THE SEVENTH ANNUAL

FOREIGN DIRECT INVESTMENT

INTERNATIONAL MOOT COURT COMPETITION

ARBITRATION PURSUANT TO THE RULES OF ARBITRATION OF THE ARBITRATION INSTITUTE OF THE STOCKHOLM CHAMBER OF COMMERCE

STOCKHOLM, SWEDEN

CLARISSIAN & CO., INC.

(CLAIMANT)

V.

THE FEDERAL REPUBLIC OF DAGOBAH

(RESPONDENT)

MEMORIAL FOR THE RESPONDENT

Respectfully Submitted,

Team Zoricic

20 SEPTEMBER 2014

TABLE OF CONTENTS

LIST OF ABBREVIATIONS…………………………………………………………………..

LIST OF AUTHORITHIES…………………………………………………………………….

ARTICLES…………………………………………………………………………………

BOOKS……………………………………………………………………………………

CASES…………………………………………………………………………………….

TREATIES…………………………………………………………………………………..

MISCELLANEOUS………………………………………………………………………….

STATEMENT OF FACTS………………………………………………………………………..

SUMMARY OF ARGUMENTS.…………………………………………………………………

ARGUMENTS……………………………………………………………………………………

[PART ONE: JURISDICTION]…………………………………………………………………

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE CLAIMS A. SOVERIGN BONDS ARE NOT “INVESTMENTS” UNDER THE BIT

a. The Bonds are not Contemplated in the Object and Purpose of the BIT b. Dagobah did not consent to bonds being covered investments

c. The Bonds Purchased by Carissian Lack a Territorial Link B. ALTERNATIVELY, CALRISSIAN MAY NOT SUE UNDER THE CAC

II. THE PCA DECISION IS NOT BINDING ON THE TRIBUNAL A. THE EFFECTS OF THE PCA DECISION ARE LIMITED TO THE MATTER

BEFORE THE B. EVEN AS PERSUASIVE AUTHORITY, THE PCA DECISION SHOULD NOT BE

CONSIDERED IN THIS DISPUTE. III. THE YAVINIAN LAW GOVERNS THIS DISPUTE

A. Soverign Bonds are Contractual in Nature B. The Forum Selection Clause in the SRA Bonds Governs This Dispute

[PART TWO: MERITS OF THE CASE]…………………………………………………..

IV. DAGOBAH BREACHED THE FAIR AND EQUITABLE TREATMENT STANDARD OF PROTECTION CONTAINED IN ARTICLE 2(2) OF THE CORELLIA-DAGOBAH BIT

A. Claimant is entitled to a heightened (or “more protective”) fair and equitable treatment standard under the provisions of the Corellia-Dagobah BIT

B. Dagobah failed to meet the fair and equitable treatment standard i. Dagobah denied Claimant due process.

ii. Dagobah acted in bad faith C. Dagobah frustrated Claimant’s legitimate and reasonable expectations

V. DAGOBAH CANNOT RELY ON ARTICLE 6 OF THE CORELLIA-DAGOBAH BIT GIVEN THAT IT DID NOT PROCEED JUSTIFIABLY AND IN GOOD FAITH IN ITS EFFORTS TO SAFEGUARD ITS ESSENTIAL SECURITY INTERESTS.

A. Article 6 of the Corellia-Dagobah Bit is not a self-judging provision i. Corellia-Dagobah BIT is not like OECD Code

ii. Corellia-Dagobah BIT is identical to Article XI of Argentina-US BIT B. Standard of Review C. Dagobah cannot rely on the defense of necessity under customary international law (or

“under Article 25 of Responsibility of States for Internationally Wrongful Acts”)…………………………………….

i. Dagobah did not suffer a grave or imminent peril. ii. The SRA was not the only means available to Dagobah to safeguard its essential

security interests. iii. Dagobah contributed to the situation (or “circumstance”) of [claimed] necessity.

CONCLUSION AND PRAYER FOR RELIEF

LIST OF ABBREVIATIONS

Art. Article

BIT Bilateral investment treaty

CAM Collective action mechanism

CIL Customary international law

CMS Customary minimum standard

ESI Essential security interest

FET Fair and equitable treatment

FPS Full protection and security

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

IMF International Monetary Fund

NAFTA North American Free Trade Agreement

NPM Non-precluded measures

OECD Code OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations

SRA Sovereign Restructuring Act

UNCITRAL United Nations Commission on International Trade Law

VCLT Vienna Convention on the Law of Treaties

LIST OF AUTHORITIES

Cases

ABACLAT and others v. Argentine Republic, ICSID Case No. ARB/07/5, 4 Aug. 2011

AMTO LLC v Ukraine, Final Award, SCC Case No 080/2005, IIC 346 (2008), 26th March 2008, Arbitration Institute [SCC Institute]

Barcelona Traction, 1970 I.C.J. Reports 3, 47 Nicaragua (Merits and Judgment) [1986] I.C.J. Reports 14, 135 (Merits, Judgment).

Dennis Grainger et al.v. United Kingdom ECtHR, 20 July 2012, Application No. 34940/10.

