaty standard that is broader than minimum standard. (Enron ¶258; Sempra ¶302; Vivendi II ¶7.4) Nevertheless, both the autonomous treaty standard and the CIL minimum standard are defined with respect to the same principles, and Respondent’s actions violated FET under either standard. 58 Merriam-Webster Dictionary. 59 Schreuer, FET, pp.373–74; Dolzer & Schreuer, pp.133–49; Tecmed ¶154; MTD ¶¶113–44; CMS ¶¶274–79. 60 Mondev ¶116; Siemens ¶299.
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36. Taken as a whole, Respondent’s actions undoubtedly violated FET. First, Respondent
created a regime that guaranteed favorable measures to attract investors to provide critical
energy. After investors expended significant capital building energy-generating facilities in
Respondent’s territory, Respondent unilaterally revoked the very measures on which investors
relied when deciding to invest. There are three independent bases for establishing that
Respondent’s conduct amounted to a FET violation: (A) the violation of Claimant’s legitimate
expectations, (B) the lack of due process accorded to Claimant, and (C) the arbitrariness and lack
of transparency in Respondent’s actions.
A. Respondent’s Actions Violated the Legitimate Expectations that Formed the Basis of Claimant’s Investments
37. Respondent’s actions must accord with Claimant’s reasonable and legitimate
expectations when it made the investment.61 Respondent failed to honor this obligation because:
(1) Respondent’s actions violated Claimant’s reasonable and legitimate expectations of stability
and predictability that formed the basis of its decision to invest, and (2) the stability clause in the
LRE guaranteeing the feed-in tariff for twelve years provides an independent basis for
concluding that Respondent violated Claimant’s legitimate expectations as a matter of law.
1. Respondent’s Actions Violated Claimant’s Reasonable and Legitimate Expectations of Stability and Predictability
38. Through its regulatory framework, Respondent created an expectation of stability and
predictable returns in order to induce investment and then, in a classic bait-and-switch maneuver,
upended the applicable framework, effectively destroying the value of Claimant’s investments.
39. When determining whether a FET provision has been violated, tribunals look to a
claimant’s expectations at the time it decided to invest.62 Legitimate expectations may be based
on the host state’s legal framework, as well as both explicit and implicit representations, or other
undertakings made by the host state.63 While the host state has the right to determine its own
legal and economic order, the protection of investors’ reasonable and legitimate expectations
balances state interest with investors’ need for planning and stability.64
61 Dolzer & Schreuer, pp.133-149. 62 Bayindir ¶¶190–91; LG&E, Liability ¶127; Duke Energy ¶340; Occidental Exploration ¶¶182–86. 63 Dolzer & Schreuer, p.145. 64 Dolzer & Schreuer, p.146.
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40. Tribunals have repeatedly found FET violations where investors acted on the basis of an
existing law that was changed by the host state after the investment was made.65 Here, when
making its investment, Claimant relied on Respondent’s explicit commitment in the LRE to
provide a guaranteed feed-in tariff rate for twelve years when making its investment. In CMS, the
tribunal found a breach of FET because the claimant relied upon guarantees for price adjustments
in legislation and the claimant’s license.66 Similarly, here, the LRE fixed a feed-in tariff rate for a
set period of time to lure investment by allowing Claimant to recover high start-up costs in a
nascent and volatile industry. The legal and business framework Respondent created gave
Claimant an expectation of stability and guaranteed returns on its investments. Respondent’s
failure to protect those expectations amounts to a violation of FET.
41. While the legitimate expectations standard does not require the state to freeze its
regulatory power and the BIT is not a blanket insurance policy, as noted in EDF, stability is
implied where the state makes specific promises or representations.67 The LRE made specific
guarantees as to the twelve-year application of the feed-in tariff rate for all licensees.68 It
contains no fallback provisions, adjustments, or contingent rights for unforeseen circumstances.
The only qualification for revocation of the measures under the LRE is when electricity
generated from renewable sources amounts to 20% or more of gross consumption,69 which is not
the case here. In fact, calculation of the initial tariff rate accounted for “variable costs of
operation . . . [and] their variation over the useful life of power plants.”70 Respondent is now
trying to correct its own calculation mistake at Claimant’s expense.
42. Respondent’s continued representations after its domestic troubles began also supported
Claimant’s expectations. The tribunal in MTD found an FET violation where an agency granted a
license contrary to national urban policy, and added that the claimant’s FET argument was even
65 CME ¶611 (the state eviscerated arrangements upon which the claimant relied when making its investment), Tecmed ¶¶172–73 (the state replaced unlimited licenses with licenses of a limited duration); LG&E ¶¶132–38 (the state abrogated guarantees upon which the claimant relied when making its investment); Occidental Petroleum ¶¶526–27 (the state unilaterally modified a contractual clause upon which the claimant relied when making its investment). 66 CMS ¶¶275, 281. 67 EDF ¶¶216–17. 68 LRE Art. 4, R-32. 69 LRE Art. 2, R-32. 70 Annex 3 Art. 2(5), R-34.
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stronger if the agency knew of the inconsistency between the policy and the license.71 Here, the
BEA granted twelve additional licenses even after the Government admitted that the program
was unsustainable and contrary to public policy.72 In fact, as late as 3 January 2013, Respondent
granted around 6,000 licenses under the original LRE.73 Claimant’s reliance on these affirmative
actions was justified. Since the BEA was still granting licenses under the original regime,
Claimant reasonably and justifiably expected the promised rate to be delivered, and made
substantial investments after receiving licenses. Furthermore, Respondent’s officials complained
that guaranteed profits for twelve years was a windfall,74 which indicates they also expected the
regime to last for twelve years as promised.
43. Even if a minor modification of the legal framework could have been expected, such an
arbitrary wholesale transformation was not. In Occidental Exploration, the tribunal found a FET
violation when Ecuador changed the VAT framework under which the claimant was operating,
without providing any clarity as to the meaning or scope of the change.75 Respondent similarly
failed to provide any reasoning for why the tariff rate was cut so drastically, by nearly two-thirds
of the original guaranteed rate. Even if Claimant could have expected that the tariff rate might be
adjusted despite the guarantee in the LRE and Respondent’s continued representations, Claimant
could not have expected such a drastic and arbitrary reduction.
44. Lastly, EU obligations and good faith do not protect Respondent from a FET violation. In
Micula, Romania revoked state aid because it would violate EU limits on such aid, but the
tribunal found that Romania still violated FET.76 Last year, the tribunal in EDF also found that
Hungary had violated the Energy Charter Treaty’s FET clause when it terminated long-term
power purchase agreements because they violated EU state aid rules.77 In the same vein, EU
borrowing limits do not shield Respondent from liability for violating FET under the BIT. Even
assuming that Respondent was guided by the best of intentions and acted in good faith,
Respondent unpredictably and arbitrarily changed the legal and business framework under which
71 MTD ¶166. 72 Facts ¶¶28–29, 33, R-22–23. 73 PO2 ¶13, R-58. 74 Facts ¶29, R-23. 75 Occidental Exploration ¶¶184–87. 76 Micula ¶¶869–70. 77 Thomson.
