Team 129C

5TH NATIONAL LAW SCHOOL INTERNATIONAL ARBITRATION MOOT COURT COMPETITION, 2012

IN THE MATTER OF AN ARBITRATION AT, SOMALI CITY, DEMOCRATIC REPUBLIC OF CALONA

UNDER THE CALONA-NOLANIA BILATERAL INVESTMENT TREATY

Wayne Electronics.........................................................................................................Claimant

v.

Democratic Republic of Calona........................................................Respondent

(Arb/Cas/12/35)

MEMORANDUM for CLAIMANT

TABLE OF CONTENTS Table of Abbreviations .................................................................................................................... I Index of Authorities ...................................................................................................................... IV Statement of Jurisdiction............................................................................................................... XI Statement of Facts ........................................................................................................................ XII Questions Presented .....................................................................................................................XV Summary of Pleadings ............................................................................................................... XVI Arguments Advanced...................................................................................................................... 1 I. A. 1. 2. B. The tribunal has jurisdiction over all the claims brought before it. .................................... 1 Claimants undertaking amounts to an investment. ........................................................ 1 The investment by the Claimant is a foreign investment in the Respondent State. .. 1 The undertaking has the characteristics of an investment. ....................................... 2 An exclusive dispute resolution clause in the contract does not affect the Tribunals

jurisdiction. ............................................................................................................................. 3 1. The exclusive dispute resolution clause does not bar the Tribunals jurisdiction

under the BIT. ..................................................................................................................... 3 2. C. 1. The Tribunal may consider contractual claims to determine a violation of the BIT. 3 Contractual breaches of the Respondent State give rise to a violation of the BIT. ........ 4 There is a prima facie case of a BIT violation for the purposes of establishing

jurisdiction. ......................................................................................................................... 4 2. 3. 4. a. b. Article X of the BIT allows contractual breaches to be treated as treaty breaches. . 5 The impugned acts violate the National Treatment requirement. ............................. 6 The impugned acts violate the requirement for fair and equitable treatment. .......... 7 The Government of Calona did not maintain stability in the legal order. ............. 7 The Government of Calona did not comply with the contractual obligations. ..... 8

c. d. 5. D.

The Government did not observe due process in its actions. ................................ 8 The Government did not adhere to the principle of good faith. ............................ 9 The impugned acts violate the requirement for full protection and security. ......... 10

The jurisdiction of the Tribunal does not get affected even if there is a multi-tier

arbitration clause. .................................................................................................................. 10 E. I. The Tribunal has jurisdiction even if the contract is tainted with corruption. .............. 11 The actions of the government of Calona including the seizure of Wayne Calonas assets,

were a violation of the BIT. ...................................................................................................... 12 A. 1. 2. 3. a. The actions of the Government of Calona amount to expropriation. ........................... 12 There has been expropriation of Wayne Calonas assets........................................ 12 Avoidance of contract can lead to expropriation of contractual rights. .................. 12 The investors property has been indirectly expropriated....................................... 13 The measures are so severe in light of their purpose that they cannot be

reasonably viewed as having been adopted and applied in good faith. ........................ 14 b. B. 1. 2. II. A. The measure of the government was discriminatory. ......................................... 16

The expropriation by the Government of Calona is illegal. .......................................... 17 There was no payment of compensation. ................................................................ 18 Due process was not observed. ............................................................................... 18

The Respondent is not entitled to avoid the contract. ....................................................... 20 Respondent cannot avoid the contract on the ground of defect in alternatives provided,

as the same were in compliance of the contractual terms. .................................................... 20 1. 2. 3. 4. B. Variation to the terms of the original Contract was mutually agreed. .................... 20 The doctrine of substantial performance is applicable. .......................................... 21 The all best endeavours obligation has been fulfilled by the Claimant. .............. 21 A breach of a warranty does not give rise to a right of avoidance. ......................... 22 Claimant is not liable for the late delivery of the original consignment. ...................... 23

1. 2. C. 1. 2.