Enron v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007, paras. 281–283

Lemire v. Ukraine (ICSID Case No. ARB/06/18), Decision on Jurisdiction and Liability, 14 January 2010, paras 250, 252-257, 259 and 284)

Louis Henkin, International Law: Politics. Values, and Functions , 216 RECUEIL DES COURS D’ACADEMIE DE DROIT INT ’L 9, 27 (1989)

Metalclad Corp. v. United Mexican Award ARB(AF)/97/1.

NML Capital, Ltd. v. Republic of Argentina, No. 12-105

Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic, ICSID Case No. ARB/13/8,

Saluka Investments v. Czech Republic [partial award], para 302 Permanent Court of Arbitration (2006).

Articles

Alfaro, Laura., Sovereign Debt Restructuring: Evaluating the Impact of the Argentina Ruling. Harvard Business Law Review 27 (June 2014). Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 Nw. J. Int'l L. & Bus. 327, 350 (1993-1994). Boudreau, Melissa A. Restructuring Sovereign Debt Under Local Law: Are Retrofit Collective Action Clauses Expropriatory?available at http://www.hblr.org/2012/05/retrofit-collective-action-clauses/#_ftn1 Cotterill, Joseph The IMF’s Greek Sunk Cost (Dec. 16, 2014) available at http://ftalphaville.ft.com/2011/12/16/803631/the-imfs-greek-sunk-cost/

C. Schmerler, “Restructuring Sovereign Debt”, in: The Law of International Insolvencies and Debt Restructuring (2006), DRAGE John, HOVAGUIMIAN Catherine, Collective Action Clauses (CACs): An Analysis of Provisions Included in Recent Sovereign Bond Issues , Bank of England, 2 November 2004, 27 p., available at www.bankofengland.co.uk “Fair and Equitable Treatment Standard in International Investment Law”, OECD Working Papers on International Investment, 2004/03, OECD Publishing available at: http://www.oecd.org/daf/inv/investment-policy/WP-2004_3.pdf

G10, The Resolution of Sovereign Liquidity Crises – A Report to the Ministers and Governors Prepared Under the Auspices of the Deputies , May 1996

Hellenic Republic Ministry of Finance, Press Release dated 24 Feb 2012

IMF, Collective Action Clauses in Sovereign Bond Contracts – Encouraging Greater Use , 6 June 2002

Lee Buchheit et al., “Sovereign Bonds and the Collective Will,” 51 Emory L. J. 1317 (Fall 2002),

M. Waibel, “Opening Pandora’s Box: Sovereign Bonds in International Arbitration”, 101 AJIL 711

Schreuer, Christoph Fair and Equitable Treatment in Arbitral Practice, 6 J. World Inv. & Trade 357, 374 (2005)

UNCTAD Documents

FAIR AND EQUITABLE TREATMENT UNCTAD Series on Issues in International Investment Agreements II available at http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf.

Presentations

B. Legum “Defining Investment and Investor: Who is Entitled to Claim?” presentation at the Symposium “Making the Most of International Investment Agreements: A Common Agenda” co-organised by ICSID, OECD and UNCTAD, 12 December 2005, Paris.

Press Conferences

Under the Stand-By Arrangement, Rephasing and Request for Waivers of Nonobservance of Performance Criteria; Press Release on the Executive Board Discussion; and Statement by the

Executive Director for Greece, 31, 33 (Dec. 2011) available at http://www.imf.org/external/pubs/ft/scr/2011/cr11351.pdf

Statutes

Stockholm Chamber of Commerce Rules, 46 ILM 677 (2007).

Vienna Convention on Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331.

STATEMENT OF FACTS

1. The Federal Republic of Dagobah is a nation with an emerging market that maintained a

relatively stable economy until the end of the 1980s by adopting an inward-oriented

development policy.1 Dagobah has a close diplomatic relationship with its neighbor, the

Corellian Republic (“Corellia”).2 Corellia has a sophisticated financial and banking industry.3

In 1992, as a part of a privatization and internationalization plan undertaken by Dagobah to

stimulate economic growth, the two countries entered into the Corellia-Dagobah Bilateral

Investment Treaty “the BIT”.4

2. In 2001, Dogobah was faced with an unstable debt burden and a two-and-a-half year long

economic crisis.5 This resulted from a decade of heavy borrowing on international financial

markets and high government budget deficits (partly caused by massive tax evasion).6

Dagobah’s inability to meet its debt obligations led it to restructure its sovereign debt and

launch an offer where bondholders would be able to exchange their bonds for new ones.7 The

new bonds would reduce the bonds’ face value by 43% and provide the possibility of cash

buybacks with the assistance of the World Bank’s Debt Reduction Facility.8 As the haircut

was estimated at 50% of the bonds’ net present value, such restructuring caused major losses

to bondholders, among which were several investors from Corellia.9

3. The International Monetary Fund (“IMF”) presented recommendations for Dagobah to

implement its sovereign debt restructuring process and prevent further increase of its debt and

another crisis.10

4. Corellia decided to clarify the language of the BIT; however, the parties were unable to agree

on whether the treaty covered sovereign bonds and, therefore, whether Corellian holders of