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the investment was decided and implemented, and therefore objectively breached the FET
standard.78
2. Respondent’s Breach of the Stabilization Clause in the LRE Amounted to a FET Violation as a Matter of Law
45. Respondent’s violation of the LRE’s stabilization clause is an independent FET violation.
Stabilization clauses are defined as:
[C]lauses . . . with the intended effect of freezing a specific host State’s legal framework at a certain date, such that the adoption of any changes in the legal regulatory framework of the investment concerned (even by law of general application and without any discriminatory intent by the host State) would be illegal.”79
46. The clause in the LRE that froze the feed-in tariff for twelve years was such a clause.
Claimant was allowed to rely on Respondent’s domestic law in its expectations as a matter of
law,80 and Respondent’s revocation of the stabilization clause amounts to an independent FET
violation.
47. The prospective nature of energy investments does not defeat Claimant’s position
because “a claim to stability can be based on the inherently prospective nature of the regulation
at issue.” 81 As the tribunals in Total S.A. and National Grid held, the entire purpose of regimes
such as the one initially guaranteed by Respondent is to encourage and protect long-term
investments and operations, and to guarantee that investors can recover operating costs and make
a reasonable return over time.82 Otherwise, states should provide contingent rights in case the
relevant framework has to be changed.83 Respondent changed the regulatory framework in
violation of its international law obligations, and failed to provide any contingent rights or
fallback measures to lessen Claimant’s losses. To the contrary, Respondent enacted the reduced
rate retroactively from 1 January 2013.84
78 Sempra ¶¶303–04. 79 Total ¶101. 80 National Grid ¶84. 81 Total ¶122. 82 Total ¶122; National Grid ¶¶176–79. 83 Total ¶122; National Grid ¶179. 84 Facts ¶35, R-24.
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B. Respondent Did Not Accord Due Process to Claimant and Its Investments
48. Respondent also acted without due process, which amounts to an independent violation
of the fair and equitable treatment standard. Due process is the guarantee of fair procedure for
investors.85 Past tribunals have found lack of due process for failure to inform claimants in a
timely manner when a regime of incentives would be terminated prior to the stated date of
expiration.86 That is precisely what happened here. Respondent changed the legal framework, on
the basis of which it had solicited Claimant’s investments, without according Claimant due
process.
49. Failure to provide affected investors an opportunity to be heard before the Government
significantly modifies or terminates their licenses also violates due process.87 Here, Respondent
did not provide Claimant with an opportunity to be heard either before passing the LRE
Amendment or before calculating and announcing the new feed-in tariff. The BEA did not even
attempt to negotiate or engage with Claimant. To the contrary, Respondent amended the LRE
subsequent to private hearings in November 2012, where Respondent only invited select industry
representatives and stakeholders and not others.88 Claimant was not even aware that the
legislature was secretly deliberating on measures that significantly affected Claimant’s rights.89
Thus, Respondent failed to accord due process to Claimant.
C. Respondent Acted Arbitrarily and Without Transparency
50. Transparency is the principle that the legal framework and any decisions affecting the
investor should be readily apparent to the investor.90 In Metalclad, the tribunal found that
Mexico failed to act transparently because it did not ensure an open and predictable framework
for Metalclad’s investments when local authorities did not honor licenses and representations of
federal authorities.91 Similarly, in Tecmed, the tribunal found that Mexico violated its FET
obligation when it replaced licenses of unlimited duration with licenses of limited duration
85 Dolzer & Schreuer, p.154. 86 Micula ¶872. 87 Tecmed ¶¶173–74 (Mexico deprived investors of an opportunity to be heard when it failed to notify them before replacing permanent licenses with temporary ones); Rumeli Telekom ¶¶615–18 (violation of due process where Respondent terminated a contract without prior suspension); CME ¶¶169–70. 88 Facts ¶34, R-24. 89 PO3 ¶6, R-62. 90 Dolzer & Schreuer, p.149. 91 Metalclad ¶88.
18
because it acted with ambiguity and uncertainty, which did not allow the claimant to asses the
legal situation, plan its business and investment activity accordingly, or preserve its rights.92
Here, Respondent did not honor its past representations and commitments when it revoked the
tariff guaranteed in the original LRE. The LRE Amendment gave the BEA free rein to
recalculate the tariff,93 which made the legal and business framework more unpredictable and
less transparent.
51. Respondent’s revocation of regulatory guarantees of the LRE and denial of a license for
the Alfa project were also arbitrary and inconsistent measures that amount to a FET violation.
Tribunals have consistently found that arbitrary and inconsistent conduct can amount to a breach
of FET.94 In Lemire, the tribunal found that the state’s lack of reasoning in denying licenses and
its lack of formal effort to evaluate applications were arbitrary actions that breached FET
because the applicants could not ascertain why their applications were rejected, where they stood
in relation to other applicants, or how to improve.95 Furthermore, the lack of reasoning limited
judicial review or public scrutiny.96 The BEA failed to provide any reasoning for its denial of the
Alfa license. Nothing in the LRE states that the scheme was applicable only to new projects, but
the BEA arbitrarily decided to decline to apply it to Claimant’s Alfa project. Moreover, when the
BEA revoked the guaranteed feed-in rate, it simply recalculated a new tariff rate, announced the
rate, and failed to justify the dramatic rate reduction of nearly two-thirds.97 The BEA later
claimed the calculation was premised on an 8% rate of return, but did not specify the data and
other factors it assumed.98
III. THE DOCTRINE OF NECESSITY DOES NOT RELIEVE RESPONDENT OF ITS TREATY OBLIGATIONS
52. International law recognizes that in some extraordinary situations, a state may
temporarily be excused from certain obligations. These situations are rare;99 states may only
claim necessity in the most dire of circumstances, when the very survival of the state is at risk.100
92 Tecmed ¶¶164, 172. 93 LRE Amendment Art. 1, R-35. 94 Lemire, Liability ¶418, Tecmed ¶¶166, 174, SAUR ¶¶506–07; Rumeli Telekom ¶¶615–18. 95 Lemire, Liability ¶418. 96 Lemire, Liability ¶418. 97 Facts ¶21, R-22. 98 PO2 ¶27, R-59–60. 99 CMS ¶317. 100 Martinez, p.159–60.
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Traditional examples include war, insurrection, natural disasters, or complete meltdown of the
financial system.101 Respondent can point to no such situation here that would justify its treaty
breach. A desire to “meet its energy objectives” is not a valid basis for invoking necessity.
