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Team NERVO
ARBITRATION INSTITUTE OF THE STOCKHOLM CHAMBER OF COMMERCE
UNDER THE RULES OF ARBITRATION INSTITUTE OF THE STOCKHOLM
CHAMBER OF COMMERCE
Case SCC No. 00/2013
CALRISSIAN & CO., INC
CLAIMANT
V.
THE FEDERAL REPUBLIC OF DAGOBAH
RESPONDENT
MEMORIAL FOR RESPONDENT
20 SEPTEMBER 2014
1
TABLE OF CONTENT
INDEX OF AUTHORITIES ................................................................................................ 3
STATEMENT OF FACTS................................................................................................... 7
I. TRIBUNAL LACKS JURISDICTION OVER THE DISPUTE CONCERNING THE
SOVEREIGN BONDS OWNED BY CLAIMANT UNDER THE BIT…………………...9
A. The Sovereign Bonds lack the Characteristics of an Investment under Art. 1 of the BIT .... 9
1. The purchase of the Sovereign Bonds Has Not Committed Capital to Dagobah’s
Economic development ......................................................................................... 10
2. Claimant’s acquisition of the sovereign bonds Do Not Satisfy the Element of Risk
............................................................................................................................... 11
3. Investment under the Dispute Was Not Made in the Territory of Dagobah ......... 12
B. Sovereign Bonds Do Not Satisfy the Salini Criteria for Investment ................................... 13
C. Sovereign Bonds Are Not Investment under the Text of Art. 1 of the BIT ........................ 14
II. THE PCA ARBITRAL TRIBUNAL’S DECISION HAS NO EFFECT ON THE
JURISDICTION FOR THE TRIBUNAL IN THE PRESENT CASE ........................ 16
A. The Tribunal Is Ad Hoc Judicial Body, Not Restricted By Previous Decisions ................. 16
B. The Factual And Legal Circumstances Are Completely Different In The Relation To The
PCA Tribunal’s Decision .................................................................................................... 17
1. Different Litigating Parties. ................................................................................... 17
2. The PCA Arbitral Tribunal’s Decision Relates Only the Interpretation of the
Sovereign Bonds, Governed by BIT ..................................................................... 18
3. Dagobah’s And Global Financial Situation Have Fundamentally Changed For The
Last 11 Years ................................................................................................................ 19
III. TRIBUNAL SHOULD RULE ON THE CLAIMS ASSERTED IN VIEW OF THE
FORUM SELECTION CLAUSE CONTAINED IN THE SOVEREIGN BOND ...... 20
A. Dispute Relates Solely To The Contract Claims, Deriving From The Contract Of The
Sovereign Bonds Contract ................................................................................................... 21
B. Claimant And Dagobah Has Not Concluded Arbitral Agreement ...................................... 23
IV. DAGOBAH ACTIONS ARE CONSISTENT WITH THE ARTICLE 2(2) OF
DAGOBAH – CORELLIA BIT ................................................................................... 24
A. Fair and Equitable Treatment in the Article 2(2) Should be Interpreted As Minimum
Standard of Treatment and Dagobah Did Not Violate It ..................................................... 24
B. Should The Tribunal Decide Fair And Equitable Standard Of Treatment To Be More
Demanding Than Minimum Standard Of Treatment: ......................................................... 27
1. Dagobah Did Not Violate Legitimate Expectations Of The Bondholders And
Acted Consistently ................................................................................................ 27
2
2. The Debt Restructuring Process Was Reasonable And Proportional .................... 30
3. Dagobah Ensured Due Process ................................. Klaida! Žymelė neapibrėžta.
V. DAGOBAH’S RESPONSIBILITY IS PRECLUDED UNDER CUSTOMARY
INTERNATIONAL LAW ........................................................................................... 34
A. Dagobah Complies With All Cumulative Conditions of Necessity Defence Under Article
25 Of Articles On Responsibility Of States For Internationally Wrongful Acts................. 34
1. Economic survival is an essential interest of Dagobah ......................................... 35
2. Economic collapse is a grave and imminent peril ................................................. 36
3. Sovereign debt restructuring was the only way to protect essential interests ....... 37
4. Sovereign Debt Restructuring Does Not Seriously Impair An Essential Interest Of
Corellia Towards Or Of The International Community As A Whole ................... 38
5. Dagobah Has Not Contributed To The State Of Necessity ................................... 39
B. The BIT Concluded Between Corellia And Dagobah Allows Invoking Necessity ............ 39
3
INDEX OF AUTHORITIES
BOOKS
1. C. Baltag, Notion of investment and precedent under ICSID convention: award in
MHS v. Malaysia (TDM 5 2007).
2. D.D. Caron, L.M. Caplan et al., The UNCITRAL Arbitration rules A Commentary
(Oxford university press 2nd
2012).
3. G. Dufey, Corporate Debt vs. Country Debt: Distinguishing Between Liquidity and
Solvency Problems, in Private Sector Solutions to The Latin American Debt Problem
(Robert Grosse ed., 1992).
4. G.P. McGinley, Practice as a guide to treaty Interpretation (1985) The Fletcher
Forum winter.
5. Brownlie, Principles of Public International Law (Oxford, 6th
Ed. 2003).
6. C. McLachlan, L. Shore, International Investment Arbitration, Substantive Principles
(Oxford University Press, 2007).
7. K. N. Schefer, International Investment Law: Text, Cases, Materials 2013.
8. L. A. Mistelis, J. D. M. Lew, S.M Knöll, Comparative International Commercial
Arbitration (Wolters Kluwer 2003).
9. M. Sasson, Substantive law in investment treaty arbitration The unsettled relationship
between international and municipal law (Kluwer Law International 2010).
10. O. Dorr, K. Schmalenbach (edit.), Vienna Convention on the Law of Treaties A
Commentary (Springer-Verlag Berlin Heidelberg 2012).
11. Organization for Economic Cooperation and Development, International Investment
Law: A Changing Landscape. A Companion Volume to International Investment
Perspectives, 2005, Available at
http://browse.oecdbookshop.org/oecd/pdfs/product/2005141e.pdf.
12. Oxford Commentaries on International law, The Law of International Responsibility,
edited by James Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate
Parlett, 2010
13. R. Dolzer, Ch. Schreuer, Principles of international investment law (Oxford
University Press 2008).
14. R. Ago, Addendum to the Eight Report on State Responsibility, Yearbook of the
International Law Commission, 1980, Vol. II(1)
15. UNCTAD, Sovereign Debt Restructuring and International Investment Agreements,
2011, Available at http://unctad.org/en/Docs/webdiaepcb2011d3_en.pdf
16. Z. Douglas, The International Law of Investment Claims (Cambridge University Press;
1st ed. 2009).
4
CASES
1. Abaclat and Others v The Argentine Republic (2011) ICSID case no. ARB/07/5.
2. Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic (2004) ICSID case no.
ARB/97/4.
3. Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine
Republic (2007) ICSID case no. ARB/97/3 (Annulment proceeding).
4. Competence of the General Assembly for the Admission of a State to the United
Nations (Advisory Opinion) (1950) International Court of Justice, ICJ Report 4.
5. Continental Casualty Co. v. Argentine Republic, ICSID Case No.Arb/03/9, Award,
2008
6. CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No.ARB/01/08,
Award, 2005
7. El Paso Energy International Co. v Argentine Republic (2006) ICSID Case No.
ARB/03/15.
8. Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic (2007), case no.
ARB/01/3.
9. Fedax N.V. v. The Republic of Venezuela (1997) case no. ARB/96/3.
10. Gabčíkovo-Nagymaros Projectm case (Hungary v. Slovakia), Judgment, ICJ Rep,
1997
11. Gas Natural SDG, S.A. v. The Argentine Republic (2005) ICSID case no. ARB/03/10.
12. Salini Costruttori S.p.A. and Italstrade S.p.A.v. Kingdom of Marocco (2001) ICSID
case no. ARB/OO/4.
13. LG&E Energy Corp. v. Argentine Republic, ICSID Case No. Arb/02/1, Decision on
Liability, 2006
14. Malaysian Historical Salvors SDN, BHD v. The Government of Malaysia (2007)
ICSID case no. ARB/05/10.
15. Occidental Exploration and Production Company v. The Republic of Ecuador (2004)
London Court of International Arbitration Administered case no. UN 3467.
16. SGS Société Générale de Surveillance S.A. v. Republic of the Philippines (2004)
ICSID case no. ARB/02/6.
ARTICLES
1. Haldane, “The Resolution of International Financial Crises: Private Finance and
Public Funds”, Bank of England, 2001, Available at
http://www.bankofengland.co.uk/publications/Documents/other/financialstability/boea
ndboc.pdf.
2. Kingsbury, S. Schill, “Investor-State Arbitration as Governance: Fair and Equitable
Treatment, Proportionality and the Emerging Global Administrative Law”, 2009.
5
3. Ch. Schreuer, “The Relevance of Public International Law in International
Commercial arbitration: Investment disputes”, Available at
www.univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf
4. Ch. Schreuer; U. Kriebaum, “At What Time Must Legitimate Expectations Exist?”
(2012) , TDM 1.
5. J. R. Picherack, “The Expanding Scope of the Fair and Equitable Treatment Standard:
Have Recent Tribunals Gone Too Far?” (2008) The Journal of World Investment
&Trade.
6. K. J. Vandevelde, “A Unified Theory of Fair and Equitable Treatment” (2010). New
York University Journal of International Law and Politics (JILP), Vol. 43, No. 1.
7. Lisa Brahms, Legitimacy in Global Governance of Sovereign Default: The Role of
International Investment Agreements, 2013, Available at http://www.polsoz.fu-
berlin.de/polwiss/forschung/oekonomie/ipoe/pipe_working_papers/papers/PIPE_Wor
king_Paper_16-
13_Brahms_Legitimacy_in_Global_Governance_of_Sovereign_Default.pdf?1367710
376.