1 ¶ 1 2 ¶ 2 3 ¶ 2 4 ¶ 2 5 ¶ 3 6 ¶ 3 7 ¶ 4 8 ¶ 4 9 ¶ 4 10¶ 5

Dagobah sovereign bonds were protected by the framework of the BIT. 11 Corellia

commenced proceedings against Dagobah, administered by the Permanent Court of

Arbitration (“PCA”), under UNCITRAL Arbitration Rules for State-to-State dispute

settlement, requesting a decision on the interpretation issue.12

5. According to Corellia 1) the purchase of sovereign bonds constituted an “investment” under

Article 1(1) of the BIT, since it was made within Dagobah’s territory and in accordance to its

laws; 2) investors were entitled to pursue arbitration in accordance with the investor-State

dispute settlement clause for violation of treaty provisions. Dagobah contended that its

sovereign bonds could not be considered an “investment”, because the BIT did not expressly

address the bonds and the bonds lacked a territorial link.13

6. The PCA Arbitral Tribunal majority concluded that sovereign bonds were covered

investments within the definition of the BIT and that bondholders of both countries were

entitled to its standards of protection.14 and to resort to the investor-State dispute settlement

provision included therein [Appendix 2. However, one dissenting just issued an opinion

which asserted that sovereign bonds could not constitute an investment in accordance with

the wording of the BIT. 15

7. However, before the dissenting opinion was presented, Corellian bondholders had already

accepted a restructuring offer.16 Under this agreement, Corellian bondholders faced losses of

less than 20-percent of the net present value of the bonds17 As such, no Corellian nationals

chose to pursue litigation based on the restructuring agreement.18

8. Due to the 2008 financial crisis, Dagobah faced another recession in early 2010.19

Throughout the remainder of 2010, investors continued to doubt Dagobah’s ability to meet its

11¶7 12¶8 13¶10 14 ¶11 15 ¶12 16 ¶13 17 Id. 18 Id. 19 ¶14

debt obligations.20 On 14 September 2011, the International Monetary Fund (“IMF”)

expressed concern about the sustainability of Dagobah’s debt levels.21 Based on these

concerns, the IMF suggested several recommendations, including a new debt restructuring

agreement to lower Dagobah’s debt-to-GDP ratio and a potential bailout to ensure economic

stability.22

9. On 28 May 2012, Dagobah followed the recommendation of the IMF and implemented the

Sovereign Restructuring Act (“SRA”).23 Under the SRA, all bondholders would be bound by

its terms if a qualified majority of owners of 75% of the nominal value of outstanding bonds

that are governed by domestic law agreed to it.24 Additionally, the affected bonds could not

be amended without approval from all bondholders.25 Additionally, Dagobah offered

bondholders new bonds that would retain 70% of the bonds net value.26

10. With 85% of applicable bondholders in support of the offer, the SRA went into effect on 12

February 2013.27 Under the new bonds, clauses changed the prior forum and applicable law

from Dagobah to the Kingdom of Yavin. Additionally, a Collective Action Clause (“CAC”)

required that at least 20% of the bonds nominal value be gathered in order to sue under the

new bonds..28

11. Calrissian & Co. Inc. (“Calrissian”), a Corellian hedge fund that holds only 10% of the bonds

affected by the SRA commenced arbitral proceedings against Dagobah before the Arbitration

Institute of the Stockholm Chamber of Commerce (“SCC”). In support of arbitration,

Calrissian cited the investor-State dispute settlement provision contained in Article 8 of the

Corellia-Dagobah BIT and the PCA Arbitral decision.29 Calrissian appointed Ms. Crusher, a

prominent international arbiter, and claims that the CAC violates the fair and equitable

20 Id. 21 ¶15 22 Id., ¶16 23 ¶17 24 Id. 25 Id. 26 ¶18 27 ¶19 28 ¶21 29 Id.

treatment standard contained in Article 2(2) of the BIT.30 Calrissian requests full

compensation for any losses it incurred.31 On 28 November 2013, Mr. Picard was appointed

as chairperson of the Arbitral Tribunal.32 Picard designated Aldeeran, a Yavinian city, as the

seat of arbitration.33

30 ¶21 31 Id. 32 ¶27 33 Id.

JURISDICTION ARGUMENTS

JURISDICTION ARGUMENTS

I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE CLAIMS

A. SOVERIGN BONDS ARE NOT INVESTMENTS UNDER THE DAGOBAH-

CORELLIA BIT

a. The Bonds are not Contemplated in the Object and Purpose of the BIT

Under the Corellia-Dagobah BIT, sovereign bonds are not investments. Although six

different types of financial instruments were included as covered instruments, bonds were

expressly omitted.34 When the SCC reviews a broad and inclusive definition of investment to

decide whether a contested instrument is included, the BIT’s object and purpose must be taken

into consideration.35 Corellia and Dagobah entered into the BIT to “promote greater economic

cooperation between them with respect to investments by nationals of one party made in the

territory [emphasis added] of the other party.”36 Territory is defined under the BIT in a manner

that describes the physical territory of a Party. Similarly, of the six types of forms that an

investment may include under Article 1 of the BIT, each type has a physical component or

exercises a right over something physical. Contrarily, sovereign bonds are investments in the

economy of the nation.37

Generally, for an investment to occur, there must be a commercial undertaking, typically

in the form of stock from a commercial entity.38 Contrarily, sovereign bonds are issued by a

public entity.39 While commercial investments allow for ownership rights in a commercial entity,