53. Respondent’s attempt to rely on the necessity defense fails under any standard because:
(A) The BIT’s necessity defense is not applicable; (B) the situation does not satisfy the necessity
defense under customary international law; and (C) there is no basis on which Respondent could
claim that its EU obligations relieve Respondent of its BIT obligations.
A. The BIT’s Necessity Defense Is Not Applicable
54. The BIT provides that:
[I]nvestors of one Contracting Party who [in the event of war, armed conflict, a state of national emergency, revolt, insurrection, riot, or other similar events attributable to authorities in the territory of the other Contracting Party] suffer losses in the territory of the other Contracting Party resulting from . . . the state of necessity of the latter Contracting Party . . . shall be accorded restitution or just and adequate compensation for the losses sustained during the period of the requisitioning or as a result of the destruction of the property.102
Respondent cannot rely on this provision to relieve itself of its international law obligations
because: (1) Respondent’s situation does not qualify as a state of necessity under the BIT; (2) the
“state of necessity” clause in the BIT is not self-judging, and therefore Respondent cannot claim
an unassailable right to decide for itself when it is in a state of necessity; and (3) even if the
BIT’s necessity defense did apply, Respondent is required to provide just and adequate
compensation, which it has denied to Claimant.
1. The Situation in Barancasia Does Not Qualify as a State of Necessity Under the BIT
55. Article 4 of the BIT contains the phrase “state of necessity,”103 but the provision
contemplates only dire national emergencies that require immediate action by a Contracting
Party, none of which are present here. Article 4(1) explicitly limits the circumstances under
which necessity may be invoked to “war, armed conflict, a state of national emergency, revolt,
insurrection, riot, or other similar events.”104
101 BIT Art. 4, R-27. 102 BIT Art. 4, R-27. 103 BIT Art. 4, R-27. 104 BIT Art. 4, R-27 (emphasis added).
20
56. A routine budgetary shortfall and technical complications associated with large
infrastructure projects are qualitatively different from war, armed conflict, and insurrection. The
only situation in the BIT that could possibly apply here is the state of national emergency, but the
circumstances that Respondent uses to excuse its breach are not severe enough to qualify as a
national emergency. The complete meltdown of Argentina’s financial system in the early 2000s
is often cited as an example of a national emergency giving rise to a possible necessity defense—
the stock market lost 60% of its value, the central bank lost 40% of its reserves, unemployment
soared to 25%, and there was widespread looting.105 Even in this extreme example, which is far
more indicative of a “national emergency” than the teachers’ strikes and low opinion polls in
Barancasia,106 most tribunals rejected Argentina’s necessity defense.107 As one tribunal pointed
out, economic collapse was insufficiently extraordinary to constitute necessity.108
57. Here, the “emergency” Respondent claims exists is almost entirely theoretical and
distinguishable from the events in Argentina. Respondent has provided no evidence of
hyperinflation, increase in unemployment, or any financial loss in its stock market. If a teachers’
strike and opinion polls showing a lack of support for a particular regulatory regime109 could
constitute a national emergency giving rise to a necessity defense, then BITs would be stripped
of their ability to protect investors. These are regular occurrences in nearly every state.
58. Moreover, a national emergency as contemplated in the BIT implies a start and end date.
When an investor suffers a loss due to such a situation, Article 4 requires compensation “during
the period of requisitioning or as a result of the destruction of property.”110 Since here there is no
destruction of property, the only other loss contemplated by Article 4 occurs when a Party
requisitions an investment during the period that the emergency exists. If the emergency has no
end date, then compensation would also continue indefinitely until the investment is no longer
requisitioned.111 This would make damages impossible to calculate.
105 LG&E ¶232–37. 106 Facts ¶32, R-24. 107 CMS; Enron; Metalpar; Suez; Total; Impregilo. Tribunals that accepted a limited necessity defense include LG&E and Continental Casualty. 108 LG&E ¶228. 109 Facts ¶32, R-24. 110 BIT Art. 4(2), R-27 (emphasis added). 111 BIT Art. 4, R-27.
21
59. Even the few tribunals that accepted Argentina’s necessity defense saw the need to honor
this temporal principle by specifically identifying start and end dates.112 Here, if the teachers’
strike was the emergency, that emergency ended long before the amendment to the LRE and
therefore cannot be claimed as the basis for Respondent’s illegal act. And the legislative
amendment to the LRE is permanent, so even if that qualifies as a start date, there are no criteria
for determining when the emergency ends. An emergency that lasts forever is neither an
emergency nor an “extraordinary circumstance.” It is the normal state of affairs.
60. Furthermore, Respondent’s own actions during the period leading up to the enactment of
the LRE Amendment are inconsistent with a state of emergency. The LRE was amended seven
months after the teachers’ strike in Respondent’s territory.113 Respondent has pointed to no facts
between July 2012 (after the teachers’ strike) and January 2013 (when the LRE was amended)
indicating anything resembling a state of emergency. No other measures were attempted to solve
the budgetary concerns Respondent claims. Respondent did not even attempt to renegotiate with
Claimant. Argentina, by contrast, when confronted with a much more serious emergency, first
tightened its budget and cut salaries, and only then took drastic measures that required invoking
the necessity defense.114 Likewise, in a circumstance similar to the one at hand, India attempted
to renegotiate tariffs with investors when it encountered difficulties with its Dabhol Power
Project.115 Respondent’s failure to take any substantive action for seven months before amending
the LRE reveals that its decision was not based on true necessity, but was rather a politically
motivated response to an unpopular regulation.
61. Finally, Respondent’s decision to grant Claimant’s photovoltaic licenses in July 2012
reveals the lack of emergency. Respondent has submitted no facts that indicate that a state of
emergency arose after it granted the licenses. Even if a state of emergency did arise after July
2012, Respondent could have grandfathered in licenses it had already granted and changed the
law only for future licenses, honoring the statutory rate guarantee and thus not violating
investors’ legitimate expectations.
112 LG&E ¶229; CMS ¶386–88. 113 Facts ¶32, R-24. 114 Martinez, p.154. 115 Hanson.
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62. If, however, a true emergency existed before July 2012, Respondent’s decision to grant
the licenses is inexplicable; Respondent would not have issued new licenses under the very
regime and rate that it claims created the emergency.116 These actions belie Respondent’s claim
that there was any necessity arising from the solar bubble it created.