Late delivery of the original consignment was beyond Claimants control. .......... 23 Mere representation does not bind Claimant for misrepresentation. ...................... 24 Arguendo, the contract could not be avoided fully. ...................................................... 24 The contract cannot be fully avoided as it is divisible in nature. ............................ 24 The contract cannot be avoided fully as partial performance was accepted by the

Respondent. ....................................................................................................................... 25 D. The act of the Respondent was not in good faith with respect to Claimants

Performance. ......................................................................................................................... 25 1. 2. Respondent did not act in good faith. ..................................................................... 26 Evidence can be obtained from another private arbitration to prove the intention of

the Respondent. ................................................................................................................. 26 E. 1. Corruption cannot invalidate the contract and give rise to a right of avoidance. ......... 27 The Respondent cannot rely on the corrupt acts of its officials to escape

responsibility. .................................................................................................................... 27 2. 3. The Corruption charges were mere allegations. ..................................................... 28 Allowing avoidance based on corruption would be against the spirit of the BIT... 28

Prayer for Relief ............................................................................................................................ 29

TABLE OF ABBREVIATIONS / - Paragraph A.C./App. Cas. Appealed Cases A.L.R.- American Law Reporter APP.L.R- Arbitration, Practice & Procedure Law Reports AIR- All India Reporter All E.R.- All England Law Reports AM. J. Comp. L.- American Journal of Comparative Law ARB- Arbitration AJIL- American Journal of International Law BCLC- Butterworths Company Law Cases BIT- Bilateral Investment Treaty BYIL- British Yearbook of International Law C.A.- Court of Appeals C.L.R.- Commonwealth Law Reports Cal- Calcutta Ch.- Chancery CISG- Convention on International Sale of Goods Co.- Company Comm.- Commercial Corp.- Corporation [I]

D.Del.- District of Delaware E.R.- England Reports ECR- European Court Reports ed.,- Edition EHRR- European Human Rights Reports EWCA- England and Wales Court of Appeal EWHC- England and Wales High Court F.R.D.- Federal Rules Decisions FILJ- Fordham International Law Journal H.BI.- Henry Blackstone's Common Pleas Reports I.L.M.- International Legal Materials I.L.R.- International Law Reports IBA- International Bar Association ICJ- International Court of Justice ICSID- International Centre for Settlement of Investment Disputes ILM- International Legal Materials Iran- U.S. C.T.R.- Iran- United States Claims Tribunal Reports J Intl Arb- Journal of International Arbitration KB- Kings Bench LJQB- Law Journal Queen's Bench Ltd.- Limited

[II]

M & W- Meeson & Welsby's Reports NAFTA- North American Free Trade Agreement No.- Number OECD- Organization for Economic Cooperation and Development P & CT Property and Compensation Reports p.- Page PCIJ Rep- Permanent Court of International Justice Reports pp.- Pages Q.B.- Queens Bench R.I.A.A- Reports of International Arbitral Awards S.A.- South Africa. Sd/- Signed Tex. Intl L.J.- Texas International Law Journal UNCITRAL- United Nations Commission on International Trade Law UNCTAD- United Nations Conference on Trade and Development UNIDROIT- Institut International Pour L'Unification du Droit Prive v.- Versus Vol.- Volume

[III]

INDEX OF AUTHORITIES ICSID Cases 1. ADC Affiliate Ltd. v. Hungary, ICSID (W. Bank) Case No.ARB/03/16, Award, October 2, 2006................................................................................................................................. 6 2. AES Corp. v. Argentina, 12 ICSID Reports 312, Decision on Jurisdiction, 26 April 2005. ........................................................................................................................................... 10 3. Asian Agricultural Products Ltd. v. Republic of Sri Lanka, 30 I.L.M. 577 (1991). ......... 10 4. Azurix Corp. v. Argentine Republic, 43 I.L.M. 262 (2004) ................................................ 3 5. Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005 ................................................................................................................... 4 6. Biloune v. Ghana, (1993) 95 I.L.R. 183, 207 ................................................................... 12 7. Ceskoslovenska Obchodni Banka, S.A. v.The Slovak Republic (CSOB), 14 ICSID Review- FILJ (1999), .......................................................................................................... 2 8. CMS Gas Transmission Company v. Argentine Republic, 42 I.L.M. 788 (2003) .............. 4 9. Compania de Aguas del Aconquija S.A. and CompagnieGenerale des Eaux v. Argentine Republic, 41 I.L.M. 1135 (2002) ........................................................................................ 3 10. Compaiadel Desarrollo de Santa Elena, S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Award, 17 February 2000 ................................................................................................. 18 11. Emilio Agustn Maffezini v. Kingdom of Spain, 16 ICSID Rev.FILJ 212 (2001), .......... 4 12. Enron v. Argentina, 11 ICSID Reports 273, 14 January 2004 ........................................... 2 13. Eureko B.V. v. Republic of Poland, 12 ICSID Reports 335, 19 August 2005. ................... 7 14. Fedax N.V. (Netherlands Antilles) v. Republic of Venezuela (Fedax), 37 I.L.M. (1998) 1378,.................................................................................................................................... 2 15. Feldman v. Mexico, 18 ICSID Review-FILJ (2003) 488, Award, 16 December 2002 ...... 5 16. Feldman v. United Mexican States, ICSID, 42 I.L.M. 625 (2003); .................................. 18 17. GAMI v. Mexico, 44 I.L.M. 545 (2005), ............................................................................. 7 18. Genin v. Estonia, 17 ICSID Review FILJ (2002) 395, Award, 25 June 2001. ................... 9 19. Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on Liability, 2 September 1998 .............................................................................................. 16 20. Impreglio v. Pakistan, 12 ICSID Reports 245, Decision on Jurisdiction, 22 April 2005. .. 8 [IV]