34 Corellia-Dagobah BIT, Art 1. 35 AMTO LLC v Ukraine, Final Award, SCC Case No 080/2005, IIC 346 (2008), 26th March 2008, Arbitration Institute [SCC Institute] §42; Vienna Convention on Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331, Art. 42. 36 Corellia-Dagobah BIT, Art 1 37 M. Waibel, “Opening Pandora’s Box: Sovereign Bonds in International Arbitration”, 101 AJIL 711, 728. 38 Id. 39 Id.

sovereign bonds do not.40 Instead, as is the case in the present dispute, capital obtained through

sovereign bonds is used for general budgetary functions.41 Such bonds do not fit the definition of

investments because they are not used for any specific usage, are simply a claim in the country’s

primary surplus”, and lack a management right.42

Furthermore, by their nature, BITS are established as a means to increase economic development

in underdeveloped countries.43 In negotiating BITs, each country formulates the BIT around its

unique interests and concerns.44 In 1992, when the Corellia-Dagobah BIT was entered into force,

sovereign bonds were widely used by countries.45 As such, had either party wanted sovereign

bonds to be covered investments, they could have written it directly into the BIT.

b. Dagobah did not consent to bonds being covered investments

Given the fact that Dagobah did not contemplate bonds being covered investments,

Dagobah cannot be held to have consented to be bound by the inclusion of bonds under the BIT.

Consent is a fundamental tenant of international law. If a state has not consented to be bound by

the terms of a treaty, holding them to those unconsented terms is a direct breach of international

law.46

Without consent derived from the BIT or express consent, this Tribunal does not have

jurisdiction over this dispute as neither Ratione Materia nor Ratione Personae apply. Ratione

Materia refers to jurisdiction over the matter.47 Ratione Personae refers to jurisdiction over the

person.48

40 Id. 41 M. Waibel, “Opening Pandora’s Box: Sovereign Bonds in International Arbitration”, 101 AJIL 711, 728. 42 Id. 43 Bernard  Kishoiyian,  The  Utility  of  Bilateral  Investment  Treaties  in  the  Formulation  of  Customary  International  Law,  14  Nw.  J.  Int'l  L.  &  Bus.  327,  350  (1993-­‐1994).  44 Id. 45 Id. 46 Louis Henkin, International Law: Politics. Values, and Functions , 216 RECUEIL DES COURS D’ACADEMIE DE DROIT INT ’L 9, 27 (1989); Barcelona Traction, 1970 I.C.J. Reports 3, 47 Nicaragua (Merits and Judgment) [1986] I.C.J. Reports 14, 135 (Merits, Judgment).

47 B. Legum “Defining Investment and Investor: Who is Entitled to Claim?” presentation at the Symposium “Making the Most of International Investment Agreements: A Common Agenda” co-organised by ICSID, OECD and UNCTAD, 12 December 2005, Paris. 48 Id.

In this dispute, without the consent of Dagobah, Calrissian would need to show that they

made an investment for Ratione Materia to apply, or that they are an investor for Ratione

Personae. As previously established, sovereign bonds are not covered investments under the BIT.

Therefore, as bondholders of sovereign bonds, Calrissian is not an investor and cannot invoke

jurisdiction in this dispute without Dagobah’s consent.

c. The Bonds Purchased by Calrissian Lack a Territorial Link

“Situs” is an important component of a contested instuments territorial link49 To establish

“situs”, the foreign governing law and foreign forum must be examined.50 Additionally, the

currency of payment, the place of payment and the residence of the intermediaries are important

considerations.51

Carissian’s purchase occurred through the secondary market in Coreilla.52 When a bond

is purchased in a secondary market, it is sold from one investor to another. As such, although the

original purchase of Dagobah debt may potentially be classified as occurring “in the territory” of

Dagobah because money flowed into Dagobah through their purchase, Carissian’s secondary

purchase lacks the required territorial nexus as contemplated by the BIT.

The Claimant may argue that the secondary market purchase of the bonds does not negate

their territorial nexus. However, the territorial nexus is based off of where the investment is

made and not “for the benefit of whom.”53 Given the fact that Calrisian purchased their bonds on

the secondary market in Calrissian, their bonds lack the required territorial link and therefore are

not “investments” as contemplated by the BIT.

d. General Principles of International Law Dictate that the Bonds should not be

recognized as Covered Investments.

Although the parties are not signatories, ICSID provides persuasive authority in this

dispute. Article 25 of the ICSID Convention also provides guidance in determining what

constitutes an investment. To establish an investment, Article 25 has been interpreted to analyze

49 ABACLAT and others v. Argentine Republic ICSID Case No. ARB/07/5, 4 Aug. 2011 50 Id. at 82 51 Id. at 82 52 SCC Procedural Order No. 2, ¶11 53 ABCLAT at 99

the Salini factors.54 Under Salini, to be classified as an investment, there must be: (i) a

contribution, (ii) of a certain duration, (iii) of a nature to generate profits or revenues, (iv)

showing a particular risk, and (v) of a nature to contribute to the economic development of the

Host State. Although the first four Salini factors may be established, the fifth cannot. As

previously stated, the bonds were purchased on the secondary market and therefore, the

contribution to the economic development of Dagobah, the host state, had already occurred.

Therefore, sovereign bonds are not investments as contemplated by the Corelian-Dagobah BIT.

B. ALTERNATIVELY, CALRISSIAN MAY NOT SUE UNDER THE CAC

Calrissian may not seek remedy based on the Collective Action Clause. Article 6 of the

BIT demands that “nothing in this treaty shall be construed… to preclude a Party from applying

measures that are necessary for… the protection of its own essential security interests.”