8. Li, Yanying, Policy Implication of Poštová Tribunal's Jurisdiction Over Sovereign
Bonds: Bankruptcy Cram-Down and ICSID Arbitration (February 28, 2014) Available
at: http://ssrn.com/abstract=2402643.
9. M. Malik, “The Expanding Jurisdiction of Investment-State Tribunals: Lessons for
Treaty Negotiators 2007” (2007) International Institute for Sustainable Development
Background Papers for the Developing Country Investment Negotiators’ Forum.
10. Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State
Responsibility for Investments, University of Heidelberg, Max Plank Institute for
Comparative Public Law and International Law and the University of Chile, 2008
11. M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”
(2007) American Journal of International Law, Vol. 101.
12. R. Dolzer, Fair and Equitable Treatment: Today’s Contorous (2014), Santa Clara
Journal of International Law
13. S.J. Galvis, A.L. Saad, Sovereign Exchange Offers in 2010, Chicago Journals of
International Law, Vol. 6 No. 1
14. S. Neri, T. Ropele, “The macroeconomic effects of the sovereign debt crisis in the
euro area, 2013.
CONVENTIONS
1. Vienna Convention on the Law of Treaties (adopted 22 May 1969, entered into force
27 January 1980).
6
APPENDICES
1. Agreement between the Corellian Republic and the Federal Republic of Dagobah for
the promotion and protection of investments (1992) (Appendix 1)
2. The Corellian Republic v. the Federal Republic of Dagobah (2003), PCA Case No
000-00 (Appendix 2)
3. Dissenting opinion by professor Andreas Jager of 19 May 2003 on The Corellian
Republic v. Federal Republic of Dagobah (2003), PCA Case No. 000-00 (Appendix
3)
4. The Global Financial Herald, Dagobah’s Economic Crisis in the Context, 12
December 2011 (Appendix 4)
5. Sovereign Debt Restructuring Act No. 45/12 approved on 28 May 2012 by the
Congress of the Federal Republic of Dagobah (Appendix 5)
6. Calrissian & Co., Inc v. The Federal Republic of Dagobah (2013), Request for
Arbitration, (Appendix 6).
7. Calrissian & Co., Inc v. The Federal Republic of Dagobah (2013), Answer to the
Request for Arbitration, SCC No 00/2013, (Appendix 6).
8. Arbitration Institute of the Stockholm Chambers of Commerce, Procedural Order No.
1, 3 February 2014, (Appendix 6).
9. Arbitration Institute of the Stockholm Chambers of Commerce, Procedural Order No.
2, 23 June 2014, (Appendix 6).
LIST OF ABREVATIONS
BIT or Treaty Agreement between the Corellian Republic and the Federal
Republic of Dagobah for the Promotion and Protection of
the Investments (1992)
Calrissian or Claimant Calrissian & Co., Inc, a hedge fund located in Corellia
Dagobah or Respondent The Federal Republic of Dagobah
FET Fair and equitable treatment
FTC NAFTA Free Trade Commission
IMF The International Monetary Fund
IMS International Minimum Standard
NAFTA North American Free Trade Agreement
SRA The Sovereign Restructuring Act (2012)
Vienna Convetion Vienna Convention on the Law of Treaties (adopted 22
May 1969, entered into force 27 January 1980)
7
STATEMENT OF FACTS
1. In 1992 Corellia and Dagobah concluded the BIT. The treaty is aimed at stimulating
Dagobah‘s economic growth and fortification of bilateral investment relations.
2. In 2001 Dagobah collided with an unsustainable debt burden and descended into a
two-and-a-half year long economic crisis which resulted in an inability to meet its debt
obligations. As a consequence, it instituted a restructuring plan, according to which
state’s sovereign bonds’ face value was decreased by 43 %. The plan also contained a
possibility of cash buybacks with the assistance of the World Bank’s Debt Reduction
Facility.
3. In the same year Corellia due to the pressure of its nationals commenced negotiations
with Dagobah seeking to clarify the notion of investment under the BIT. After fruitless
negotiations Corellia instituted arbitral proceedings against Dagobah in the Permanent
Court of Arbitration.
4. On 29 April 2003, the PCA Arbitral Tribunal decided that sovereign bonds are
investments within the meaning of the BIT. Even though it was not a unanimous
decision and these bonds are not under the dispute in the present case.
5. On 7 May 2001, Dagobah offered its investors to exchange their bonds for new ones.
Despite that Corellian bondholders accepted a restructuring offer made by Dagobah,
which ultimately only represented losses of less than 20%. The investors have not
instituted any litigation proceedings against Dagobah with respect to the sovereign
debt restructuring.
6. In 2010 Dagobah faced the second financial crisis caused by the global financial
meltdown. As a consequence, Dagobah was not able not generate enough revenues for
servicing its debt and either had to restructure its debt or default.
7. On May 2012, together with International Monetary Fund, Dagobah prepared the
Sovereign Restructuring Act (“SRA”) seeking to protect its foreign investors.
Dagobah informed bondholders having Dagobah’s sovereign bonds about different
8
versions of the text of the SRA. Moreover, it consulted a committee representing the
owners of approximately 50% of the aggregate nominal value of the bonds.
8. On 29 November 2012, Dagobah’s government offered the bondholders to exchange
their sovereign bonds for new ones worth approximately 70% of the net value of the
outstanding sums under the original bonds. The exchange offer was in accordance
with the IMF’s policies regarding sovereign debt restructuring.
9. In February 2013, Dagobah exchanged the old sovereign bonds for the new ones in the
terms of the offer. The majority of bondholders accepted the exchange rates and
conditions.
10. On 30 August, 2013 Calrissian filed for arbitration in the Arbitration Institute of the
Stockholm Chamber of Commerce claiming for Dagobah’s actions concerning the
adoption of the SRA and full compensation for the losses, including interest.
9
I. TRIBUNAL LACKS JURISDICTION OVER THE DISPUTE CONCERNING THE
SOVEREIGN BONDS OWNED BY CLAIMANT UNDER THE BIT
11. The scope of arbitral tribunal’s jurisdiction is designated by ‘ratione materiae, ratione
personae and the consent to the arbitration’1. Neither of these criteria are found in the
present dispute.
12. In order for the Tribunal to have jurisdiction ratione materiae over the dispute, it is
necessary that a dispute, as defined by the terms of the claims, relate to an
investment2. Thus, the question of the concept of investment is to this extent relevant
for the stage of the jurisdiction.
13. The sovereign bonds are neither investment within the meaning of the BIT nor they
are treated generally as investment pursuant to the contemporary judicial practice.
Hence, this Tribunal lacks jurisdiction in the Calrissian–Dagobah dispute.
A. The Sovereign Bonds lack the Characteristics of an Investment under Art. 1 of
the BIT
14. According to Art. 1 of the BIT, Parties agreed that the act shall have the following
characteristics in order to be an investment under the BIT:
o the commitment of capital or other resources;
o the expectation of gain or profit;
o the assumption of risk.
All of the characteristics are cumulative, therefore an investment has to satisfy all of
them in order to be protected under the Treaty.
15. The Respondent requests the Tribunal to find that (1) the purchase of the sovereign
bonds lacks the commitment of capital in Dagobah; (2) the sovereign bonds do not
contain the element of risk; (3) the purchase of the sovereign bonds has no territorial
link with Dagobah. Consequently, the sovereign bonds are not investment under Art.1
of the BIT.
1 Z. Douglas, The international law of investment claims, Cambridge University Press 1
st ed., 2009, p. 145.
2 Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,
ICSID Case No. ARB/07/5., para. 343.
10
1. The purchase of the Sovereign Bonds Has Not Committed Capital to Dagobah’s
Economic development
16. Claimant purchased the sovereign bonds on the secondary market in 20053. Therefore,
Calrissian has not committed capital to Dagobah. International arbitral practice has
established that one of the basic element of investment is the commitment of capital:
“The basic features of an investment have been described as involving
[...] a substantial commitment and significance for the host State's
economy4”.
Thus, the term “investment” should be interpreted as „an activity which promotes
some form of positive economic development for the host State“5. It relates to the
capital flow from the investor to the host state. Arbitral Tribunals interpret an
investment as an activity “which promotes some form of positive economic
development for the host state”6.
17. Since a secondary market is a virtual place where previously issued securities are
bought and sold, sovereign bonds are not situated within the issuing state and are not
subject to its laws.7 The nature of such market is that sovereign bonds are purchased
by one person to another. There is no connection between an issuer of the bonds and
the bondholder.8
18. Legal publicists agree that there is absence of the flow of even financial resources into
the country that issued sovereign bonds in case the sovereign bonds are purchased in a
secondary market. Consequently, there is no capital flow to the host state:
“Within secondary market there is typically no flow of even financial
resources into the issuing country. For that reason, investments in
sovereign bonds are highly unlikely to contribute to the host country’s
(issuer) economic development, because it does not participate in the
secondary market”.9
3 Appendix 6, para 11.
4 Fedax N.V. v. The Republic of Venezuela, Decision of the Tribunal on Objections to Jurisdiction of 11 July
1997, ICSID Case No. ARB/96/3., para. 43. 5 Malaysian Salvors v Malaysia, Award on Jurisdiction 17 May 2007, ICSID Case No. ARB/05/10., para. 67.
6 Malaysian Salvors v Malaysia, Award on Jurisdiction 17 May 2007, ICSID Case No. ARB/05/10., para. 68.
7 Z. Douglas, The international law of investment claims, Cambridge University Press 1
st ed., 2009., p.384.