21. Lauder v. Czech Republic, 9 ICSID Report 66, Award, 3 September 2001 ..................... 10 22. LG & E Energy Corp and ors v. Argentina, (2007) 46 I.L.M. 3. ....................................... 7 23. Loewen v. United States, 42 I.L.M. 811 (2003), ................................................................. 8 24. Metalclad v. United Mexican States, 40 I.L.M. 36 (2001). .............................................. 13 25. Methanex v. United States, 44 I.L.M. 1345 (2002)............................................................. 4 26. Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002. .................................................................... 15 27. MTD Equity SdnBhd and MTD Chile SA v. Republic of Chile, 44 I.L.M. 91 (2005), ........ 8 28. Noble Ventures v. Romania, ICSID Case No.ARB/01/11, Award, 12 October 2005 ........ 8 29. Pope & Talbot, Inc v. Canada, 40 I.L.M. 258 (2000) ........................................................ 6 30. Salini Construttori S.p.A. and ItalstradeS.p.A. v. Kingdom of Morocco, 42 I.L.M. 609 (2003) .................................................................................................................................. 2 31. Seimens v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3, 2004..................................................................................................................................... 7 32. SGS SocitGnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Rev. FILJ 301 (2003), ................................................................................................................. 4 33. SGS v. Philippines, 8 ICSID Reports (2005) 518, Decision on Jurisdiction, 29 January 2004..................................................................................................................................... 5 34. Siemens A.G. v. Argentina, ICSID Case No.ARB/02/08, Award, 6 February 2007, ....... 12 35. TECMED S.A. v. Mexico, (2003) 43 I.L.M. 133................................................................. 7 36. Tradex v. Albania, 5 ICSID Reports 70, Award, 29 April 1999......................................... 1 37. UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award , 24 May 2007 . 6 38. Waste Mgmt., Inc. v. Mexico, 43 I.L.M. 967 (2004) ........................................................... 9 39. Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No.ARB(AF)/98/4, Award, 8 December 2000. ............................................................................................................. 15 40. World Duty Free Company Limited v. the Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006. ................................................................................. 11 Court Cases 1. Baltic Shipping Co. v. Dhillon, (1993) 176 C.L.R. 344.................................................... 24 2. Behn v. Burness, (1863) 32 LJQB 204. ............................................................................ 22 [V]

3. Boone v. Eyre, (1779) 1 H.Bl. 273 .................................................................................... 20 4. Broom v. Davis, (1794) 7 East 480 ................................................................................... 20 5. Carter v. Boehm, (1766) 97 ER 1162. .............................................................................. 25 6. Chanter v. Hopkins (1838) 4 M & W 399 ........................................................................ 22 7. Dick Bentley Productions v. Harold Smith Motors, (1965) 2 All ER 65......................... 23 8. Emmott v. Michael Wilson and Partners,(2008) EWCA (Civ) 184 (C.A.). ..................... 26 9. Esso Australia Resources v. Plowman, 128 A.L.R. 391 (1995). ...................................... 26 10. Harling v. Eddy, (1951) 2 KB 739 .................................................................................... 23 11. Hauer v. Land Rheinland-Pfalz, [1979] E.C.R 2749 ,Case no. 44/79, 13 December 1979. ........................................................................................................................................... 15 12. Heilbut, Symons and Co. v. Buckleton , (1913) A.C. 30. ................................................. 23 13. James v. United Kingdom, (1986) 8 E.H.R.R. 123. .......................................................... 17 14. Juggilal Kamlapat v. NV International Credit-En-Handels, Vereeldging Rotterdam, AIR 1955 Cal 65. .............................................................................................................. 20 15. Oscar Chess v. William, (1957) 1 All ER 325 .................................................................. 23 16. Pips (Leisure Production) Ltd. v. Walton, [1980] 43 P & CR 415. .................................. 21 17. Press Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301. ............... 15 18. Rackham v. Peek Foods Limited, (1990) BCLC 895. ....................................................... 21 19. Rhodia International Holdings Limited v. Huntsman International LLC, (2007) EWHC 292 (Comm). ..................................................................................................................... 21 20. Scarf v. Jardine, (1882) 7 App Cas 345, 351.................................................................... 19 21. Sim v. Rotherham Metropolitan Borough Council, (1987) Ch. 216 ................................. 20 22. Steele v. Tardiani, (1946) 72 C.L.R. 386. ......................................................................... 24 23. Sumpter v. Hedges, (1898) 1 QB 673. .............................................................................. 24 24. United States v.Panhandle Eastern Corp., 118 F.R.D. 346 (D.Del.1998). ...................... 26 25. Wallis, Son and Wells v. Pratt and Hyanes (1910) 2 K.B. 1003 ...................................... 22 Other Tribunals 1. American Bell Intl, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986. ............ 12 2. Amoco Intl Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987. ................. 12 3. British Petroleum v. Libya, (1979) 53 ILR 297. ................................................................ 8 [VI]