Implementation of the SRA was necessary to protect Dagobah’s economic security interests.

Collective Action Clauses have widespread use in international law.55 As stated in the

“Rey Report”, an examination of CACs sponsored by the G10, CAC’s ““promote cohesion

among creditors and reduce the incentive for, or ability of, a small number of dissident creditors

to disrupt, delay or prevent arrangements supporting a credible adjustment program that are

acceptable to the vast majority of the interested parties.”56 Additionally, CACs are not only

accepted, but encouraged by the IMF.57

CACs may also be enforceable retroactively. In 2012, Greece attempted a debt

restructuring.58 Pursuant to the debt restructuring, a group of bondholders initiated arbitration

through ICSID, arguing that the debt restructuring would reduce the worth of their bonds and

that the implementation of the Greek Bondholder Act after their bonds were issued should not be

54 Id. 55 DRAGE John, HOVAGUIMIAN Catherine, Collective Action Clauses (CACs): An Analysis of Provisions Included in Recent Sovereign Bond Issues , Bank of England, 2 November 2004, 27 p., available at www.bankofengland.co.uk; NML Capital, Ltd. v. Republic of Argentina, No. 12-105. 56 G10, The Resolution of Sovereign Liquidity Crises – A Report to the Ministers and Governors Prepared Under the Auspices of the Deputies , May 1996, § 53, available at <www.bis.org>. 57 IMF, Collective Action Clauses in Sovereign Bond Contracts – Encouraging Greater Use , 6 June 2002, available at <www.imf.org>; IMF, The Design and Effectiveness of Collective Action Clauses , 6 June 2002, available at <www.imf.org>. 58 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case No. ARB/13/8), available at https://icsid.worldbank.org/ICSID/FrontServlet?requestType=GenCaseDtlsRH&actionVal=ListPendin (last visited 17 Sept 2014).

allowed to unilaterally and retroactively amend their terms.59

Under the Greek Bondholder Act, bonds are allowed to be modified if fifty percent of the

“principal participants” and two-thirds of the participating capital of “all eligible titles” were in

favor.60 In this respect, the Greek Bondholder Act was simply a CAC established through

domestic law. However, unlike typical CACs, which are enforced on a series-by-series basis,61

the Greek Bondholder Act governed all Greek bonds.62

At the time, Greek law governed ninety percent of bonds issued by Greece.63 As such, the

Greek legislature was allowed to implement changes to them.64 Through the Greek Bondholder

Act, a CAC, Greece was freely able to restructure its bonds retroactively.65

Similar to Greece’s enactment of the Greek Bondholder Act, Dagobah was free to

implement the SRA. Since the bonds that are disputed here were governed by Dagobah domestic

law,66 the SRA freely applies to these bonds. Article 2 of the SRA dictates that, “a qualified

majority of the owners of 75% of the aggregate nominal value of all outstanding bonds governed

by domestic law” may bind remaining bondholders. In total, eighty-five percent of applicable

bondholders accepted the new bonds offered by Dagobah accepted the new bonds.67 Thus, all

applicable bonds, including the bonds purchased by Calrissian, were permissibly changed to

incorporate the terms of the new bonds (post-SRA bonds).

The post-SRA bonds include a clause that requires at least twenty percent of the nominal

value of the bonds to initiate a legal action.68 Calrissian’s bonds only represented ten percent of

the nominal value.69 As such, Calrissian did not fulfill its ownership requirement to initiate legal

action under the BIT. As previously stated, the BIT allows Dagobah to protect its interests. In

59 Investment Arbitration Reporter on “Bondholders’ claim against Greece is registered at ICSID, as mandatory wait-period expires on another threatened arbitration ”, available at http://www.iareporter.com/articles/20130530_2 (last visited 15 Sept 2014). 60 An unofficial English translation of Law No. 4050/2012 is available at http://www.iiiglobal.org/component/jdownloads/finish/625/5899.html (last visited 26 Feb 2014). 61 Lee Buchheit et al., “Sovereign Bonds and the Collective Will,” 51 Emory L. J. 1317 (Fall 2002), p.22; C. Schmerler, “Restructuring Sovereign Debt”, in: The Law of International Insolvencies and Debt Restructuring (2006), pp. 461-462. 62 Hellenic Republic Ministry of Finance, Press Release dated 24 Feb 2012. 63 Lee C. Buchheit & G. Mitu Gulati, How to Restructure Greek Debt (Duke Law Working Papers, Paper No. 47,

2010), available at http://scholarship.law.duke.edu/working_papers/47.64 Id. 65 Id. 66 SCC Procedural Order No. 2, ¶16 67 Uncontested Facts, ¶19 68 Id. 69SCC Procedural Order No. 2, ¶24.

this respect, a CAC in the SRA was necessary to prevent prospective bondholders from impeding

the ability of restructuring. Allowing a bondholder to initiate arbitration, despite a CAC

prohibiting such arbitration effectively leaves the purpose of CACs mute.70 Therefore, due to the

CAC, Calrissian may not initiate arbitration regarding the bonds in question.

II. THE PCA DECISION IS NOT BINDING ON THE TRIBUNAL

The PCA decision should not be binding on the SCC Tribunal. Since, the PCA

decision, which contemplated the 2001 economic recession, both Dagobah and the

investors changed immensely.