2. The “State of Necessity” Clause in the BIT Is Not Self-Judging
63. Article 4 of the BIT is not self-judging; that is, nothing in the BIT indicates that
Respondent may unilaterally determine whether a state of necessity exists. If Article 4 were self-
judging, either party could unilaterally invoke the state of necessity, and a tribunal would be
powerless to determine whether the invocation was valid. Such an interpretation is inconsistent
with international law117 because it would negate the object and purpose of the treaty, i.e., to
protect investors of the Parties.118 And the very nature of a contractual agreement to arbitrate
requires that if a dispute arises under the BIT, the tribunal must be empowered to decide the key
legal issues underlying the dispute.119
3. Even In a State of Necessity Under the BIT, Restitution or Just and Adequate Compensation is Required
64. Even if Article 4 of the BIT were to apply, which it does not, an investor is entitled to
“restitution or just and adequate compensation for losses sustained” during the emergency.120 In
other words, even if the LRE Amendment were excused, the BIT still requires Respondent to
provide restitution or just and adequate compensation for its actions. This stands in contrast to
the Argentina-United States BIT that was the source of much of the arbitration surrounding the
Argentine financial crisis.121 There, Article XI provided that the BIT would not preclude
application of measures by a party in “protection of its own essential security interests.”122 Here,
by contrast, the BIT’s necessity clause allows a Contracting Party only to take actions necessary
“to fulfill its obligations with respect to the maintenance of international peace or security.”123 In
116 Facts ¶33, R-24. 117 Continental Casualty ¶187. 118 VCLT Art. 31(1). 119 BIT Art. 8(5)–(6), R-29. 120 BIT Art. 4(2), R-27. 121 Argentina-U.S. BIT. 122 Argentina-U.S. BIT, Art. XI. 123 BIT Art. 11, R-30 (emphasis added).
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other words, Article 11 does not provide Respondent with an excuse that would negate the
restitution or compensation required under Article 4.
65. Respondent’s unlawful actions denied Claimant the 0.44EUR/kWh tariff to which it was
entitled for twelve years under the LRE and the license it was granted. According to Article 4 of
the BIT, even in a state of necessity, Claimant must be put in the same position it would have
been had Respondent not violated its BIT obligations. If Respondent had not acted as it did,
Claimant would have received the 0.44EUR/kWh rate. Therefore, even if the state of necessity
defense in Article 4 applies, Respondent would still have to pay Claimant the amount it would
have received under the 0.44EUR/kWh tariff for twelve years under the original LRE.124
B. The Necessity Defense Under Customary International Law Does Not Apply
66. Respondent’s actions do not meet the requirements for the CIL defense of necessity.
Article 25 of the ILC Articles is regarded as an authoritative source for describing the CIL
necessity defense.125 It reads:
1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act: (a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and (b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.
2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if: (a) the international obligation in question excludes the possibility of invoking necessity; or (b) the State has contributed to the situation of necessity.
All four of these prongs must be satisfied for a state to lawfully claim necessity. Although there
are arguments that none of these are satisfied, prongs one and four particularly demonstrate that
Respondent may not invoke the CIL concept of necessity.
67. First, Respondent’s action was not the only way for it to safeguard an essential interest.126
Respondent had many other alternatives before breaching its BIT obligations. For example,
Respondent could have granted fewer licenses once its domestic troubles began. This would have
124 LRE Art. 4, R-32. 125 Enron, Annulment ¶349. 126 ILC Articles Art. 25(1)(a); CMS ¶323–24; Enron ¶320–21.
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allowed Respondent to mitigate the “solar bubble,” while also honoring Respondent’s
obligations under the BIT.
68. Alternatively, Respondent could have “grandfathered in” licenses granted before the LRE
Amendment and only applied adjustable tariffs to new licenses or licensees. Claimant does not
dispute that Respondent can amend its law prospectively. But abiding by its international
obligations requires that Respondent pay the rate it initially promised to those to whom it had
already granted licenses.
69. Had Respondent done either of these or looked for other reasonable solutions, it could
have honored its international obligations, maintained a sustainable budget, and avoided any
potential conflict with EU borrowing laws. Instead, Respondent chose to treat Claimant unfairly
and inequitably by retroactively changing a legal provision on which Claimant had relied.
70. In addition, there was no “grave peril.” As described in the preceding section, grave peril
refers to events like war, natural disaster, or a complete financial meltdown on the level of
Argentina in the early 2000s (and even then, many tribunals found this insufficient127). Here,
there was nothing more than budgetary constraints and bureaucratic miscalculations—ordinary
events that every state encounters—not “grave peril.” Nor was the peril “imminent.” The LRE
Amendment and subsequent regulation reducing the feed-in tariff were not implemented until
seven months after the teachers’ strike and almost a year after the government determined that it
had miscalculated in its regulatory scheme.128
71. Moreover, under Article 25, a state cannot contribute to an alleged state of necessity and
then claim it as a defense. 129 Yet that is exactly what Respondent is attempting to do.
Respondent’s legislature and BEA created the solar energy problem.130 The legislature passed a
law guaranteeing a specific feed-in tariff rate for twelve years.131 The BEA underestimated the
number of applicants it would receive and did not factor in the possibility that advances in
technology might occur over the period of twelve years.132 The BEA went further and granted all
twelve licenses to Claimant even after Respondent’s officials recognized that they had created a
127 CMS; Enron; Metalpar; Suez; Total; Impregilo. 128 Facts ¶28, 33–35, R-23–24. 129 ILC Articles Art. 25(2)(b). 130 Facts ¶28, R-23. 131 Facts ¶14, R-21. 132 Facts ¶26, 29, R-23.
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“solar bubble.”133 In other words, the potential budgetary shortfall and inability to fulfill its legal
obligations were of Respondent’s own making, and thus the ILC Articles preclude Respondent
from now claiming necessity.
72. Furthermore, even if the state of necessity exists under Article 25, ILC Article 27
provides that invocation of necessity “is without prejudice to the question of compensation for
any material loss caused by the act in question.”134 In CMS, for example, the tribunal found that
even if necessity existed, Article 27 points back to the BIT to determine what compensation is
due.135 Here the BIT defines the compensation required, which is precisely what Claimant
seeks.136 Therefore, even this Tribunal finds that ILC Article 25 excuses Respondent’s actions,
this does not reduce the compensation owed to Claimant under Article 4 of the BIT.
C. There Is No Conflict With EU Law that Excuses Respondent From Its Obligations Under the BIT
73. Respondent cannot claim that EU law excused it from complying with its BIT
obligations. When a tribunal has jurisdiction under a BIT, the BIT is the primary source of
law.137 States have a plethora of international obligations, and tribunals should presume that each
is binding.138 Tribunals are created by consent and derive their power from the instrument of
consent, here a BIT. Thus, the Tribunal must first look to the text of the BIT as the source of
law.139
74. There are relatively few cases where states have claimed that they are excused from their
obligations under a BIT because of a conflict with another international obligation.140 In Micula,
the tribunal heard and rejected this argument.141 There, the potential conflict was more direct
133 Facts ¶28, 33, R-23–24. 134 ILC Articles Art. 27; CMS ¶390. 135 CMS ¶386–88. 136 BIT Art. 4 R-27; CMS ¶383–94. 137 Micula ¶318. 138 Micula ¶326. 139 Sempra, Annulment ¶114. 140 It has already been shown that EU law does not deprive this Tribunal of jurisdiction under the BIT. Here Respondent’s argument would be that although it violated the BIT, it is excused because of a higher obligation. 141 One EU court later set aside the tribunal’s decision. However, this simply reflects the different primary sources of law to which each body looks. The EU’s subsequent decision should thus not be read to cast doubt on the tribunal’s proper interpretation of the law under the BIT. Micula ¶340.