4. British Petroleum v. Libya, (1979) 53 ILR 297. ............................................................... 19 5. de Sabla Claim (US v. Panama), (1933) 6 RIAA 358. ..................................................... 18 6. Greek Government v. VulkanWerke, (1925) 3 I.L.R. 402................................................... 3 7. Himpurna California Energy Limited (Bermuda) v. PT. (Persero) Perusahaan Listruik Negara, Final Award, 4 May 1999, (2000) XXV Yearbook of Commercial Arbitration. 27 8. Jalapa Jailroad and power Co, American- Mexican Claims Commission, 1948, 8 Whiteman, Digest of International Law 908 (1976). ........................................................ 12 9. Libyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R. 14....................................................................................................................................... 12 10. Metalclad Corp. v. United Mexican States, 40 I.L.M. 36 (2001) ..................................... 18 11. Mobil Oil v. Iran, 16 Iran- U.S. C.T.R. 3, July 14, I987................................................... 12 12. Neer v. Mexico, 4 R.I.A.A 60, (1926). ................................................................................ 9 13. Phelps Dodge Corp. and Overseas Private Investment Corp. and Iran, 10 Iran U.S. C.T.R. 157, 19 March 1986 .............................................................................................. 15 14. Phillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989 ................... 12 15. Pope & Talbot, Inc. (U.S.) v. Canada, 40 I.L.M. 258 (2000). .......................................... 18 16. S.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000) ...................................................... 15 17. Sea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; ................. 18 18. Sedco, Inc. v. Natl Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986....................................... 18 19. Shufedlt Claim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079 .......................................... 12 20. Singer Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4 R.I.A.A. 47. ....................................................................................................................... 13 21. Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June 1984................................................................................................................................... 14 22. UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award, 24 May 2007 .. 4 23. Westacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12. ........................................................................................................................................... 11

[VII]

Articles/Reports 1. A Parra, Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Instruments on Investment, (1997) 12 ICSID RevFILJ 287...................................................................................................... 5 2. A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of NonDiscrimination in International Law of Foreign Investment: An Overview, 8 J. Transnational Law & Policy, 57-59, 67-70. ..................................................................... 17 3. Charles S. Baldwin, Protecting Confidential and Proprietary Commercial Information in International Arbitration, 31 Tex. Intl L.J. 451,456 n.21 (1996). ................................... 26 4. Christoph H. Schreuer, Unjustified Enrichment in International law, 22 AM. J. Comp. L. 281, 1974........................................................................................................................... 18 5. F. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959). ........................................................................................................................................... 16 6. FA Mann, British Treaties for the Promotion and Protection of Investments, (1981) 52 BYIL 241, 245-6. ................................................................................................................. 5 7. G. C. Christie, What Constitute a Taking of Property under International Law?, BYIL, Vol. 38, 1962..................................................................................................................... 13 8. Glanville Williams, Partial Performance of the Entire Contracts, (1941) 57 Law Quarterly Review 373. ...................................................................................................... 20 9. J Karl, The Promotion and Protection of German Investment Abroad, (1996) 11 ICSID RevFILJ 1, 23. ................................................................................................................... 5 10. M Nash Leich, Contemporary Practice of the United States relating to International Bilateral Investment Treaties, (1990) 84 AJIL 895, 898. .................................................. 5 11. Marc Blessing, State Arbitrations: Predictably Unpredictable Solutions? presentation at 8th IBA International Arbitration Day Geneva, 18 March 2005, 22 J Intl Arb 435 (2005). ........................................................................................................................................... 27 12. Marc Jacob, International Investment Agreements and Human Rights, INEF Research Paper Series Human Rights, Corporate Responsibility And Sustainable Development 03/2010. .............................................................................................................................. 6

[VIII]