During 2001, Dagobah experienced an economic meltdown based in large part on

massive tax evasion and unsustainable debt levels on their part.71 Contrarily, the 2010

economic meltdown was not in any part Dagobah’s fault.72 Instead, despite Dagobah

closely following the IMF’s recommendations following the 2001 meltdown, Dagobah

experienced financial turmoil in 2010 because of the world market.73

In deciding that sovereign bonds are covered investments under the BIT, the PCA

relied on a three-characteristic test.74 Notably, one factor discussed was the assumption of

risk.75 Given the circumstances surrounding the 2001 financial collapse, the PCA did not

expand upon its reasoning pursuant to assumption of risk.76

Given the differences between the 2001 collapse and the time that Calrissian

bought their bonds, assumption of risk becomes relevant. When the PCA issued it’s

decision, Dagobah’s bonds were given a B rating by Poor’s Standard.77 However, the

bonds that Calrissian purchased in 2008 were rated as a B+. In this respect, Calrissian’s

assumption of risk was much less, in that the bonds had a much higher rating. As such,

given the change in circumstances, the PCA decision’s scope should be limited to the 70 M. Waibel, “Opening Pandora’s Box: Sovereign Bonds in International Arbitration”, supra note 5, p. 736. 71 Uncontested Facts, ¶4. 72 Uncontested Facts, ¶14 73 Uncontested Facts, ¶14. 74 PCA Award 75 Id. 76 Id. 77 Id.

2001 recession and not contemplated in the current dispute.

Furthermore, the PCA decision should not be allowed to effectively amend the

terms of the BIT. During the BIT’s contemplation and entry into force, bonds were not

included as covered instruments. The Vienna Convention on the Law of Treaties

specifies that a treaty should be interpreted using its ordinary meaning and should take

into account the states’ subsequent practices after the treaty’s entry into force.78 Although

the PCA ruled that bonds are investments, litigation has not been commenced based on

that ruling until now. As such, the practices of the parties never changed, despite the PCA

decision. Allowing the PCA decision to effective amend the terms of the BIT would be in

contradiction with international law. Therefore, the PCA decision should not be binding

on this tribunal.

III. YAVINIAN LAW GOVERNS THIS DISPUTE

THE FORUM SELECTION CLAUSE IN THE NEW BONDS GOVERN THIS

DISPUTE

Sovereign bonds are commercial transactions that are governed by contract law.79

Typically, the law written into sovereign bonds is the municipal law of a “major financial

center”, in this case, Yavinian law.80 As previously discussed, the BIT does not govern the

sovereign bonds held by Calrissian.

Generally, a nation enjoys absolute freedom in establishing the forum and law of their

contracts.81 In 2012, when Greece implemented the Greek Bondholder’s Act, bonds previously

governed by Greek law transitioned to be governed by English-law.82 Although this action was

done retroactively, it was found to be permissible.83

78 Vienna Convention on Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331, Art. 31. 79 M. Waibel, “Opening Pandora’s Box: Sovereign Bonds in International Arbitration”, 101 AJIL 711, 728. 80 ABLCLAT at 83 81 COMMITTEE ON FOREIGN AND COMPARATIVE LAW, Governing Law in Sovereign Debt – Lessons from the Greek Crisis and Argentina Dispute of 2012 – A Working Paper (February 2013). 82 Yi, Yangying, Policy Implication of Poštová Tribunal’s Jurisdiction over Sovereign Bonds (28 Feb 2014). available at http://ssrn.com/abstract=2402643 Bankruptcy Cram-down and ICSID Arbitration 83 Id.

The SCC’s functions to administer disputes “in accordance with the SCC rules and other

procedures or rules agreed upon by the parties.”84 Although Carlissian was a minority holdout,

the new bonds were legally and rightly effectuated with the inclusion of a clause specifying the

Yavin law governs any dispute over the bonds. Minority holdouts have not been established to

exclusively retain their bonds when a restructuring occurs though a CAC.85 Therefore, because

the post-SRA bonds were rightfully effectuated, Yavinian law governs this dispute.

MERITS ARGUMENT

I. DOGOBAH’S DEBT RESTRUCTURING MEASURES DO NOT AMOUNT TO A

BREACH OF THE FAIR AND EQUITABLE TREATMENT UNDER THE BIT.

a. THE BONDS ARE NOT COVERED INVESTMENTS AND AS SUCH DID

NOT VIOLATE THE BIT.

Sovereign bonds are not covered investments under the Corellia-Dagobah BIT. For an

investment to be covered, it must be explicitly covered by the BIT or contemplated in the object

and purpose.86 Unlike covered investments, the sovereign bonds at issue in this dispute lack a

territorial link and therefore, are not covered investments under the BIT.87

b. ALTERNATIVELY EVEN IF THE BONHOLDERS WERE ENTITLED TO

FAIR AND EQUITABLE TREATMENT, DAGOBAH DID NOT VIOLATE IT.