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than it is for Respondent, as there the investment program itself was alleged to have directly
contradicted the competition laws of the EU.142
75. Here, by contrast, the “conflict” is entirely speculative: Respondent miscalculated the
supply of photovoltaic investors, failing to account for increases in production efficiency.143 It
received 7,000 license applications, which surpassed its capacity.144 One of the many ways it
could pay for the licenses at the rate it committed to is by borrowing money. Given its budgetary
situation, the amount of money Respondent would need to borrow could exceed the amount
permitted by EU law.145 Only at the end of this lengthy and speculative chain does anything even
resembling a conflict between the BIT and EU law arise. This hypothetical conflict does not
excuse Respondent from its obligations under the BIT.
IV. THE TRIBUNAL SHOULD ORDER RESPONDENT TO COMPLY WITH ITS TREATY OBLIGATIONS
76. International tribunals possess a wide range of remedial powers, including ordering non-
pecuniary remedies. The Rainbow Warrior tribunal declared: “The authority to issue an order for
the cessation or discontinuance of a wrongful act or omission results from the inherent powers of
a competent tribunal.”146 Since Respondent is engaged in a continuous breach of international
law, the Tribunal should order Respondent to grant restitution in the form of specific
performance of the original LRE, applicable retroactively to compensate Claimant for damage
suffered since 2013. The Tribunal should therefore (A) order Respondent to rescind the
amendment to LRE Article 4, or alternatively, (B) order Respondent to apply the 0.44EUR/kWh
feed-in tariff rate to Claimant’s investments. It is preferable that states abide by their treaty
commitments rather than simply pay damages to rid themselves of those voluntarily assumed
obligations. Ordering Respondent to provide restitution by rescinding or limiting the application
of the amendment will thus serve the same purposes as a specific performance remedy.
142 Micula ¶331. 143 Facts ¶25, R-23. 144 Facts ¶¶26, 29, R-23. 145 Facts ¶30, R-23. 146 Rainbow Warrior ¶114.
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A. This Tribunal Should Order Respondent to Rescind the LRE Amendment
77. In cases where restitution is an available remedy, tribunals can and should order the
breaching party to take necessary measures to comply with those duties.147 The Tribunal should
therefore order Respondent to rescind the amendment to LRE Article 4 and apply the
0.44EUR/kWh rate to the period between the initiation of the breach and this Tribunal’s award.
Such an order (1) is within the powers of the Tribunal, and (2) will not unduly infringe upon
Respondent’s sovereignty.
1.The Tribunal Has the Power to Order Rescission 78. An arbitral tribunal may grant any remedy it considers appropriate, unless governing law
restricts this power.148 The Tribunal should look first to the text of the BIT for any restrictions,
and then to customary international law. 149
79. The BIT does not restrict the Tribunal’s remedial powers, and therefore does not limit the
Tribunal’s ability to grant non-pecuniary remedies. Article 8 does not prevent the Tribunal from
awarding a specific performance remedy. Furthermore, other provisions of the BIT specifically
mention restitution as an alternative to “just and adequate compensation,” which indicates that
the treaty allows for remedies other than compensatory damages.150 In the absence of any
applicable lex specialis rules in the BIT, “the Tribunal is required to apply the default standard
contained in customary international law.”151
80. The customary international law standard, established in the seminal Chorzów Factory
opinion, permits reparation in any form: “It is a principle of international law that the breach of
an engagement involves an obligation to make reparation in adequate form.”152 Specifically,
“reparation must, as far as possible, wipe out all the consequences of the illegal act and
reestablish the situation which would, in all probability, have existed if that act had not been
committed.”153 The ICJ noted that restitution is preferable, while compensatory damages are only
a secondary option: “Restitution in kind, or, if this is not possible, payment of a sum
corresponding to the value which a restitution in kind would bear . . . such are the principles 147 Texaco, ¶111. 148 Enron, ¶79. 149 MTD, ¶87. 150 BIT Art. 4, R-27. 151 ADC ¶483. 152 Chorzów Factory, Jurisdiction, p.21. 153 Chorzów Factory, Merits, p.47.
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which should serve to determine the amount of compensation due for an act contrary to
international law.”154
81. The ILC Articles on State Responsibility, which codified the Chorzów Factory
principle,155 further establish a strong preference for restitution. Article 35 provides that “[the]
State responsible for an internationally wrongful act is under an obligation to make restitution,
that is, to re-establish the situation which existed before the wrongful act was committed.”156
“Restitution” here is not simply monetary restitution, because the payment of damages will not
re-establish the situation that existed prior to 2013. Instead, legal restitution, which requires “the
alteration or revocation of a legal measure taken in violation of international law, whether a
judicial decision or an act of legislation,” is appropriate.157
82. The legal restitution standard in the ILC Articles and Chorzów Factory is consistent with
the Rainbow Warrior decision affirming that an international tribunal has the power to order the
“cessation or discontinuance of a wrongful act or omission.”158 According to the Rainbow
Warrior tribunal, legal restitution requiring cessation of an unlawful act like the Amendment
here, is appropriate so long as “[1] the wrongful act has a continuing character and [2] that the
violated rule is still in force at the time in which the order is issued.” 159 Respondent’s conduct
meets these two essential conditions: it has a continuing character so long as the amendment
remains in force in direct contravention of the BIT. The Tribunal therefore has full power to
order discontinuance of Respondent’s wrongful amendment.
83. Indeed, the ILC Articles limit legal restitution only in a case where it is either materially
impossible or involves “a burden out of all proportion to the benefit deriving from restitution
instead of compensation.”160 It is noteworthy that the ILC Articles do not require a balancing test
to determine which remedy is less burdensome; rather, restitution is strongly preferred unless it
is impossible or would create a “burden out of all proportion” to its benefit.161
154 Chorzów Factory, Merits, p.47 (emphasis added). 155 ADC ¶¶484–93. 156 ILC Articles Art. 35. 157 This is distinct from material restitution, which requires the return of illegally taken goods or the liberation of wrongfully detained persons. Gray, p.590–91. 158 Rainbow Warrior ¶114. 159 Rainbow Warrior ¶114. 160 ILC Articles Art. 35. 161 ILC Articles Art. 35 (emphasis added).
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84. Here, it is not materially impossible to restore the situation that existed prior to 2013. To
the contrary, legal restitution will restore the status quo ante and provide Claimant with an
appropriate remedy. The burden on Respondent is not out of all proportion to the benefit of
compliance with the international obligations Respondent undertook when it entered into the BIT
and passed the initial LRE. Respondent may argue that the pre-2013 feed-in tariff rates
potentially risked domestic unrest.162 However, these arguments are entirely speculative, and do
not render legal restitution “a burden out of all proportion” with its benefit.163 Respondent’s
burden would be merely to fashion a regulatory solution consistent with Respondent’s
obligations under the BIT.