8 Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,
ICSID Case No. ARB/07/5., para. 24. 9 M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”, The American Journal of
International Law, Vol. 101 (2007), p. 727.
11
19. It is clear from the facts of this dispute that the Claimant purchased the sovereign
bonds on the secondary market.10
Thus, it acquired the securities from the other person
but not from the Respondent. Nevertheless, even the preamble of the Treaty
establishes that investment shall stimulate the flow of private capital and the economic
development of the Parties to the Treaty.
20. Consequently, the commitment of capital was not accomplished. The sovereign bonds
acquired in the secondary market are out of Dagobah’s jurisdiction and regulation.
Hence, Calrissian purchased the securities from other investor and there is absence
contribution to Dagobah.
2. Claimant’s acquisition of the sovereign bonds Do Not Satisfy the Element of Risk
21. Investment in sovereign bonds lacks the element of risk, which is commonly
contained in other types of investment. Legal publicists agree that sovereign bonds
differ from other debt instruments, because they are issued for governmental purposes:
“No commercial risk is shared among the issuing country and the
bondholder. The repayment obligation is fixed, unconditional, and not
tied to the success of a commercial undertaking or capital project”.11
Thus, investment in sovereign bonds does not contain a common commercial risk.
22. With respect to factual scenario, Dagobah’s financial situation excludes the element of
risk from Claimant’s investment as well. The following arguments support this
inference:
23. Firstly, after financial problems in 2001, Dagobah implemented sovereign’s debt
restructuring process and set up a stable economic growth. The crisis were soon
forgotten in the international financial markets12
and Dagobah’s economy was facing
recovery. Moreover, an optimistic estimate of the economic capacity made investors
believe that post – 2003 Dagobah was a safe haven for investors.13
24. Secondly, at the time of the purchase of the sovereign bonds (2005) Dagobah’s
economy was stable and no financial jeopardy was foreseeable.14
The ratings of
10
Appendix 6, para. 11. 11
M. Waibel, “Opening Pandora’s Box: sovereign bonds in international arbitration”, the American Journal of
International Law, Vol. 101 (2007), p. 726. 12
Appendix 4. 13
Appendix 4. 14
Appendix 6 para. 11.
12
Dagobah’s bonds (B+) did not suppose any risk of default and showed the state’s
financial stability15
. Because of the implementation of recommendations from the
International Monitory Fond (hereinafter – IMF)16
, the peril of state’s default was
vanished.
25. As a result, at the time of the acquisition of the sovereign bonds and since then,
Dagobah’s financial sector has been stable and firm. Therefore, the element of risk
element is exempted. With reference to the above, there is no risk in investing in
sovereign bonds and therefore Claimant’s investment does not satisfy the criteria of
risk within the definition provided in Art. 1 of the Treaty.
3. Investment under the Dispute Was Not Made in the Territory of Dagobah
4. Claimant acquired sovereign bonds on the secondary market and thus, out of
Dagobah’s territory. Consequently it lacks protection under the BIT.
5. Art. 1 of the BIT notices that: “territory means the territory of the Parties...”. This
provision expressly determines that investment is accorded pursuant the standards
provided only in the Treaty and if it is made in the territory of the Parties.
Unfortunately, the Claimant acquired the sovereign bonds on the secondary market
and the link between Calrissian and Dagobah is lacking.
6. When sovereign bonds are transferred from the issuer, such market is regarded as
“primary”. Thus, sovereign bonds are traded in the secondary market lack connection
with the issuer. As the Tribunal notes in the Abaclat case:
“the distinguishing difference between the two markets is that in the –
primary market, the money for the bonds is received by the issuer of the
bonds from an investor, in principle the underwriters, whereas in the –
secondary market, the securities are simply assets held by one investor
selling them to another investor”17
.
Thus, Claimant engaged in commercial transactions with other investors, which had
acquired the bonds under dispute prior but not with Dagobah. Accordingly, Dagobah
did not participate in the transaction of the sovereign bonds and it did not receive
capital from Claimant’s purchase on the secondary market.
15
Appendix 7. Para 31. 16
Uncontested Facts, para. 5. 17
Abaclat and others v the Argentine Republic, Decision on Jurisdiction and Admissibility of 4 August 2011,
ICSID Case No. ARB/07/5., para. 26,
13
7. Nevertheless, the preamble of the BIT establishes intentions of the Parties to fortify
economic cooperation between them with respect to investment by nationals of one
party made in the territory of the other party.18
8. The Treaty encompasses only investments in the territory of one of the states.
However, as noted above, because the bonds under dispute were transferred in the
secondary market, an there is absence of the territorial link with Dagobah.
B. Sovereign Bonds Do Not Satisfy the Salini Criteria for Investment
26. The sovereign bonds are not protected under the BIT since it fails to satisfy all of the
objective criteria provided by the Salini test.
27. The Salini test is well known19
and applied by arbitral tribunals.20
It provides such
objective21
elements of an investment: (a) a contribution of money or other assets of
economic value; (b) a certain duration; (c) an expectation of profit; (d) an element of
risk; and, (e) a contribution to the host state’s development. Criteria of Salini test are
very much supported by the prof. Ch. Schreuer.22
All these criteria are cumulative and
therefore investment is protected under the BIT if all of them are satisfied.
28. In the present case, the acquisition of the sovereign bonds does not satisfy these Salini
criteria: a) the element of the contribution to the host state’s development; b) a
contribution of money; c) the element of risk.
29. Claimant acquired the sovereign bonds on the secondary market, meaning that there is
no link between it and Dagobah. Thus, Claimant purchase the securities from other
investor which had acquired the sovereign bonds from Dagobah. Therefore,
Claimant’s investment in the sovereign bonds lacks territorial connection with
Dagobah and no contribution to Respondent’s development was made. The element of
risk is exempted in this case, as noted above, because of the nature of sovereign bonds
and Dagobah’s financial stability.
18
The Preamble of the BIT. 19
C. Baltag, “Notion of investment and precedent under ICSID convention: award in MHS v. Malaysia”, TDM 5
(2007), p. 5.; R. Dolzer, Ch. Schreuer, Principles of International Investment Law, Oxford University Press 2nd
ed., 2008., p. 39. 20
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, Decision on Jurisdiction of 31 July
2001, ICSID Case No. ARB/00/4., para. 52; Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, Award
29 December 2004, ICSID Case No. ARB/97/4. 21
C. Baltag, “Notion of investment and precedent under ICSID convention: award in MHS v. Malaysia”, TDM 5
(2007), p. 6. 22
M. Waibel, 723.
14
30. Thus, the investment made by the Claimant does not satisfy neither the criteria
provided in Art. 1 of the BIT, nor the objectively established criteria of the Salini Test
as well.
C. Sovereign Bonds Are Not Investment under the Text of Art. 1 of the BIT
31. The Treaty does not encompass sovereign bonds as investment. Moreover, the parties
of the BIT exclude such type of investment under Art. 1 of the BIT. The Treaty
provides typical cumulative traits of investment as the sovereign bonds fail to satisfy
them.
32. Art. 31(1) of the Vienna Convention on the Law of Treaties determines that a treaty
shall be interpreted in good faith in accordance with the ordinary meaning to be given
to the terms of the treaty in their context and in the light of its object and purpose. The
principle of good faith and the text of the treaty are the primary and substantial means
of interpretation. Other methods are relevant only, if the text of the treaty remains
ambiguous.23
33. International Court of Justice (hereinafter – ICJ) underlines in its jurisprudence,
interpretation must be based “above all” upon the text of the treaty.24
The ICJ holds:
‘The Court considers it necessary to say that the first duty of a tribunal which is called
upon to interpret and apply the provisions of a treaty, is to endeavour to give effect to
them in their natural and ordinary meaning in the context in which they occur25
.
Therefore, the text of the treaty is the principal source of interpretation.
34. The starting point of every interpretation is the elucidation of the meaning of the text,
rather than of any external will of the parties.26
This principle is well known and
applied among the leading publicists. 27
35. Sovereign bonds are not included expressis verbis as an investment in Art. 1 of the
BIT. It lists other types of investment such as movable property, shares and ect. which
are not related to the nature of debt instruments.
23
G.P. McGinley, „Practice as a guide to treaty Interpretation“, The Fletcher Forum winter (1985), p. 222. 24
O. Dorr, K. Schmalenbach (ed.), Vienna Convention on the Law of Treaties A Commentary, Springer-Verlag
Berlin Heidelberg 2012, p. 539. 25
Competence of the General Assembly for the Admission of a State to the United Nations, Advisory Opinion
(1950) International Court of Justice, ICJ Report 4, para. 8. 26
O. Dorr, K. Schmalenbach (ed.), Vienna Convention on the Law of Treaties A Commentary, Springer-Verlag
Berlin Heidelberg 2012, p. 541. 27
O. Dorr, K. Schmalenbach (ed.), Vienna Convention on the Law of Treaties A Commentary, Springer-Verlag
Berlin Heidelberg 2012, p. 527.
15
36. In consequence, the textual approach reveals that Parties to the BIT have not
considered sovereign bonds as an investment under it. The clear language used in the
Treaty does not permit an extensive interpretation as to encompass such investment
instruments as sovereign bonds.
16
II. THE PCA ARBITRAL TRIBUNAL’S DECISION HAS NO EFFECT ON THE
JURISDICTION FOR THE TRIBUNAL IN THE PRESENT CASE
37. The PCA Arbitral Tribunal’s decision has no effect on the jurisdiction in this case. It
relates to the Corellia–Dagobah dispute settlement and is irrelevant for the
interpretation of the post–Sovereign Restructuring Act (hereinafter–SRA) sovereign
bonds.