13. Raeschke Kessler, Corruption in Foreign Investment Contracts and Dispute Settlement between Investors, States and Agents, Journal of World Investment and Trade, Vol. 9, No.1................................................................................................................................... 28 14. Thomas Wlde & Kaj Hobr, The First Energy Charter Treaty Arbitral Award, Journal of International Arbitration, Vol. 22, 2005, p. 97. ........................................................... 13 Books 1. A. Reinisch, Legality of Expropriations, in A. Reinisch (ed. by), Standards of Investment Protection, Oxfrod, Oxford University Press, 2008 ....................................... 18 2. Alexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues of Enforcement, Reprinted from (2006) 72 Arbitration 329338 Sweet & Maxwell Limited. ........................................................................................................................................... 10 3. B. H. Weston, Community Regulation of Foreign-Wealth Deprivations: A Tentative Framework for Inquiry, in R. S. Miller and R. J. Stanger (eds. by), Essays on Expropriation, Ohio State University Press, 1967,........................................................... 17 4. Beatson and Friedmann, Good Faith and Fault in Contract Law, Clarendon Press, 1995. ........................................................................................................................................... 25 5. Halsburys Law of England, Fourth Edition, Butterworths Lexis Nexis, London 2002. . 22 6. I Shihata, Applicable Law in International Arbitration: Specific Aspects in the Case of the Involvement of State Parties, in The World Bank in a Changing World (1995) vol. II, 595, 601............................................................................................................................... 5 7. Ian Brownlie, Principles of Public International Law, 5th Edition., Oxford University Press, 1998 ........................................................................................................................ 18 8. J.Beatson, Ansons Law of Contract, 28th edition, Oxford University Press, 2002. ......... 19 9. JF OConnor, Good Faith in International Law, Aldershot, Dartmouth, 1991 .................. 8 10. JoernRimke, Force Majeure and Hardship: Application in international trade practice with specific regard to CISG and the UNDROIT principles of international commercial contracts Pace review on the Convention on Contracts for International sale of goods, Kluwer, 1999-2000, 197-243. ........................................................................................... 23

[IX]

11. Paul E Comeaux and N. Stephan Kinsella, Protecting Foreign Investment under International Law: Legal Aspects of Political Risk, Dobbs Ferry, New York, Oceana, 1997................................................................................................................................... 27 12. Peter Mulchinski, Fedrico Ortino&Christoph Shreuer, The Oxford Handbook of International Investment Law, Oxford University Press, New York, 2008........................ 6 13. R Dolzer& M Stevens, Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995 5 14. Rudolf Dolzer, The Impact of International Investmenton Domestic Administrative Law, International Law and Politics, Vol. 37:953, November 2006. ......................................... 7 ICJ Cases 1. Anglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116 9 2. Case Concerning Electronica SiculaSpA (ELSI), (United States of America v. Italy), (1987) ICJ Reports 3 ........................................................................................................... 9 3. Case Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6......... 8 4. German Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No. 7, 25 May 1926. ................................................................................................................ 16

Miscellaneous 1. OECD, Draft Convention on the Protection of Foreign Property, 1967....18 2. UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6..5 3. OECD, Benchmark Definition for Foreign Direct Investment, 1999..4

[X]

STATEMENT OF JURISDICTION

Wayne Electronics, the Claimant in the instant case, has invoked the jurisdiction of this Tribunal flowing from Article XIII of the Treaty Concerning the Encouragement and Reciprocal Protection of Investment September 4, 1998 which states that: Any dispute in connection with this agreement shall be resolved by arbitration as is appropriate for such disputes, in accordance with the Arbitration Rules prescribed herein. Claimant has the honour to submit this Statement of Claim pursuant to Article 18 of the International Arbitration Rules under Article XIII of the Treaty Concerning the Encouragement and Reciprocal Protection of Investment (September 4, 1998) between the Democratic Republic of Calona and the Kingdom of Nolania

[XI]

STATEMENT OF FACTS I Democratic Republic of Calona after independence opted to constitute itself as a socialist State. Faced with economic crisis however, Calona became a free market economy and entered into several Bilateral Investment Treaties, one with the neighbouring country of Nolania. The new economic policy attracted, highly profitable but risky destination for their investments, the latter being very substantial because of the systemic failures in the justice delivery mechanism in Calonian Supreme Court where cases have a huge backlog. II In 1998, Calona and Nolania entered into a BIT to encourage investments between two states. In 2008, Calona won the bid to host the 15th edition of the Global Peace Games in 2011. In order to improve its infrastructure before the Games, the Government of Calona entered into several contracts with leading global companies. One such contract was with Wayne Electronics which was one of the most prominent suppliers of generators in the region in addition to other electronic equipments. III The contract was for the supply of 50 high-power generators and 25000 high-power capacitors for use in the new floodlight system at the main stadium, Champs National Stadium where the Games where to take place. Unfortunately, customized capacitors were not produced by Wayne Enterprises or their subsidiary, Wayne Calona. The contract contained a clause permitting Wayne Enterprises to procure goods from another sub-supplier in case of capacitors. The contract between the two parties came into effect on January 1, 2010. Companies The Government indicated that the Stadium had to be completed by the December 30, 2010 and therefore, timely delivery of both parts of the consignment was essential, Stadium by the authorities. IV