85. Numerous other tribunals have awarded legal restitution. In Texaco, the arbitrator applied
the Chorzów Factory preference for restitution, writing that “any possible award of damages
should necessarily be subsidiary to the principal remedy of performance itself” in order for the
award to conform both with the contract at issue as well as with the principles of customary
international law that provide that “restitutio in integrum remain[s] the rule in principle.”164 The
Martini tribunal ordered the annulment of a Venezuelan domestic court judgment.165 In Preah
Vihear, the ICJ provided both material and legal restitution by ordering Thailand to withdraw
any military or police forces from a disputed temple and to restore any objects removed by Thai
forces.166 In the Case Concerning Military and Paramilitary Activities in and against Nicaragua,
the United States was ordered to “cease and to refrain from all such acts as may constitute
breaches of the foregoing legal obligations.”167 Similarly, in Case Concerning the Arrest
Warrant of 11 April 2000, the tribunal ordered specific performance by requiring Belgium to
cancel a previously issued arrest warrant.168
2. Ordering Rescission of the LRE Amendment Will Not Unduly Infringe on Respondent’s Sovereignty
86. An inherent sovereign power is the State’s power to curtail its own sovereignty. As stated
by the tribunal in ADC Affiliate, “when a State enters into a bilateral investment treaty . . . it
162 Facts ¶¶29–32, R-23–24. 163 ILC Articles Art. 35. 164 Texaco ¶111. 165 Sabahi, pp.74–75. 166 Preah Vihear, pp.36–37. 167 Nicaragua, p.149. 168 Arrest Warrant, p.33.
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becomes bound by it and the investment-protection obligations it undertook therein must be
honoured rather than be ignored by a later argument of the State’s right to regulate.”169
87. Respondent has assumed express treaty obligations that envision the award of non-
pecuniary remedies. By entering the BIT, Respondent undertook an international legal obligation
to participate in these proceedings and to abide by the result.170 The BIT expressly provides for
dispute settlement through certain enumerated arbitral bodies, all of which recognize that non-
pecuniary remedies are within the powers of a tribunal.171 The LCIA Rules in particular specify
that:
The Arbitral Tribunal shall have the power . . . (vii) to order compliance with any legal obligation, payment of compensation for breach of any legal obligation and specific performance of any agreement (including any arbitration agreement or any contract relating to land).172
Respondent’s assent to the BIT demonstrates acceptance of these broad remedial powers.
88. Similar powers are vested in the other dispute settlement bodies recognized under the
BIT: ICSID and UNCITRAL. The power to grant non-pecuniary relief has been affirmed under
ICSID rules by various tribunals and scholars.173 UNCITRAL rules also contemplate non-
pecuniary remedies as being within the powers of a tribunal.174 The BIT therefore establishes the
consent of Respondent to resolve disputes through an arbitral process that includes restitutionary
remedies.175 Having already bound itself to submit to these proceedings, Respondent cannot now
argue that this Tribunal’s remedial authority is subject to new restrictions.
89. Respondent became a more attractive destination for investment because of the BIT’s
protections. Thus, Respondent gave up an element of its sovereignty in the form of an
international legal obligation, in exchange for the economic benefits from increased investment
by investors like Claimant. Legal restitution will restore Claimant’s legitimate expectations and
repair the market disruption caused by Respondent's abrupt and improper policy change.
169 ADC ¶423. 170 BIT Art. 8(6), R-29. 171 BIT Art. 8(5), R-29. 172 LCIA Rules Art. 22.1(vii) (emphasis added). 173 ICSID Convention Art. 54(1); Micula ¶166; Schreuer, Remedies, pp.325–26, 329–31. 174 UNCITRAL Rules Art. 3. 175 Sabahi, pp.74–75.
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90. Accordingly, for all of the aforementioned reasons, the Tribunal should order rescission
of the Amendment to LRE Article 4. The original tariff rate should be backdated in order to
prevent Respondent from being unjustly enriched during the period of its breach. In order to
properly apply the Chorzów Factory mandate, the Tribunal must provide compensation for all
losses that Claimant bore when Respondent amended LRE Article 4 in 2013. Since 2013,
Respondent has enjoyed renewable solar energy while paying significantly less than it committed
to under the LRE. The purpose of granting a guaranteed feed-in tariff in the LRE was to provide
stability, allocate risk, and encourage valuable investment in Respondent’s territory. By
imposing illegal measures on Claimant’s investments when the solar business turned out to be
more profitable than expected, Respondent has unjust enriched itself by unilaterally amending a
guaranteed tariff whose initial purpose was to provide stability in exchange for valuable
investment.176 An award that provides fair and full compensation must therefore account for
Respondent’s breach of its international obligations beginning in 2013.
B. Alternatively, This Tribunal Should Order Respondent to Pay Claimant the Pre-2013 Feed-In Tariff Rate for Twelve Years From the Date of Licensing
91. If the Tribunal determines that rescission of the Amendment is not appropriate, it should
alternatively enforce specific performance of the original pre-2013 feed-in tariff rate between the
parties to this immediate dispute. This alternative restitution satisfies the Chorzów Factory
standard that a remedy should “reestablish the situation which would, in all probability, have
existed if that act had not been committed.”177 A full and fair remedy in accordance with
Chorzów Factory mandates at the very least this limited form of legal restitution for two reasons:
first, Respondent’s breach is ongoing and the BIT remains in force for Claimant’s investments;
and second, Claimant made a substantial investment in reliance on Respondent’s regulatory
regime, which means that adequate relief requires full compensation for the violation of
Claimant’s legitimate expectations. This remedy respects Respondent’s sovereign legislative
authority, but prevents Respondent from using the legislative process to shirk its pre-existing
obligations to Claimant under the BIT.
92. Applying the Rainbow Warrior standard, Respondent’s wrongful act continues so long as
it refuses to apply the pre-2013 feed-in tariff rate to Claimant, and the investments remain
176 Abdala & Spiller, p.112. 177 Chorzów Factory, Merits, p. 47.
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protected under the BIT. As explained above, even if the BIT was terminated at the initial ten-
year period, Claimant’s investments are still protected, and therefore any award issued prior to 1
August 2023 would fall within the Rainbow Warrior framework. Respondent’s continuing
breach therefore merits an order to discontinue the wrongful act and pay Claimant the
0.44EUR/kWh feed-in tariff rate.