FET standard is closely tied to the notion of legitimate expectations88 and must be evaluated on a

case by case basis.89 This requires tribunals to take into account (1) whether the state offered a

stable and predictable legal framework; (2) made specific representations to the investor; (3) 84 Stockholm Chamber of Commerce Rules, 46 ILM 677 (2007). 85 Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case No. ARB/13/8), available at official website of the International Centre for Settlement of Investment Disputes, https://icsid.worldbank.org/ICSID/FrontServlet?requestType=GenCaseDtlsRH&actionVal=ListPendin (last visited 17 Sept 2014). 86 AMTO LLC v Ukraine, Final Award, SCC Case No 080/2005, IIC 346 (2008), 26th March 2008, Arbitration Institute [SCC Institute] §42 87 ABACLAT and others v. Argentine Republic ICSID Case No. ARB/07/5, 4 Aug. 2011 at 82. 88Saluka Investments v. Czech Republic [partial award], para 302 89 Lemire v. Ukraine (ICSID Case No. ARB/06/18), Decision on Jurisdiction and Liability, 14 January 2010, paras 250, 252-257, 259 and 284)

denied the investor due process; (4) the state procedure or actions lacked transparency; (5) the

host state engaged in harassment, coercion, abuse of power or other bad faith conduct; and

whether any of the actions of the State were arbitrary, discriminatory or inconsistent.90

i. Dogobah’s Actions Were Transparent

A fair and equitable treatment claim can arise from a government’s lack of transparency towards

a foreign investor.91 Transparency under the FET standard refers to the legitimate expectations

of investors, and the fact that any decision affecting them needs to be traced to a readily apparent

legal framework.92 In Metalclad93 the Mexican Government issued permits for Eco-Metalclad

Corporation, an American company, for its landfill project. The Mexican government led the

investors to believe that the permits they were issued were for the construction and operation of a

landfill.94 However, the government issued an order to halt construction soon after it began

under the pretense that the investors lacked a proper construction permit.95 The tribunal found in

favor of Metalclad, the foreign investor because the Mexican officials failed to ensure a

transparent and predictable framework for Metalclad’s business planning and investment.96

The measure Dogobah took in restructuring the bonds we were transparent and predictable.

Unlike the Mexican government in Metalclad, the government of Dogobah did not mislead

foreign investors into taking actions which was against the foreign investor’s best interest. The

contents of the restructuring measures were explicitly outlined and published by the Congress of

Dogobah before the changes in the bonds took place.97

The transparency of the Dogobahian government’s actions is further evidenced by third party

reporting and the subsequent actions of the claimant. First, over five months before the

Dogobahian Congress enacted the SRA, The Global Financial Herald, an independent and

90 Id. 91 “Fair and Equitable Treatment Standard in International Investment Law”, OECD Working Papers on International Investment, 2004/03, OECD Publishing available at http://www.oecd.org/daf/inv/investment-policy/WP-2004_3.pdf 92 Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. World Inv. & Trade 357, 374 (2005) 93 Metalclad Corp. v. United Mexican Award ARB(AF)/97/1. States, ICSID Case No. ARB(AF)/97/1 Award (30 Aug. 2000), ¶ 103, 40 I.L.M. 36, 50 (2001). 94 Id. at para. 85. 95 Id. at para. 40. 96 Id. at para. 99. 97

reliable international newspaper98 stated “it seems probable that we will witness yet another

sovereign debt restructuring in the near future.”99 Accordingly, the claimant should have been

placed on notice that the restructure was likely. Secondly, even before the final version of the

SRA was published, updated versions of the text were constantly published on relevant agencies

website, and bondholders were informed of the on-going drafts. 100 Thirdly, Dogobah invited

bondholders (of which claimant was a part) to be consulted during the restructuring process.101

Finally, Claimant was placed on notice because they expressed interest, albeit late, to join the

committee, demonstrating that claimant was in fact aware of the restructure before it took

place.102

i. Dogobah’s Actions Were not Arbitrary

Tribunals have also emphasized that the prohibition against arbitrariness is an essential part to

the FET standard.103 A measure is manifestly arbitrary and therefore prohibited it “inflicts

damage on the investor without serving any legitimate purpose and without a rational

explanation”.104 In Enron v. Argentina, the court provided that “a finding of arbitrariness

requires that some important measure of impropriety is manifest.” The tribunal found that the

measures Argentina undertook in response to the 2000 to 2002 financial crisis were not

arbitrary.105 The tribunal reasoned that the Argentinean government’s actions were not arbitrary

because “the government believed and understood” that the measures were “the best response to

the unfolding crisis.”106

Dogobah’s actions were taken for a legitimate purpose, namely the resolution of a severe

financial crisis. The government believed that the SRA was the best response to the debt crisis

which was at hand. Like the governments in Enron v. Argentina Dogobah’s actions were not

98 Clarification No. 39 99 Appendix 4 100 Clarification No. 21 101 Clarification No. 35 102 Clarification No. 35 103 FAIR AND EQUITABLE TREATMENT UNCTAD Series on Issues in International Investment Agreements II available at http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf 104 Joseph C. Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 21 January 2010, para. 385.) 105 FAIR AND EQUITABLE TREATMENT UNCTAD Series on Issues in International Investment Agreements II available at http://unctad.org/en/Docs/unctaddiaeia2011d5_en.pdf 106 Enron v. Argentina, ICSID Case No. ARB/01/3, Award, 22 May 2007, paras. 281–283

motivated by inappropriate considerations, rather, they resulted from deliberate and reasoned

decisions to ameliorate the crisis the government was faced with while avoiding a further crisis.