38. Furthermore, this Tribunal is a separate judicial body, which is not bound by other
arbitral tribunals’ jurisprudence. The effects of that award are restricted to the context
in which the latter was rendered (the first economic crisis faced by Respondent in
2001 and to the bonds affected by the SRA). However, Claimant purchased the
sovereign bonds in 2005 which were affected by global financial crisis in 2011 and
SRA.
A. The Tribunal Is Ad Hoc Judicial Body, Not Restricted By Previous Decisions
39. The Tribunal is not constrained by the PCA Tribunal’s decision because it is a
separate ad hoc arbitral tribunal.
40. Firstly, it is established in the various regulations of litigation procedures that
previous judicial decisions are binding only upon the litigating parties. For instance,
according to the Statute of ICJ, the decision of the Court has no binding force except
between the parties and in respect of that particular case28
. The same scope is
entrenched in the Arbitration rules of the Permanent Court of Arbitration: “The
decision is binding solely upon litigating parties”29
and in the UNCITRAL Arbitration
rules: “An award shall be final and binding on the parties when rendered”30
. Thus,
tribunals are not bound by previous awards and operate independently in the internal
plane of dispute settlement. Therefore, international judicial bodies may not follow the
previous judicial practice. Especially then the circumstances significantly differ.
41. Secondly, the ICSID practice notices that tribunals are not legally “bound by any
other judgments or arbitral awards”31
and that “decision of ICSID tribunals are not
28
Art. 59 of The Statute of The International Court of Justice. 29
Art. 34 of the Arbitration Rules of the Permanent Court of Arbitration 2012, para. 2. 30
Art. 34(2) of the UNCITRAL Arbitration Rules (1976) (revised in 2010). 31
Gas Natural SDG, S.A. v. The Argentine Republic, Decision of the Tribunal on the Preliminary Questions on
jurisdiction 17 June 2005, ICSID Case No. ARB/03/10., para. 36.
17
binding precedents”32
. Each tribunal remains sovereign and may retain, as it is
confirmed by ICSID practice, a different solution for resolving the same problem33
.
42. Thirdly, legal publicists emphasize that:
“Each tribunal remains sovereign and may retain, as it is confirmed by
ICSID practice, a different solution for resolving the same problem”34
and international investment tribunals are not bound by the
precedent.35
(Emphasis added)
43. This Tribunal is an independent part of the Stockholm Chamber of Commerce and
governed merely by the Arbitration rules of the Arbitration institute of the Stockholm
chamber of commerce36
. Thus, it is not constrained by the ICSID convention or other
procedural regulation.
44. Moreover, the PCA Arbitral Tribunal’s award is binding only upon Corellia–Dagobah
disagreement; it has no effect to Claimant’s rights and claims. This Tribunal shall
consider the different legal and factual circumstances. In contrast to the Corellia
Dagobah quarrel, this dispute relates to the sovereign bonds, affected by the global
economic crisis in 2010 and the enforcement of the SRA. Therefore, the PCA Arbitral
Tribunal’s award has no effect of the jurisdiction in this case.
B. The factual and legal circumstances are completely different in the relation to the
PCA Tribunal’s decision
45. The PCA Tribunal rendered the award on the Corellia and Dagobah dispute over the
interpretation of the BIT in 2003. Though the factual and legal circumstances of
Dagobah’s internal affairs and global financial situation have changed notably since
then. As a result, the current dispute contains different ratione personae and ratione
materiae.
1. Different Litigating Parties.
32
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Award 22 May 2007, ICSID Case No.
ARB/01/3, para. 25. 33
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines Decision on the Tribunal Objections
to Jurisdiction 29 January 2004 ICSID Case No. ARB/02/6., para. 30. 34
El Paso Energy International Company v. The Argentine Republic, Award of 27 April 2011, ICSID Case No.
ARB/03/15., para. 45. 35
M. Malik, “The Expanding Jurisdiction of Investment-State Tribunals: Lessons for Treaty Negotiators 2007”
(2007) International Institute for Sustainable Development Background Papers for the Developing Country
Investment Negotiators’ Forum, p. 10. 36
Art. 1 of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce.
18
46. According to Art. 34(2) of the Permanent Court of Arbitration Rules “all awards shall
be made in writing and shall be final and binding on the parties”. The PCA Arbitral
Tribunal rendered the decision according to the state-to-state dispute settlement
provision in 200337
. The litigation proceedings were held only between Dagobah and
Corellia.
47. Thus, the decision is binding only upon these states. In the present dispute, the
litigating parties are Calrissian and Dagobah. There are different parties (ratione
personae) and they shall not be restricted by award, concerning other actors.
2. The PCA Arbitral Tribunal’s Decision Relates Only the Interpretation of the
Sovereign Bonds, Governed by BIT
48. The PCA Arbitral Tribunal’s decision does not address the bonds that are the subject
matter (ratione materiae) of these arbitration proceedings.
49. Generally, most of bilateral investment treaties provide for two forms of dispute
resolution: treaty parties can bring arbitral claims against each other concerning the
interpretation or application of the treaty. Such an interpretation of the international
agreement shall be regarded as subsequent practice of the application of it38
. But it
depends on relevant factual circumstances concerning the interpretation.
50. The current proceedings between Dagobah and Claimant do not relate to the
interpretation of the BIT, but solely to the sovereign bonds, governed by Dagobahian
law39
. Noteworthy, these securities were severely affected by the global financial crisis
in 2010 and in face of global recession Dagobah adopted SRA in 2012 which changed
the face value of the sovereign bonds. None of these circumstances existed in the time
of the issuance of the PCA Tribunal’s decision.
51. Accordingly, the PCA Arbitral Tribunal did not analyze the sovereign bonds under the
dispute (ratione materiae) at all. Consequently, this tribunal if it finds the
jurisdictional issue in Claimant’s favour, shall consider the above mentioned changes
of the circumstances.
37
Art. 7(2) of the BIT. 38
O. Dorr, K. Schmalenbach (ed.), Vienna Convention on the Law of Treaties A Commentary, Springer-Verlag
Berlin Heidelberg 2012, p. 543. 39
Uncontested Facts, para. 20.
19
3. Dagobah’s And Global Financial Situation Have Fundamentally Changed For
The Last 11 Years
52. Before the PCA Arbitral Tribunal’s award Dagobah had suffered economic crisis40
and the notion of the BIT was analyzed in the face of economic situation in 2003.
However, Dagobah’s legal framework and macro–economic relations have altered
significantly as a result of global recessions since then.
53. In this case, the merits concern the sovereign bonds, governed by the Dagobah’s
national law. It is recognized in the legal practice that:
“repeating decisions taken in other cases, without making the factual and
legal distinctions, may constitute an excess of power and may affect the
integrity of the international system for the protection of investments”41
.
54. Claimant purchased Dagobah’s debt instruments only two years after that PCA
Tribunal’s decision, when Respondent’s financial situation was stable and showed
signs of recovery42
. The state issued securities seeking to attain capital for the
implementation of internal policy. Moreover, after six years it was struck by the global
financial recession43
. Thus, Dagobah’s financial circumstances have changed
substantially since 2003 and this Tribunal shall not follow the PCA Abitral Tribunal’s
award.
40
Uncontested Facts, para. 3. 41
Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, Award 22 May 2007, ICSID Case No.
ARB/01/3., para. 43. 42
Appendix 6, para. 11. 43
Uncontested Facts, para. 16.
20
III. TRIBUNAL SHOULD RULE ON THE CLAIMS ASSERTED IN VIEW OF THE
FORUM SELECTION CLAUSE CONTAINED IN THE SOVEREIGN BOND
55. An arbitration tribunal faced with the issue of its own jurisdiction must first determine
whether it is competent to deal with the specific jurisdictional question or whether it
must be referred to the court44
.
56. The Calrissian–Dagobah dispute relates only to the contractual relations and does not
concern the application of the BIT. The crux lays in the interpretation of the SRA and
the provision of the forum selection clause in the contract of the sovereign bonds. As
the Tribunal in the SGS v. Pakistant stated: “It is necessary to recount the origins of
the relationship between the parties.”45
57. It is in principle admitted that with respect to a treaty claim an arbitral tribunal has no
jurisdiction where the claim at stake is a pure contract claim. This is because a
bilateral investment treaty is not meant to correct or replace contractual remedies, and
in particular it is not meant to serve as a substitute to judicial or arbitral proceedings
arising from contract claims.
58. Forum selection clauses are clauses of a procedural nature aiming to determine the
place of settlement of a dispute relating to a contractual performance46
.The relevant
forum selection clause is entrenched in the bonds under dispute47
. It is established in
the ICSID practice that:
“where the essential basis of a claim brought before an international
tribunal is a breach of contract, the tribunal will give effect to any valid
choice of forum clause in the contract”48
.
59. Consequently, Respondent requests the Tribunal to find that the current
Claimant–Dagobah dispute derives from the contract of the sovereign bonds
44
L.A. Mistelis, J. D. M. Lew, S.M Knöll, Comparative International Commercial Arbitration Wolters Kluwer
2003, p. 330. 45
SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, Decision on Jurisdiction 6 August
2003 Case No. ARB/01/13., para.10. 46
Abaclat and Others v The Argentine Republic supra note 1, para. 379. 47
Appendix 6, para. 6. 48
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, Decision on
Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 98; SGS Société Générale de Surveillance S.A. v.
Islamic Republic of Pakistan, Decision on Jurisdiction 6 August 2003 Case No. ARB/01/13., para.44.
21
and, thus the forum selection clause contained in the contract shall be
applicable.
A. Dispute Relates Solely To The Contract Claims, Deriving From The Contract Of
The Sovereign Bonds Contract
60. The merits of the present dispute emanate from the sovereign bonds’ contract. The
bonds under dispute are governed by Dagobah’s national law49
and contain a forum
selection clause (“Any dispute arising from or relating to this contract will be
exclusively resolved before the Courts of Yavin”). Thus, the core of the present dispute
emanates from the contractual claims the Tribunal shall rule on the forum selection
clause.