93. Claimant invested in thirteen projects in reliance on the guarantee that the 0.44EUR/kWh
tariff would be applied for twelve years. As originally written, LRE Article 4 has no indication
that the feed-in tariff rate was subject to change. Indeed, it reads “[t]he feed-in tariff . . .
applicable at the time of issuance of a license will apply for twelve years.”178 The LRE
Amendment represents a significant change from the original regime. States may regulate, but
they must do so against the backdrop of their international obligations. Claimant’s legitimate
expectations were that it would be permitted to operate those projects and receive the
0.44EUR/kWh feed-in tariff rate for twelve years. An award of this character would do no more,
and no less, than allow Claimant to operate in accordance with those legitimate expectations.
94. Claimant is entitled to operate its renewable energy plants at the rate it was guaranteed
when it made substantial investments in Respondent’s territory. The Tribunal should therefore
order Respondent to apply the pre-Amendment feed-in tariff rate to Claimant for twelve years,
retroactively applicable to compensate for the harm suffered since the LRE Amendment in 2013.
V. CLAIMANT IS ENTITLED TO FULL COMPENSATION FOR ITS LOSSES RESULTING FROM RESPONDENT’S BREACH OF THE BIT.
95. If the tribunal determines that specific performance is not appropriate, Claimant requests
that the Tribunal require Respondent to pay 2,437,217EUR as full and fair compensation for
damage suffered.
96. Under the standard set forth by Chorzów Factory and the ILC Articles, 179 “full
reparation” for damage caused by a wrongful act of a State180 must include “any financially
assessable damage including loss of profits insofar as it is established.”181 Accordingly, Claimant
is entitled to monetary damages in an amount sufficient to put it in the position it would have
178 LRE Art. 4, R-32 (emphasis added). 179 Chorzów Factory, Merits, p. 47; CME ¶617; Duke Energy ¶468; National Grid ¶270; Sempra ¶400; MTD ¶238. 180 ILC Articles Art. 31. 181 ILC Articles Art. 36.
33
been in if Respondent had not breached its obligations.182 This requires awarding Claimant (A)
the sum of the net present value of profits that Alfa and Beta would have generated under a
0.44EUR/kWh tariff, and (B) either the net present value of the profits its twelve additional
licensed photovoltaic plants would have produced, or the net present value of Claimant’s
significant investments in land and equipment for the construction of these additional plants. In
addition, (C) Claimant is entitled to the value of the lost business opportunity for the follow-on
solar installations it planned to pursue at the 0.44EUR/kWh tariff rate.
A. Claimant Is Entitled to the Net Present Value of the Profits Alfa and Beta Would Have Generated Under a 0.44EUR/kWh Tariff
97. But for the illegal conduct of Respondent, Claimant would have received the
0.44EUR/kWh feed-in tariff for twelve years for Alfa, and for ten more years for Beta. Instead,
Claimant has been operating Alfa since January 2010 with a 0.1989EUR/kWh feed-tariff.
Claimant did receive the 0.44EUR/kWh tariff for the first two years of Beta’s operation;
however, since January 2013, it has only enjoyed a tariff of 0.15EUR/kWh. Claimant is entitled
to receive the net present value of the difference in profits resulting from application of the 0.44
EUR/kWh tariff and the tariffs Alfa and Beta actually received.183 This represents the fair market
value of the lost profits, or lucrum cessans, that Claimant suffered as a result of Respondent’s
illegal conduct.
98. Professor Kovič, an Economics Professor at the University of Cogitatia, has estimated
most accurately the losses to Claimant, as (1) the DCF method of valuation is appropriate for
calculating the net present value of businesses that qualify as “going concerns.” Furthermore, (2)
use of the Weighted Average Cost of Capital (“WACC”) correctly discounts the future cash
flows to the present because it accounts for the various funding sources that can affect a
business’s expected value.
1. Use of the Income Approach Discounted Cash Flow (DCF) Method Provides the Correct Valuation of Claimant’s Losses for Alfa and Beta
99. The DCF method of valuation is the most accurate method to determine the “but for” fair
market value of Claimant’s losses. DCF estimates the future free cash flows of a business using a
“discount rate” to identify a business’s net present value; i.e., the present worth of expected
182 SD Myers ¶315. 183 Sempra.
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future benefits.184 It is the most widely used and accepted means of calculating the expected
future benefits (i.e., profits) of a business, which becomes the present fair market value of the
business.185 The DCF method of valuation is the correct method for determining the monetary
value of Claimant’s losses for Alfa and Beta because they are going concerns.
100. Alfa and Beta qualify as “going concerns,” defined as “a business enterprise with
demonstrable future earning power.”186 Tribunals regularly use the DCF method of valuation in
cases of going concerns, because it represents the most accurate measure of the value of the
business, taking into account future profits.187 From the performance history of the plants,
Professor Kovič has calculated the net present value of the difference between their value at the
promised 0.44EUR/kWh tariff and the lower, actual tariff rates. Professor Kovič has calculated
that the net present value of the revenue difference for Alfa for twelve years created by a
0.1989EUR/kWh rate instead of the promised 0.44EUR/kWh rate is 120,621EUR.188 Similarly,
he has calculated that the net present value of the revenue difference for Beta for ten years
created by a 0.15EUR/kWh rate instead of the promised 0.44EUR/kWh rate is 123,261EUR.189
As both Claimant’s expert and Respondent’s expert agree that operating costs, by virtue of being
fixed and low, need not be taken into account, this revenue difference represents the total
damages to Claimant’s Alfa and Beta projects as a result of Respondent’s illegal conduct.
2. WACC Is the Correct Discount Rate
101. Professor Kovič was correct to use the WACC of 8% to calculate the appropriate
discount rate. Claimant—like many other businesses—is funded through two sources of capital:
debt and equity. Future cash flows thus represent earnings on both equity capital and debt
capital.190 However, debt is a liability that must be repaid; therefore, in order to calculate the
value to equity holders, one must deduct from the value of the business the value of debt and
debt payments.191 To calculate the discounted cash flows to equity, it is appropriate to use the
WACC as a discount rate, because it correctly takes into account debt liabilities when
determining a firm’s cost of capital. 184 Ripinsky, pp.200–01. 185 Kinnear, p.563. 186 Vivendi I ¶¶8.3.2–6. 187 Biloune. 188 Kovič Annex 1(A). 189 Kovič Annex 1(B). 190 Ripinsky, p.200. 191 Ripinsky, p.200.
35
B. Claimant Is Entitled to the Net Present Value of the Profits Its Twelve Additional Projects Would Have Generated Under a 0.44EUR/kWh tariff, or the Reliance Expenditures It Made on Land and Equipment
102. (1) Respondent should also compensate Claimant for the lost profits, or lucrum cessans,
it would have achieved had its twelve additional photovoltaic projects received the promised
0.44EUR/kWh tariff that formed the basis of Claimant’s decision to build these additional plants.
In the alternative, (2) Respondent should compensate Claimant for the reliance expenditures in
land and equipment for those twelve plants.