[XII]

Wayne decided to procure the individual capacitors required from Star Technologies Pvt. Ltd., a company incorporated in Nolania. The Communist Party of Calona however alleged that Wayne Enterprises had given bribes to obtain the contract, a claim that died down due to lack of public support. Wayne Enterprises completed the first delivery of 50 high-power generators to Calona on June 30, 2010. Conversely though, two of the generators supplied by Wayne Electronics proved insufficient, on testing, to handle the load of providing power to a section of the stadium. After negotiations were held between both the parties and a settlement agreement was signed, it was stipulated that Wayne Electronics would deliver two new generators as replacements on or before July 25, 2010. The above replacement was done on July 22, 2010 and the replacements tested successfully. Also a dispute resolution clause was added in the agreement if further differences were to crop up. V On October 15, Star Technologies intimated Wayne Enterprises, about an expected delay of around 20 days due to unavoidable manufacturing issues which was informed immediately to the Ministry of Sports, Calona, However Wayne Enterprises did not receive any reply to this. The Ministry of Sports, Calona by an email dated November 13, 2010, sought an update on the status of delivery. To Waynes reminder of the earlier intimation regarding a delay in the delivery, the Ministry of Sports reiterated the essentiality of timely delivery and asked Wayne to find suitable alternatives. Wayne provided the alternative option of standard capacitors generally used in floodlights, that which did not adhere to the exact specifications of the contract, but which could be manufactured by Waynes subsidiary in Calona and sent within 15 days. The same was accepted by the Ministry of Sports as the capacitors would reach by early-December. VI Unfortunately, this arrangement proved to be a let-down for Wayne Electronics as on being tested, there were substantial indications that the capacitors would be unable to handle the load of the floodlights in the Stadium. The Ministry of Sports, frustrated by the abrupt change of events, entered into talks to acquire low quality capacitors from a local manufacturer on December 4, 2010 which were compliant with the requirement of the floodlights at the Champs Stadium. Owing to a substantially huge effort, the stadium lighting was finally completed on [XIII]

December 30, 2010. This came as a jolt for Wayne Enterprises, as the required installation time indicated to them was much longer. In order to take legal action, Ms. Sersee Lanning, the legal counsel for the company, began flexing her resources to gain knowledge of all relevant documents of the transaction VII One of Waynes subsidiaries, Nakamuka Lighting Solutions (NLS), was involved in providing customized light bulbs to the Government of Calona, for the construction of the Champs National Stadium. During the course of proceedings, on 15th November, 2010, between the Government and NLS, the former permitted NLS to deliver late, as it did not expect the delivery of the capacitors by Wayne Enterprises on the expected date of 28th November, 2010. However the government stated in reply that no such communication was made to Wayne Enterprises. Subsequently the Government voiced their displeasure with regards to Waynes performance and stated that the contract was terminated with immediate effect because of failure to deliver the capacitors on time. VIII On 20th January, 2011, owing to the inability of Wayne to deliver the capacitors and linking it to incompetence, CCP raised the issue of bribery again. Under public demands the Special Prosecutor appointed by Calonas Special Bureau of Investigation (SBI), filed criminal charges against Wayne Enterprises and its subsidiaries, under the Calonian Prevention of Corruption Act (CPCA). The Special Prosecutor filed an application seeking an order for the freezing of Wayne Calonas properties under the CPCA. The lower court granted the application, and the SBI immediately seized all assets of Wayne Calona, including their factory and bank accounts, valued approximately at $22 million and appeal against the order was dismissed by both Courts of Appeal and the Supreme Court. Wayne Calona on 25th January, 2011, issued a statement condemning the actions of the Government. Owing to the seizure of its assets in Calona and the refusal of the Government to pay the purchase price as per the contract, Wayne Enterprises has approached this Arbitral Tribunal, validly constituted under the BIT.

[XIV]

QUESTIONS PRESENTED

I.

WHETHER THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE
IT?

II.