61. Firstly, a contract and a treaty claim are two distinguished and separate basis for
international disputes. Judicial practice notice that:
“a state may breach a treaty without breaching a contract, and vice
versa […] whether there has been a breach of the BIT and whether there
has been a breach of contract are different questions”50
.
62. In this dispute the relevant forum selection clause is contained in the sovereign bonds.
Because the current quarrel relates only to the contract of the sovereign bonds, all
disputes shall be settled only in the Courts of Yavin.
63. Secondly, international practice establishes that the main separation between contract
and treaty claims lays in the core of the dispute. A number of tribunals required a more
objective standard already for purposes of jurisdiction referring to the “essential basis
of a claim51
or asserting that the test was an objective one”52
.
64. Thirdly, pure contract claims must be brought before the competent organ, “which
derives its jurisdiction from the contract, and such organ – be it a court or an arbitral
tribunal – can and must hear the claim in its entirety and decide thereon based on the
49
Appendix 6 para. 22. 50
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, Decision on
Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 95. 51
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, Decision on
Annulment of 3 July 2002, ICSID Case No. ARB/97/3., para. 98. 52
SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, Decision on Jurisdiction, 29
January 2004, ICSID Case No. ARB/02/6., para. 156-164; Occidental Exploration and Production Company v.
The Republic of Ecuador, Decision 2004 London Court of International Arbitration Administered case no. UN
3467), para. 47, 92. 52
M. Waibel, supra note 9, 717.
22
contract only”53
. Also, legal publicists accept, that the purchase of sovereign bonds
relates solely to contractual relations:
“the bonds are principal document containing the terms of the
contractual relationship between the debtor government and the
individual lender.”54
65. Fourthly, professor Ch. Schreuer emphasizes, that “the most relevant matter
concerning the application of public international law in investment arbitration is the
law governing the substance of the dispute”55
.
In this case, Dagobah’s national law, is the law for the regulation of the sovereign
bonds. In cases where there is a jurisdiction clause in a disputed contract, a contractual
claim must be referred to the court/tribunal identified in the clause56
. Further, the
current ICSID practice establishes that such a relationship is of a private and
contractual nature, subject to the terms and conditions of the bonds57
. Thus, then the
relevant bonds provide for forum selection clauses and concerns a pure contract
claims, it prevails over an alleged violation of an international treaty.
66. The Tribunal must consider that sovereign bonds are commercial transactions that are
usually governed by the municipal law of a major financial center; immunity from
jurisdiction is waived58
.
67. It is established in legal teachings that municipal law usually governs sovereign bonds.
National courts almost invariably enjoy jurisdiction for disputes, relating to such
securities59
. When sovereign bonds are issued, the only remedies contemplated are
contractual ones in national courts60
. Modern sovereign bonds are governed by the
municipal law of a foreign financial center, not by international law61
. An investor
invoking contractual jurisdiction pursuant to an offer made by the state must itself
comply with its contractual arrangements for dispute settlement with that state.
53
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic supra note 48, para.
316. 54
E. Borchard, W. H. Wynne, State insolvency and foreign bondholders, Business Classics 1951, p. 174. 55
Ch. Schreuer, “The Relevance of Public International Law in International Commercial arbitration: Investment
disputes”, available www.univie.ac.at/intlaw/pdf/csunpublpaper_1.pdf. 56
M. Sasson, Substantive law in investment treaty arbitration The unsettled relationship between international
and municipal law, Kluwer Law International 2010, p. 171. 57
Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v Argentine Republic supra note 48, para.
319. 58
M.Waibel, supra note , p. 721. 59
M.Waibel, supra note , p. 773. 60
M.Waibel, supra note , p. 734. 61
M.Waibel, supra note , p. 738
23
68. The Calrissian–Dagobah dispute emanates from a pure contract claim (the purchase of
the sovereign bonds). Claimant acquired the securities on the secondary market62
.
According to it, all disputes relating to the sovereign bonds shall be settled in the
Yavin courts (forum selection clause)63
. Therefore, the sovereign bonds establish a
mechanism of contractual remedies and only the Courts of Yavon have jurisdiction to
any dispute, deriving from the sovereign bonds.
69. Consequently, the Tribunal should rule on the claims asserted in view of the forum
selection clause contained in the sovereign bond and apply it.
B. Claimant And Dagobah Has Not Concluded Arbitral Agreement
70. The consent is a cornerstone principle of arbitration64
. However, Claimant cannot
commence arbitral proceedings pursuant to art. 8(2) of the Treaty since it has not
expressed the consent for arbitral agreement and is to the Party to the BIT.
71. Firstly, the real basis for the contractual theory is the fact that the whole arbitration
process is based on contractual arrangements65
. If the parties never entered into an
arbitration agreement they also never agreed on the arbitration rules66
.
72. Secondly, in general no consent to arbitration can be assumed if third parties are
involved67
. Distinguished scholars agree that:
“The tribunal could not decide on the merits but just decline jurisdiction
with the result that disputes as to existence or validity of the main
contract would have to be referred to the state courts68
”.
73. In this case there is absence of Claimant’s consent for this arbitral litigation. As noted
above, such agreement cannot be presumed and must be clearly expressed. The current
dispute concerns the sovereign bonds, governed by Dagobahian law and having the
exclusive forum selection clause69
. Thereupon, in the absence of arbitral agreement all
disputes relating to the sovereign bonds shall be settled only in the Courts of Yavin
and this Tribunal lacks jurisdiction for this dispute consideration.
62
Appendix 6. para 11. 63
Uncontested Facts, para. 20. 64
D.D. Caron, The UNCITRAL Arbitration Rules a Commentary, Oxford University Press 2nd
ed. 2012, p. 54. 65
L.A. Mistelis, J. D. M. Lew, S.M Knöll supra note 44, 77. 66
Ibid, p. 332. 67
Ibid, p. 145. 68
Ibid, p. 103. 69
Unconsted Facts, para. 20.
24
IV. DAGOBAH ACTIONS ARE CONSISTENT WITH THE ARTICLE 2(2) OF
DAGOBAH – CORELLIA BIT
A. Fair and Equitable Treatment in the Article 2(2) Should be Interpreted As
Minimum Standard of Treatment and Dagobah Did Not Violate It
61. Article 2(2) of Corellia – Dogabah BIT states that:
„Investments of each Party or of nationals of each Party shall at all
times be accorded fair and equitable treatment."
62. The discussion exists about whether FET is identical to the IMS or is it a more
demanding standard. Respondent submits that in order to avoid the Tribunal from
applying its own perceptions of FET, Article 2(2) of the BIT should be interpreted as
the IMS under customary international law. Such an objective approach is supported
by prominent scholars, state practice and case law.
63. Firstly, considering FET to be a more demanding standard than IMS may lead to
multiple interpretations and applications of the standard, raising the potential for
inconsistent and conflicting decisions and reasoning.70
Also, such an unrestricted
approach may encourage investors to bring significantly more claims against States in
dubious and unmerited circumstances. 71
64. Secondly, state practice also holds FET to be identical to the IMS. For instance,
Article 1105(1) of North American Free Trade Agreement (hereinafter – NAFTA)
including the biggest economies in the world (USA, Mexico and Canada) establishes
that the NAFTA Parties "accord to investments of investors of another Party treatment
in accordance with international law, including fair and equitable treatment and full
protection and security."
65. In 2001, the NAFTA Free Trade Commission (FTC) issued a binding Note of
Interpretation of fair and equitable treatment. It noted that concepts of “fair and
equitable treatment” and “full protection and security” do not require treatment in
addition to or beyond that which is required by that standard.72
70
J. Roman Picherack, The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent
Tribunals Gone Too Far?, The Journal of World Investment &Trade, 2008, 261. 71
Ibid, 262. 72
NAFTA Interpretation ¶ B(1) & (2).
25
66. Thirdly, judicial practice goes well in line in supporting this position. For instance, in
the Mondev case73
, the Tribunal rejected to decide on a subjective basis, what was
‘fair’ or ‘equitable’ in the circumstances of each particular case. The Tribunal warned
that it is bound by the minimum standard as established in State practice and may not
simply adopt its own standard of what is ‘fair’ or ‘equitable’ without reference to
established sources of law. The similar conclusions were reached in Occidental
Exploration and Production Company (OEPC) v. The Republic of Ecuador and CMS
Gas Transmission Company v. The Argentine Republic and ADF Group arbitrations.
67. Scholars and arbitrators who argue that FET is a more demanding standard do so
largely on the basis that the articulation of a distinct standard of fair and equitable
treatment in a treaty evidences an intention by the parties to depart from the minimum
standard of treatment. 74
68. However, tribunals reject this approach. For instance, in Azurix v. The Argentine
Republic when interpreting the BIT concluded between the USA and Argentina, the
tribunal held the FET standard of treatment as being equal to the IMS even though the
wording of the BIT implied that fair and equitable standard of treatment is a higher
standard:
"Investment shall at all times be accorded fair and equitable treatment
shall enjoy full protection and security and shall in no case be
accorded treatment less than required by international law."
69. International minimum standard is described as a moral standard for civilized States.75
Since it is a norm of customary international law which governs the treatment of
aliens, by providing for a minimum set of principles which States, regardless of their
domestic legislation must respect76
it generally has a high threshold to be met in order
to find a violation.
70. The golden rule of what amounts to a breach of international minimum standard was
established in the U.S.A. (L.F. Neer) v. United Mexican States and Harry Roberts v.
73
Mondev International LTD v. United States of America, ICSID Case No.ARB(AF)/99/2 Award, 2002, para.