Further, the IMF, the body in charge of facilitating international trade, not only agreed with

many Dagobah’s action, they actually recommended them. Accordingly, Dogobah did not breach

the fair and equitable treatment because it was transparent and took deliberate and appropriate

legal actions to solve its financial crisis.

i. Dogobah’s Adoption of a Collective Action Mechanism is not a

violation of the FET Standard Provided Under Article 2(2) of the BIT.

In 2012, the Greek government introduced retroactive aggregation clauses into their laws.107

These clauses allowed for majority creditors to make decisions on the terms of financial

exchanges which could be binding on minority creditors. 108 Not only did the IMF sanction the

actions of the Greek government, they explicitly recommend that European authorities use tools

to help them attain near-universal creditor participation including legislation of CAC’s in their

domestic law bonds.109 As it relates to the Greek financial crisis specifically, the IMF has

approved retroactive collection action clauses and stated that in order for Greece to move

forward, it would have to change its laws to makes sure that private bondholder’s claims were

restructured and that these require a statutory retroactive action clause.110 The IMF went on to

state that, although a retroactive collection action clause exchange offer would be painful, it

would be proportional and restrained in light of the circumstance in the euro-zone.111

Like the Greek government, Dogobah was in a severe financial crisis which it needed to

resolve quickly. They used CAC’s as a tool to protect the best interest of their bondholders.

Although the claimant did not agree with the CAC, they only make up 10 percent of the

outstanding shares. Dogobah could not be expected to satisfy the demands of a holdout minority

107 Alfaro, Laura., Sovereign Debt Restructuring: Evaluating the Impact of the Argentina Ruling. Harvard Business Law Review 27 (June 2014). 108 Id. 109 Under the Stand-By Arrangement, Rephasing and Request for Waivers of Nonobservance of Performance Criteria; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece, 31, 33 (Dec. 2011) available athttp://www.imf.org/external/pubs/ft/scr/2011/cr11351.pdf 110 Cotterill, Joseph The IMF’s Greek Sunk Cost (Dec. 16, 2014) available at http://ftalphaville.ft.com/2011/12/16/803631/the-imfs-greek-sunk-cost/ 111 Boudreau, Melissa A. Restructuring Sovereign Debt Under Local Law: Are Retrofit Collective Action Clauses Expropriatory?available at http://www.hblr.org/2012/05/retrofit-collective-action-clauses/#_ftn1

at the expense to the majority. Further, the CAC was fair, even those that were not obligated

under Dogobah’s laws to agree with the restructure did so.

Further, as a sovereign nation dealing with it macro-economic policies, Dogobah should be

given deference. In Dennis Grainger et al. v. United Kingdom, shareholders of Northern Rock

Bank filed suit before the European Court of Human Rights (“ECHR”).112 The shareholders

claimed that the British government breached ECHR Article 1 of Protocol No. 1 which states in

relevant part “every natural or legal person is entitled to the peaceful enjoyment of his

possessions,”113 depriving shareholders of compensation when the British authorities

nationalized the bank.114 The court dismissed the case and explained that the court should give

deference to government decisions in the context of macro-economic unless it finds them

“manifestly without reasonable foundation.”115

Here Dogobah is also dealing with its macro-economic policies and as such should be given

deference by an arbitral body. The CAC was enacted to alleviate the dire circumstances and

repay the bondholders as quickly as possible. Their actions have been sanctioned by the IMF, the

body in chard of dealing with the issues in this dispute, namely international trade. As such,

Dogobah’s behavior cannot be said not have been manifestly unreasonable.

II. IT IS THE SOVEREIGN RIGHT OF NATIONS TO TAKE ACTION IN SUPPORT OF

THEIR NATIONAL INTEREST.

Recovering from the financial crisis was a national security interest for Dagobah and it was

necessary for them to restructure their bonds in order to safeguard their essential secutity

interests. Under Article 25 of the Draft Article On State Responsibility, necessity may be

invoked only if it (a) Is the only way for a 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.116

112Dennis Grainger et al.v. United Kingdom ECtHR, 20 July 2012, Application No. 34940/10. 113 Id. at para. 28. 114 Id. 115 Id. at para. 39 116 Article 25 of the Draft Article On State Responsibility

The measure taken by Dagobah were taken in order to protect itself from grave and eminent

perils both on a financial level and on a social level. Dagobah was in a dire situation because its

national inflation rate had spiked, the unemployment rate was high. Dagobah was also faced with

several demonstrations and social unrest which erupted both in the capital and in other large

cities.

Dagobah acted in goodfaith to comply with article 6 of the BIT to regain access to the worlds

market. Article 6(2) prohibits the interpretation of the BIT in a matter which would “preclude a

Party from applying measures that are necessary for the fulfillment” or “the protection of its own

essential security interests.”117 Dagobah was not in a position in which it could have repaid the

original value of the bonds without furthering the national crisis.

Prayer for Relief

1. Soverign Bonds are Not Covered Investments 2. The PCA Decision is Not Binding 3. Yavinian Law Governs This Dispute 4. Dogobah’s debt restructuring measures do not amount to a breach of the fair and

equitable treatment standard. 5. Dogobah’s actions were in support of their essential national interest.

117 Appendix No. 1, Article 6(2) Agreement Between The Corellian Republic and The Federal Republic of Dogobah.