WHETHER THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE

OF WAYNE CALONAS ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT?

III.

WHETHER THE RESPONDENT IS ENTITLED TO AVOID THE CONTRACT?

[XV]

SUMMARY OF PLEADINGS

I.

THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.

The Tribunal has complete jurisdiction over all the claims brought before it. There is an investment on the part of the Claimant as under the BIT as it is foreign in origin and has the characteristics of an investment as under the BIT and established arbitral practice. An exclusive dispute resolution clause in the contract does not affect the Tribunals jurisdiction, as it cannot operate as a bar to the application of a BIT. The Tribunals jurisdiction cannot be subordinated by a clause in the contract. Furthermore, a Tribunal may consider issues based on contractual performance to determine an allegation of whether there has been a violation of a BIT. Contractual breaches of the Respondent State give rise to a violation the BIT. There is a prima facie case of BIT violation, which is sufficient for establishing the Tribunals jurisdiction. The Respondent State failed to meet the standards of National Treatment as it accorded to its local company differential treatment from that which it accorded to the Claimant. The acts also violate the principles of fair and equitable treatment. In this regard, the government of Calona did not maintain stability in its legal order. Although there were allegations of corruption from the beginning the Claimant had the support of the Government in the beginning. However with public support shifting the Government used unfair expropriation on grounds of criminal charges as a tool. The Respondent State did not comply with contractual obligations and the reasons adduced for the Governments failure to pay show that they acted in sovereign capacity and not merely as an ordinary contracting party. The Government did not observe due process in its actions as there was no fair and effective system of justice provided to the foreign investor. The Respondent State also did not adhere to the principle of good faith based on local favouritism and a lack of honesty and loyalty. The impugned acts violate the requirement of full protection and security because the Government failed to provide adequate guarantee for all losses suffered by the investor.

[XVI]

Article X of the BIT allows contractual breaches to be treated as treaty breaches. It therefore has the effect of an umbrella clause which makes it a breach of treaty, whenever there is a noncompliance of contractual obligations by any of the parties. The jurisdiction of the Tribunal does not get affected even if there is a Multi-Tier Arbitration Clause between the parties. Such a clause cannot restrict the jurisdiction of a Tribunal constituted under the BIT between the two nations. The Tribunal has jurisdiction even if the contract is tainted with corruption because even if expropriation by the Government is justified on the grounds of corruption on the part of the Claimant, such an allegation does not have the effect of precluding the jurisdiction of this Tribunal. II.
THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE SEIZURE OF

WAYNE CALONAS ASSETS, WERE A VIOLATION OF THE CALONA-NOLANIA BIT. The Claimant contends that the actions of the Government of Calona violate the BIT. This is because the actions of the Government amount to expropriation which is illegal under the BIT. There has been an expropriation of Waynes assets including the factory, bank accounts. Further, the avoidance of the contract has led to expropriation of the contractual rights since the State has acted as a sovereign and expropriated their assets on charges of corruption. A contract tainted by corruption can be declared to be invalid. Hence, this measure has been taken by the Government mala fide in order to avoid the contract and make no payments under it. The expropriation is an indirect expropriation because the measures were so severe in light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith. This is due to the reason that the measure is not aimed at protecting bona fide public welfare because the government has exercised their right of seizure for mostly out of political pressure. Moreover, the intensity of the measure has led to substantial deprivation of Wayne Calonas property. since, there is a systematic failure of justice in Calona, by the time the matter would be resolved, they would suffer substantial economic loss. The seizure of assets and freezing of properties of Wayne Calona resulted in a devastating economic effectdepriving it of approximately $22 million. Moreover, their contractual rights were expropriated causing them a further loss of $2 million. There must also be proportionality between the means employed and [XVII]

the aim sought to be realised by any measure depriving the person of his possession. Therefore, the measure is not proportional. Furthermore, they are discriminatory measures. Due to the fact that the local manufacturer got benefitted, when the contract was illegally avoided by the Government and also because the expropriation was done for purely extraneous political reasons, the measure is arbitrary and discriminatory. When expropriation is in breach of contractual or treaty obligations, it has to be considered illegal. In the present case, Article VI of the BIT states that investments made by nationals of one Contracting Party shall not be expropriated by the other Contracting Party, either directly or indirectly, except in such circumstances where the expropriation would be legal under international law. Under customary international law, for an expropriation to be legal, it has to be for a public purpose, non-discriminatory, compensation must be granted, and due process must be observed. Public purpose means general welfare, public utility, public good or anything that is of vital public interest. Even if a regulation is enacted for a public purpose, this prong of the expropriation test does not trump the requirement that compensation be rendered to foreign investors where government regulation has damaged the investment. Due process has not been observed while freezing the assets as an interim measure, as they would evidently remain frozen for a very long time because of the huge backlog in Calonian Courts. Also, Wayne Calonas property was seized immediately after the order passed by the lower court without any serving of notice. Therefore, in the present instance, none of the requirements have been fulfilled so the expropriation of the assets and property was illegal under the BIT. III. THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.