119
74
J. Roman Picherack, The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent
Tribunals Gone Too Far?, The Journal of World Investment &Trade, 2008, 261. 75
I. Brownlie, “Principles of Public International Law”, Oxford, Sixth Edition, 2003, 502. 76
Organization for Economic Cooperation and Development, International Investment Law: A Changing
Landscape. A Companion Volume to International Investment Perspectives, 2005, 81.
26
United Mexican States cases. In the first case, the Court held that the treatment of alien
in order to constitute a violation of MST should:
“…amount to an outrage, to bad faith, to willful neglect of duty, or to
an insufficiency of governmental action so far short of international
standards that every reasonable and impartial man would readily
recognize its insufficiency.”77
71. In Harry Roberts v. United Mexican States the court took the same approach. While in
prison, Harry Roberts was subjected to rude and cruel treatment.78
The Commission
held that the test is whether aliens are treated in accordance with ordinary standards of
civilization.79
The Neer standard whether every reasonable and impartial man would
readily recognize outrage was applied.
72. Recent investment law cases also have the same approach. For instance, in the S.D.
Myers arbitration the Tribunal held that a breach of the MST occurs only:
“When it is shown that an investor has been treated in such an
unjust or arbitrary manner that the treatment rises to the level that is
unacceptable from the international perspective…".80
73. The conclusion follows that the threshold for violating a minimum standard of
treatment is high. Therefore, a violation can be found only in exceptional
circumstances when behavior demonstrated by state shows willful neglect of duty or
such insufficiency of government actions that every reasonable and impartial man
would readily recognize. Moreover, case law reflects that the existence of minimum
standard of treatment does not forbid states to regulate matters within their borders.
74. In 2010 Dagobah faced the second financial crisis in less than a decade caused by the
global financial meltdown. As a consequence, it was not able not generate enough
revenues for servicing its debt and either had to restructure its debt or default.81
Consequently, Dagobah prepared the Sovereign Restructuring Act (“SRA”) together
with International Monetary Fund with a purpose to fight economic instabilities after
the global financial meltdown.82
77
U.S.A. (L.F. Neer) v. United Mexican States, 4 R.Int’l Arb. Awards 60 (1926) para. 60. 78
K. N.Schefer, International Investment Law: Text, Cases, Materials, 2013, 7. 79
H. Roberts (USA)v. United Mexican States of 2 November 1926, 4 RIAA 77, 79 at 6. 80
S.D. Mayers v. Government of Canada, Partial Award, 2000, para. 236. 81
Appendix 6. 82
Ibid.
27
75. Respondent submits that sovereign debt restructuring cannot constitute a violation of
minimum standard of treatment and hence Art. 2(2) of the Treaty. None of the actions
performed by Dagobah show willful neglect of duty or such insufficiency of
government actions that every reasonable and impartial man would readily recognize.
On the contrary, the way Dagobah dealt with financial crisis was fully consistent with
recent practice of states.
76. According to experts in financial sector, sovereign debt crises are a prevalent feature
of the global economy83
and defaults are a natural process of the market mechanism.84
Examples of countries that experienced sovereign debt restructurings in recent years
include Russia (1998-2000), Ukraine (1998-2000), Pakistan (1999), Ecuador (2000),
Argentina (2005 and 2010)85
. According to the United Nations Conference on Trade
and Development, in cases of government debt restructuring, the standard practice in
the past two decades has been for a government to make an exchange offer86
with a
purpose of reducing the debt and strengthening financial stability of a country. It is
worth mentioning that stable economy was one of the commitments of Dagobah
government after the first sovereign debt restructuring in 2001. Therefore, Dagobah
did not breach its obligations and actually acted in accordance with them.
77. In conclusion, respondent submits that fair and equitable standard of treatment is not a
broader standard than minimum standard of treatment. The later has high threshold to
be met in order to find a violation. In this case, no such violation made by Dagobah
can be found.
B. Should The Tribunal Decide Fair And Equitable Standard Of Treatment To Be
More Demanding Than Minimum Standard Of Treatment:
1. Dagobah Did Not Violate Legitimate Expectations Of The Bondholders And
Acted Consistently
83
L. Brahms, Legitimacy in Global Governance of Sovereign Default: The Role of International Investment
Agreements, 2013,1.Availabe at: http://www.polsoz.fu-
berlin.de/polwiss/forschung/oekonomie/ipoe/pipe_working_papers/papers/PIPE_Working_Paper_16-
13_Brahms_-_Legitimacy_in_Global_Governance_of_Sovereign_Default.pdf?1367710376 84
A.Haldane, The Resolution of International Financial Crises: Private Finance and Public Funds, Bank of
Egland, 2001, 6. Availabe at:
http://www.bankofengland.co.uk/publications/Documents/other/financialstability/boeandboc.pdf 85
UNCTAD, Sovereign Debt Restructuring and International Investment Agreements, 2011, 3. Available at:
http://unctad.org/en/Docs/webdiaepcb2011d3_en.pdf 86
Ibid, 2.
28
78. Legitimate expectations are considered to be one of the elements of the fair and
equitable treatment standard.87
They rely on stability, predictability and consistency of
the host State’s legal framework.88
79. Respondent submits that claimant could not have formed any legitimate expectations
since Dagobah has not made any promises for claimant that laws of Dagobah will
remain completely unchanged. 89
Moreover, Dagobah decreased the value of bonds
during the first economic crisis in 2001. Consequently, bondholders could have
expected same regulations during the second crisis in 2010.
80. Even if claimant had expectations towards Dagobah it does not impose an obligation
on Dagobah to act consistently over time. States generally have the discretion to
change their policies.90
81. Therefore, the protection of legitimate expectations must be balanced with the need to
maintain a reasonable degree of regulatory flexibility to respond to changing
circumstances in the public interest. 91
82. Case law has also rejected a broad interpretation of the concept of legitimate
expectations92
and has set limits to which they can be protected. Therefore, not every
expectation upon which a business decision is taken is protected by international
investment law. 93
83. The tribunal in Saluka held that an investor cannot reasonably expect that the
circumstances existing at the time the investment is made remain completely
unchanged. Consequently, the tribunal warned of the danger of taking the idea of the
investor’s expectation too literally since this would impose upon host States
87
Rudolf Dolzer, Fair and Equitable Treatment: Today’s Contorous, Santa Clara Journal of International Law,
Volume 12, 2014, 17. 88
LG&E Energy Cmp., LG&E Capital Cmp., LG&E International Inc. v. Argentine Republic, ICSID Case No.
ARB/02/1, Decision on Liability of October 3, 2006, para 125; Occidental E1ploration & Production Company
v. The Republic of Ecuador, LCIA Case No. UN 3467, Final Award of July 1, 2004, para. 183. 89
Appendix 6. 90
Kenneth J. Vandevelde, A Unified Theory of Fair and Equitable Treatment. New York University Journal of
International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010, 66. 91
International Investment Arbitration, Substantive Principles, Oxford International Arbitration Series, Oxford
University Press, 239. 92
Yanying Li, Policy Implication of Poštová Tribunal’s Jurisdiction over Sovereign Bonds: Bankruptcy Cram-
down and ICSID Arbitration, 2014, 28. 93
C.H. Schreuer; U. Kriebaum; "At What Time Must Legitimate Expectations Exist?", TDM 1, 2012, p.1
29
inappropriate and unrealistic obligations. 94
Also, in Eureko v. Poland the tribunal
noted that a breach of basic expectations may not be a violation of fair and equitable
treatment if good reasons existed why the expectations of the investor could not be
met.95
The Tribunal in El Paso Energy v. Argentina came to the same conclusion and
stated that the legitimate expectations are not solely the subjective expectations of
investors but objective expectations under particular circumstances and with due
regard to the rights of the State.96
84. Dagobah adopted SRA acting in the public interest. Dagobah is an emerging market
and hence is more vulnerable to financial instabilities. At the time SRA was
implemented it was standing on the edge of another severe economic crisis and had
two choices either to default or to restructure its debt.97
Therefore, good reasons
existed why Dagobah had to change laws governing bonds by decreasing their value
and consequently reducing the debt.
85. Furthermore, in the Duke Energy v. Ecuador the tribunal held that political and
economic circumstances of a country must be taken into account for investments to be
protected and stated:
’’ …investor’s expectations must be legitimate and reasonable at
the time when the investor makes the investment. The assessment of the
reasonableness or legitimacy must take into account all circumstances,
including not only the facts surrounding the investment, but also the
political, socioeconomic, cultural and historical conditions prevailing
in the host State.’’98
86. Respondent submits that Dagobah only had a stable economy until 1980. 99
After that it
suffered a severe economic crisis in 2001 which weakened the country. Therefore, due
to the harsh economic difficulties in the past, bondholders could not have legitimately
expected that legal framework would remain completely unchanged.
87. A State is held to have breached legitimate expectations and consistency if it
fundamentally changes the legal environment under which the investment was made.
94
Saluka (n26 above) para. 305. 95
Eureko B.V. v. Republic of Poland, paras. 232. 96
El Paso Energy International Company v. Argentina, supra note 97, para. 358. 97
Appendix 7. 98
Duke Energy Electroquil Partners & Electroquil S.A. v.Republic of Ecuador, Award, 18 August 2008, para
340, 347 99
Uncontested Facts, para.1.
30
88. For instance, In CME V Czech Republic100
the claimant complained that state’s
interference had created conditions which enabled the local partner of the investor to
terminate the contract on which the investment was dependent. The Tribunal found
that the host State failed to provide fair and equitable treatment by evisceration of the
arrangements in reliance upon which the investor decided to invest. 101
89. Also, The Tribunal in CMS v Argentina stated that the measures Argentina took
entirely transformed and changed legal environment under which the investment was
made and thus breached fair and equitable standard of treatment.