1. Claimant Is Entitled to the Net Present Value of the Profits Its Twelve Additional Projects Would Have Generated Under a 0.44EUR/kWh Tariff
103. Like with Beta, Claimant is entitled to receive for these twelve additional plants the net
present value of the difference between the promised 0.44EUR/kWh tariff and the applied
0.15EUR/kWh tariff.192 Using the DCF valuation method, Professor Kovič has calculated that
the net present value of the total difference between the expected and received revenues for those
twelve plants for twelve years is 1,427,500EUR.193
104. While the twelve plants that had not yet begun operation at the time of the LRE may not
qualify as “going concerns,” use of the DCF valuation method is nevertheless appropriate. The
1992 World Bank Guidelines on the Treatment of Foreign Direct Investment state that the full, or
fair, market value of a taken asset must be:
[D]etermined by the State according to reasonable criteria related to the market value of the investment, i.e., in an amount that a willing buyer would normally pay to a willing seller after taking into account the nature of the investment, the circumstances in which it would operate in the future and its specific characteristics, including the period in which it has been in existence, the proportion of tangible assets in the total investment and other relevant factors pertinent to the specific circumstances of each case.194
This definition of “fair market value” does not presuppose an existing market for the taken asset,
but assumes a transaction between a hypothetical willing buyer and seller.195 Thus, even if these
projects did not qualify as “going concerns,” the DCF method can nevertheless be used to
ascertain their fair market value. Moreover, the primary reason that tribunals disfavor the use of
192 Sempra. 193 Kovič Annex 4. 194 World Bank Guidelines IV.5. 195 Rumeli Telekom ¶¶801–02.
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DCF in cases that do not involve going concerns is that the enterprise lacks an established track
record of past income from which to predict future income. Here, because Claimant built future
projects modeled on Beta, it is appropriate to estimate future profits based on the Beta model.
105. In addition, use of the WACC discount rate remains the appropriate discount rate, as it
correctly discounts the cash flows to equity, which represents the ultimate value of the business,
while recognizing that the business can be funded by both debt and equity capital.
2. Claimant Is Entitled to Compensation for the Reliance Expenditures It Made in Land and Equipment.
106. In the alternative, Respondent must compensate Claimant for its damnum emergens,196
that is, the investments it made in pursuance of the legal guarantees of the LRE. In reliance on
Respondent’s representations regarding the promised 0.44EUR/kWh tariff, Claimant made
significant investments in land and equipment for the construction of twelve additional
photovoltaic plants beginning in September 2011. 197 Because Respondent eliminated the
promised tariff before Claimant could begin operating these new plants, Claimant was unable to
recoup any of its investment, much less turn a profit.198
107. For the damnun emergens claim, Respondent bears the burden of proving that Claimant
failed to take reasonable measures to mitigate their damage.199 Respondent has not proven that
there are interested purchasers to whom Claimant could have sold this land and equipment such
to mitigate its losses.200 Moreover, the facts affirmatively show that Claimant could not easily
mitigate its losses, due at least in part to changed market conditions. The market value of the
land relative to what Claimant paid for it has decreased exponentially since Respondent
terminated the fixed feed-in tariff under the LRE.201 The tariff changes likely dried up any
market for most of the materials. And Claimant cannot use any of the purchased equipment to
improve its older operating plants, because the technology is incompatible.202 Because Claimant
cannot mitigate its losses, Respondent must compensate Claimant fully for its reliance
expenditures.
196 Himpurna ¶235. 197 PO2 ¶11, R-57. 198 Kovič Expert Report, R-45. 199 Middle East Cement ¶170. 200 Amco ¶¶167–68. 201 PO2 ¶¶29–30, R-59. 202 PO2 ¶30, R-59.
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108. As Professor Kovič has detailed, Claimant’s total reliance expenditures equal
690,056EUR.203 If the tribunal chooses to award Claimant the reliance expenditures for the
twelve additional photovoltaic plants instead of the lucrum cessans for the same, the total
compensation owed Claimant is 1,699,773EUR.
C. Claimant Is Entitled to the Fair Market Value of the Lost Business Opportunity for the Follow-On Solar Installations It Planned to Pursue Under the LRE
109. Because the very opportunity to make a profit is an asset with value of its own,204
Claimant is entitled to the fair market value of the lost profits it would have made under the LRE
if Respondent had not illegally taken its opportunity to construct new photovoltaic projects and
benefit from the promised 0.44EUR/kWh rate. The concept of compensation for loss of
opportunity is recognized in several legal systems, as well as in the UNIDROIT Principles of
International Commercial Contracts, which provides that “[c]ompensation may be due for the
loss of a chance in proportion to the probability of its occurrence.”205 Investment tribunals have
thus awarded damages for the loss of a business opportunity where there was a very strong
chance that the commercial enterprise would have been successful, but for the breach.206
110. In reliance on Respondent’s promised 0.44EUR/kWh tariff under the LRE, Claimant
made plans to complete additional photovoltaic projects—about twelve new plants every two
years—over the course of the next twelve years. Even if Claimant’s planned future projects do
not qualify as “going concerns,”207 the claim for the fair market value of the lost business
opportunity is not speculative or uncertain. Here, because Claimant was planning to build future
projects modeled on its successful Beta plant, it is appropriate to estimate future profits based on
the Beta model. Thus, Respondent must pay Claimant the net present value of the fair market
value of the enterprises it would have built and profited from, but for Respondent’s illegal
conduct.
111. As Professor Kovič has calculated using the DCF method of valuation, the net present
value of those lost business opportunities totals 765,845EUR. He has reached this figure by
calculating the cost of building the plants and their operating costs, based on similar costs for
203 Kovič Annex 3. 204 Ripinsky, p.291. 205 UNIDROIT Principles Art. 7.4.3(2). 206 Sapphire. 207 Vivendi I ¶¶8.3.2–6.
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Beta, and subtracting that from the projected revenues at a 0.44EUR/kWh rate over the twelve
years. That figure was then discounted to the present day, again using the WACC. This
represents the value of the business opportunity that Claimant lost when Respondent illegally
changed the tariff rate under the LRE. Claimant is therefore entitled to compensation in the
amount of 2,437,217EUR.
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REQUEST FOR RELIEF
112. For the aforementioned reasons, Claimant respectfully asks the Tribunal to find that:
(1) It has jurisdiction over the submitted claims and the claims are admissible;
(2) Respondent breached its obligation under BIT Article 2(2) to provide Claimant fair and
equitable treatment;
(3) Respondent’s actions are not exempt under the BIT’s necessity provision or the
customary international law defense of necessity;
(4) Respondent must either rescind the improper amendment to the LRE or fully compensate
Claimant for the losses it suffered as a result of Respondent’s breach of the BIT; and
(5) Respondent must pay all costs and attorneys’ fees incurred by Claimant.
Respectfully submitted on 19 September 2015 by
TEAM AZEVEDO
On behalf of Claimant
VASIUKI LLC