90. Respondent submits that it has not fundamentally altered legal system or acted in a
manner that would have negatively affected basic expectations of the bondholders.
Firstly, the adoption of SRA102
made the changes not in the whole legal environment
of Dagobah but rather addressed specific financial matters.
91. In conclusion, since legitimate expectations are not only subjective expectations of the
investor but rather objective expectations under specific circumstances, respondent
submits that the situation at hand, namely unsustainable debt burden, required changes
in the legal system to tackle internal financial problems with a purpose to avoid
harsher consequences in the future. Therefore, the Respondent submits the SRA and
all the procedures following it were at the balance of the Claimant’s legitimate and
reasonable expectations on the one hand and the Respondent’s legitimate regulatory
interests on the other.
2. The Debt Restructuring Process Was Reasonable And Proportional
92. Investment arbitration tribunals and scholars link fair and equitable treatment to the
concepts of reasonableness and proportionality.103
Both reasonableness and
proportionality are used to control the extent to which interferences of host States with
foreign investments are allowed.104
93. The tribunal in S.D. Myers v. Canada stated that its duty was to interpret the
100
CME v Czech Republic, Partial Award,9 ICSID Rep 121 101
Ibid at para 611 102
Uncontested facts, para 15. 103
Benedict Kingsbury, Stephan Schill, Investor-State Arbitration as Governance: Fair and Equitable Treatment,
Proportionality and the Emerging Global Administrative Law, 2009, .16 104
Ibid.
31
requirement of fair and equitable treatment “in light of the high measure of deference
that international [law] generally extends to domestic authorities to regulate matters
within their own borders.” This sentiment was repeated by the tribunal in Waste
Management v. Mexico. Thus, in determining whether the act of the host state is
reasonable, a tribunal is looking for acts that are irrational or arbitrary.105
94. Accordingly, in a number of cases, the tribunal has found host state conduct to be
lawful because it was undertaken for legitimate regulatory reasons. For example, in
Genin v. Estonia, a case arising under the United States-Estonia BIT, Estonia had
revoked a license held by the investor’s bank, thus forcing the bank out of business.
The tribunal observed that, to violate the fair and equitable treatment standard, state
conduct must reflect “a willful neglect of duty, an insufficiency of action falling far
below international standards, or even subjective bad faith.” The tribunal found that
the decision was a reasonable regulatory decision since the Estonian government had
legitimate concerns about the management and financial soundness of the bank.
95. Also, there should be taken into account whether actions of a State have
disproportionate impact on the foreign investor or whether they rather fall equally on
everyone in the host State. For instance, in Pope Talbot the main reason the Tribunal
decided not to admit there was a breach of fair and equitable treatment was because an
introduction of a quota regime for the export of softwood from Canada was a large
scale scheme affecting many producers.106
96. Respondent submits that the reason why it has taken restructuring measures was a
legitimate regulatory purpose to reduce its debt down to sustainable level without
compromising the basic functions of the State and also to regain access to the world’s
capital markets, as authorized by Article 6 of the BIT. As mentioned above, in cases of
government debt restructuring, the standard practice in the past two decades has been
for a government to make an exchange offer.107
97. Furthermore, the SRA did not affect specifically the Corellian bondholders but rather
everyone who acquired bonds in 2005.
105
Kenneth J. Vandevelde, A Unified Theory of Fair and Equitable Treatment. New York University Journal of
International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010,. 68 106
Pope & Talbot Inc. v. The Government of Canada, para. 345. 107
Sovereign Debt Restructuring and International Investment Agreements, 2011, 3.
32
98. Thirdly, what concerns a new clause in the SRA which provided that if a qualified
majority of the owners of 75% of the aggregate nominal value of all outstanding bonds
governed by domestic law agreed to modify the terms of the bonds, that decision
would bind all the remaining bondholders, does not breach due process as well.108
It
was a legitimate regulatory decision which has been accepted widely in state practice.
99. Since early 2003 almost every emerging market, for instance, Brazil, South Africa,
Chile, Venezuela, sovereign issuing international bonds has included CACs to the
terms of its bonds.109
In a recent study, the Bank of England stated that 80 percent of
sovereign bonds issued in the international bond markets in 2004 contained CACs.110
100. Absence of CAC has not been a practical alternative because amending the terms
of bonds would require the unanimous consent of thousands of holders and
consequently makes it harder to recover from severe economic difficulties.111
101. Therefore, Respondent submits that sovereign debt restructuring measures were
proportional and reasonable with respect to the situation at hand.
3. Dagobah Ensured Due Process
102. The fair and equitable treatment standard also requires due process, and thus a
prohibition of denial of justice.112
103. What amounts to a breach of due process was provided in, for instance, Azinian v.
Mexico where the Tribunal stated that:
"[a] denial of justice could be pleaded if the relevant courts refuse to
entertain a suit, if they subject it to undue delay, or if they administer
justice in a seriously inadequate way."
104. It is worth nothing that to date no claimant has been successful in raising a denial
of justice claim under BIT.113
108
Uncontested facts, para 17. 109
Sergio J. Galvis, Angel L. Saad, Sovereign Exchange Offers in 2010, Chicago Journals of International Law,
Vol. 6 No. 1, 224. 110
Ibid. 111
Ibid at 219. 112
Waste Mgmt., Inc. v. United Mexican States, ICSID Case No. ARB (AF)/00/3, Award, ¶ 98 (Apr. 30, 2004), 43 I.L.M. 967; Jan de Nul NV v. Egypt, ICSID Case No. ARB/04/13, Award, ¶ 187 (Nov. 6, 2008), AMTO LLC v. Ukraine, SCC Case No. 080/2005, Award, ¶ 75, (Mar. 26, 2008)
33
105. Respondent submits that the denial of justice does not exist since claimant has not
brought any claims before domestic courts. Moreover, even if due process is
understood in a broader sense such as a ‘failure to provide an opportunity to be
heard’, Respondent submits that the measures were implemented in accordance
with due process as claimant had the opportunity to challenge them.
106. Firstly, the bondholders were informed of the ongoing draft and the different
versions of the text were constantly published on relevant agencies’ websites.114
107. Secondly, as to the restructuring process, Dagobah consulted a committee
representing the owners of approximately 50% of the aggregate nominal value of
the bonds that would be affected before making the offer of 29 November 2012.115
108. In conclusion, respondent submits it provided bondholders with an opportunity to
be heard and address the issues important to them.
113
Kenneth J. Vandevelde, A Unified Theory of Fair and Equitable Treatment. New York University Journal of
International Law and Politics (JILP), Vol. 43, No. 1, p. 43, 2010, 89. 114
Appendix 7 115
Appendix 6 51.
34
V. DAGOBAH’S RESPONSIBILITY IS PRECLUDED UNDER CUSTOMARY
INTERNATIONAL LAW
A. Dagobah Complies With All Cumulative Conditions of Necessity Defence
under Article 25 of Articles on Responsibility of States for Internationally
Wrongful Acts
109. Necessity is a situation where the sole mean by which a State, or possibly the international
community as a whole, can safeguard an essential interest threatened by a grave and
imminent peril is temporarily not to respect an international obligation protecting an
interest of lesser value.116
The International Court of Justice in both Israel Security Wall
Case and Gabčikovo – Nagymaros Project Case recognized the state of necessity defence
as customary international law.117
The same idea was confirmed by several recent
arbitrations, namely CMS Gas Transmission v The Argentina Republic, Enron and
Sempra.118
The purpose of invoking necessity is to avoid an overly rigid application of the
law in circumstances where there are conflict values.119
110. Case law shows that necessity defence has in principle been accepted by a growing
number of cases.120
Despite that, necessity can be invoked if a series of cumulative
conditions provided in the Article 25 of ARSIWA are met. Firstly, it has an essential
interest has to be threatened, secondly, it has to be threatened by grave and imminent
peril, thirdly, it has to be the only way to safeguard an essential interest, fourthly it 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. Necessity cannot be
invoked if the international obligation in question excludes the possibility of invoking
necessity or the State has contributed to the situation of necessity.121
111. Respondent submits that it has complied with all cumulative conditions.
116
Art 25 ARSIWA. 117
Gabčikovo – Nagymaros Project Case, para. 40 118
Oxfrod Commentaries on International Law, The Law of International Responsibility, edited by James
Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 491. 119
Ibid at 492. 120
The Neptune, Russian Indemnity, Gabčikovo – Nagymaros Project, the MV Saiga, the Advisory Opinion on
the Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, CMS Gas
Transmission v Argentina 121
Article 25 of ARSIWA
35
1. Economic survival is an essential interest of Dagobah
112. Whether a particular interest is or is not essential will depend on all the
circumstances in a particular situation, in other words it will be judged on a case by
case basis.122
Therefore, the list of potential essential interests is not exhaustive.
113. International Law Commission has upheld this view by stating that the plea of
necessity has been invoked to preclude wrongfulness of acts not in conformity
with an international obligation to protect a wide variety of interests.123
It is
important to note that an essential interest does not mean that the very existence of
the state must be threatened.124
A state of necessity may be invoked to preclude
wrongfulness of a conduct that was adopted to protect an essential interest without
its existence being put at risk.125
According to legal literature and case law
economic survival and maintenance of financial stability are considered to be
essential interests of states.126
114. Also, in the CMS Gas Transmission Company v. Argentine Republic arbitration,
the Tribunal agreed that the need to avoid a major crisis, with all the social and
political consequences that it implied can constitute an essential interest of the
state. 127
In LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v
The Argentine Republic the Tribunal stated that:
"To conclude that such a severe economic crisis could not
constitute an essential security interest is to diminish the havoc that the
economy can wreak on the lives of an entire population and the ability
of the Government to lead."
115. Both Argentina128
and Dagobah are developing countries.129
Most often, emerging
markets have limited sources to generate revenues130
; therefore they are far more
122
Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State Responsibility for
Investments, University of Heidelberg, Max Plank Institute for Comparative Public Law and International Law
and the University of Chile, 2008, 445. 123
ILC, see note 2, 202 seq. 124
Marie Christine Hoelck Thjoernelund, State of Necessity as an Exemption from State Responsibility for
Investments, University of Heidelberg, Max Plank Institute for Comparative Public Law and International Law
and the University of Chile, 2008, 426. 125
R. Ago, Addendum to the Eight Report on State Responsibility, 17. 126
Oxfrod Commentaries on International law, The Law of International Responsibility, edited by James
Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 492. 127
CMS Gas Transmission Company v. Argentine Republic 128
The International Statistical Institute http://www.isi-web.org/component/content/article/5-root/root/81-
developing
36
vulnerable to economic instabilities. Even though Dagobah adopted austerity
measures, its public services were on the verge of being compromised.131
116. More importantly, Dagobah has already been harmed by the previous crisis which
lasted two years and a half132
which threatened the entire population.
117. The essential interest at stake here was the survival Dagobah’s public order and
the viability of the economy which are key elements to future development.
Considering the above, respondent submits that it has satisfied the first condition
under the Article 25 of ARSIWA.
2. Economic collapse is a grave and imminent peril
118. The definition of grave and imminent peril was presented by the International
Court of Justice in Gabcikovo-Nagymaros Project case. The Court stated that peril
evokes the notion of risk. 133
A right to invoke necessity thus serves as a
preventative mechanism in order to manage crisis which if not averted will lead to
grave harm.134
When explaining the word "imminent" the International Court of
Justice noted that it is not necessary for peril to happen now but rather that it can
materialize in the long term.135
International Law Commission has also supported
larger scope of the necessity defence and explained that what is required for a
successful necessity plea is that the peril is clearly established on the basis of the
evidence reasonably available at the time.136
119. Sovereign debt crises affect countries in various ways. Firstly, it may lead to the
exclusion of a country from international capital markets, with adverse effects on
investment activities.137
Secondly, they often entail a collapse in international
trade.138
This was well illustrated by recent defaults in 2010 which have led to
129
Uncontested facts para 1 130
Safia Shabbir, Does External Debt Affect Economic Growth: Evidence from Developing Countries, 2013,
p.4 131
Appendix 6, p.51 132
Uncontested facts para 3 133
Gabcikovo-Nagymaros Project (Hungary/Slovakia) ICJ Reports 1997, p 7, 41-42 (para 54) 134
Oxfrod Commentaries on International law, The Law of International Responsibility, edited by James
Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, p. 493 135
Gabcikovo-Nagymaros Project (Hungary/Slovakia) ICJ Reports 1997, p 7, 41-42 (para 54) 136
ARSIWA, Commentary to art 25, para. 16. 137
Stefano Neri and Tiziano Ropele, The macroeconomic effects of the sovereign debt crisis in the euro area,
2013, 2. 138
Ibid.
37
dramatic economic and social consequences when credit became more costly and
scantier, economic activity fell and unemployment increased.139
120. In CCC v Argentina the Tribunal concluded economic crisis as emergency and
rejected narrow definition of an emergency proposed by Claimant even though the
BIT did not expressly include that:
"Thus, in the Tribunal’s view, actions properly necessary by
the central government to preserve or to restore civil peace and the
normal life of society … even when due to significant economic and
social difficulties, and therefore to cope with and aim at removing these
difficulties fall within the application under Art. XI."
121. LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v The
Argentine Republic Tribunal considered financial crisis of Argentina as a grave
and imminent peril and stated that:
“When a state’s economic foundation is under siege, the
severity of the problem can equal that of any military invasion”.
122. Considering the above, Respondent submits that the debt burden of US 400 billion
dollars which according to International Monetary Fund became no longer
sustainable140
contained enough risk of evolving into severe sovereign debt crisis
which would have serious social and economic implications. Consequently, it
would be even harder to recover from because of the already weak economic
power.
3. Sovereign debt restructuring was the only way to protect essential interests
123. Respondent submits that it does not have to prove that the sovereign debt
restructuring was the only alternative to deal with financial crisis. it should be
interpreted using reasonableness as a criterion as there will be cases in which non
– compliance, although it is not the only possibility, is the less onerous and less
damaging possibility for the state, as the difference in relation to any other
possibility will be great enough to consider it as the “only way” in the framework
of the circumstances. 141
kokia taisykle
139
Ibid. 140
Uncontested Facts, para.15 141
Supra 125, 426
38
124. LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v The
Argentine Republic Tribunal took even broader approach and concluded it was
enough for the measures to be legitimate rather than be the only choice: pirmas
turi but. Net jei ir yra apribojimas, tada reasonableness criteria:
“A State may have several responses at its disposal to maintain public
order or protect its essential security interests. In this sense, it is
recognized that Argentina’s suspension of the calculation of tariffs in
U.S. dollars and the PPI adjustment of tariffs was a legitimate way of
protecting its social and economic system.”
125. In this case, Dagobah’s government adopted some more austerity measures, in
particular reducing investments in infrastructure. Notwithstanding, since some
public services were on the verge of being compromised, Dagobah was not able
not generate enough revenues for servicing its debt without restructuring or
defaulting.142
Also, the way Dagobah dealt with the crisis was recommended by
the IMF143
4. Sovereign Debt Restructuring Does Not Seriously Impair An Essential
Interest Of Corellia Towards Or Of The International Community As A
Whole
126. Serious impairment means that not only an essential interest must not be
impaired, but also that the interest sought to safeguard must be of greater
importance that the interest which is disregarded.144
127. LG&E Energy Corp., LG&E Capital Corp., LG&E International Inc.v The
Argentine Republic Tribunal stated:
“It cannot be said that any other State’s rights were seriously impaired
by the measures taken by Argentina during the crisis.”
128. Respondent submits that it has neither impaired interests of Corellia nor affected
interests of other states. Furthermore, slight changes in the Dagobah’s laws that
governed sovereign bonds could not constitute a greater importance than
Dagobah’s economic survival.
142
Appendix 6. 143
Uncontested Facts, para.15. 144
Oxfrod Commentaries on International law, The Law of International Responsibility, edited by James
Crawford, Alain Pellet and Simona Olleson, Assistant Editor Kate Parlett, 2010, 494, also United Nations,
Report A/CN.4/318/ADD.5-7, 20.
39
5. Dagobah Has Not Contributed To The State Of Necessity
129. Art. 25 (2) allows to invoke necessity only in a case if a state itself has not
contributed to the situation of necessity.
130. It is recognized that at the time of adopting a particular plan in response to a
situation of necessity, the state will be the only one to decide, since it does not
have the time to submit the case to other authorities.145
131. Moreover, in CMS v Argentina, the Tribunal held that the burden to prove
whether a state has contributed to the situation of necessity falls on claimant.146
132. Respondent considers that, in the first place, Claimants have not proved that
Dagobah has contributed to cause the severe crisis faced by the country. Secondly,
the adoption of the SRA has shown a desire to slow down by all the means
available the severity of the crisis which was caused by global financial meltdown
in 2008. More importantly, IMF itself has noted that Dahobah has been following
its recommendations after the crisis in 2001. 147
133. In conclusion, respondent submits that it has not contributed to the state of
necessity but rather has attempted to reduce the consequences of economic
emergency.
B. The BIT Concluded Between Corellia And Dagobah Allows Invoking Necessity
134. Art. 6 of the BIT concluded between Corellia and Dagobah expressly states that
Parties are permitted to apply measures that are necessary for the fulfillment of its
obligations with respect to the maintenance or restoration of international peace or
security, or the protection of its own essential security interests. Although there is
no clear definition of the concept of essential security interests, Tribunals have
interpreted it broadly and have admitted they cover economic crisis.
135. Respondent submits that it is invoking necessity defence to protect its essential
security interests, namely the economic survival of the state.
145
145
M. C. H. Thjoernelund, State of Necessity as an Exemption from State Responsibility for Investments,
Max Planck Yearbook of United Nations Law, Volume 13, 2009, 439. 146
CMS v Argentina, para. 264 147
Uncontested Facts, para. 15
40
136. The BIT concluded between Argentina and the USA contains identical clause in
the Article XI. When interpreting this clause in CMS v Argentina the Tribunal
stated if the concept of essential security interests was limited only to immediate
political and national security issues and were to exclude major economic
emergencies, it could result in an unbalanced interpretation of Article XI. 148
137. As in the CMS case, the LG&E tribunal did not set forth its interpretation of
specific, relevant terms of the essential security provision, but nonetheless
similarly concluded that severe economic crises could not be excluded from the
scope of Article XI. It rejected the argument that Article XI is only applicable in
circumstances amounting to military action and war.149
138. The Tribunal reached the same conclusion in Enron v Argentina Republic by
stating that essential security interests may apply to situations of economic
difficulty 150
and also in E. Continental Casualty v. Argentine Republic. In later
case, when examining the essential security clause, the tribunal noted that the
concept of international security was intended to cover economic security of States
as well. 151
139. In conclusion, respondent submits it has complied with this condition as well.
148
CMS v Argentina, para. 88. 149
LG&E Energy Corp. v. Argentine Republic, ICSID Case No. Arb/02/1, Decision on Liability, 2006, para.
206. 150
Enron Corp. Ponderosa Asset, L.P. v. Argentine Republic, ICSID Case No.Arb/01/3, Award, 2007, para 331. 151
Continental Casualty Co. v. Argentine Republic, ICSID Case No.Arb/03/9, Award, 2008, para. 175