Claimants performance of contract to provide alternatives was in pursuance of varied terms of contract mutually agreed upon by the parties and the same was substantially, if not precisely, performed by the Claimant. The delay in the supply of the original consignment was due the unavoidable manufacturing issues which were beyond the control of either of the parties and the risk of such an event was not assumed by the parties at the time of entering into contract. Moreover, the Respondent agreed to the late delivery of supply of goods by remaining silent. The Respondent cannot avoid the contract as a whole as the same was divided into two consignments of which the first consignment was delivered without any issues arising out of it. The Respondent cannot claim the contract as being void because of been procured through [XVIII]

bribery since State in general must meet its obligations as a contractual party despite the corrupt activities of its officials. The Respondents argument for making the contract void on the ground of corruption may impede, with serious effect, the treaty signed between both the countries as it contradicts the host states obligation of protecting investments. For the above reasons, the respondent, the Government of Calona, cannot avoid the contract and hence make the payment as required.

[XIX]

ARGUMENTS ADVANCED

I.

THE TRIBUNAL HAS JURISDICTION OVER ALL THE CLAIMS BROUGHT BEFORE IT.

Claimant contends that the Tribunal has jurisdiction over all the claims brought before it as there is an investment on the part of the Claimant [A] and the tribunals jurisdiction is not affected by the exclusive dispute resolution clause in the contract [B]. Further, contractual breaches lead to violation of the BIT [C]. Even if, there is a Multi-Tier Arbitration Clause in the contract, the Tribunals jurisdiction remains unaffected [D]. Finally, the Tribunal has jurisdiction even if the contract is tainted with corruption [E]. A. Claimants undertaking amounts to an investment. Claimant asserts that there has been an investment on its part under the definition contained in the Treaty Concerning the Encouragement and Reciprocal Protection of Investment (BIT). 1 The investment in the Respondent State by the Claimant is a foreign investment [1] and it has the characteristics of an investment [2]. 1. The investment by the Claimant is a foreign investment in the Respondent State. The Claimants investment is a foreign investment in the Respondent State as it is controlled by a foreign investor (the Claimant), incorporated in Nolania.2 There is no additional requirement of foreignness for the investment in terms of its origin.3 Hence the undertaking by the Claimant in the Respondent State is a foreign undertaking. Direct investors may have direct investment enterprises which have subsidiaries, associates and branches in one country or in several countries.4 Hence, the Claimant which has a subsidiary, Wayne Calona, is the investor.

Problem File, Annexure 1. Problem File, 7. Tradex v. Albania, 5 ICSID Reports 70, Award, 29 April 1999, 105, 108-111. OECD, Benchmark Definition for Foreign Direct Investment, 1999.

[1]

2. The undertaking has the characteristics of an investment. The undertaking of the Claimant has the characteristics of an investment as required under the BIT.5 It involved the commitment of capital and resources as the Claimant did commit a substantial capital for purchasing products from Star Technologies and allocate resources for the same to deliver the capacitors to the Government for the construction of the stadium. 6 There was an expectation of gain and profit in the transaction as well as the assumption of risk in case of failing to deliver the goods. Also, applying the Salini7 test to determine whether an undertaking is an investment, there was certain duration of the project, which was till the Games and a contribution to the host states development, as the Games were to go a long way in enhancing the image of the Respondent state.8 Even if the particular undertaking of the Claimant does not meet the traditional notion of investment, it will nevertheless fall within this category using new, wider interpretation as has been illustrated by the Fedax 9and CSOB10 cases. The Tribunals held that an investment is often a complex operation composed of various inter-related transactions. Each element of these, standing alone, might not qualify to be an investment. However, if the particular transaction forms an integral part of an overall operation when the facts are considered in totality, it qualifies as an investment.11 Using this logic, in the present case the undertaking of the Claimant when looked at in toto does qualify as an investment. In this case, the contract and the investment are so intrinsically linked, that the contractual performance in procuring and delivering the

Problem File, Annexure 1. Problem File, 11, 12.

Salini Construttori S.p.A. and ItalstradeS.p.A. v. Kingdom of Morocco, 42 I.L.M. 609 (2003) (Salini), Decision on Jurisdiction, 23 July 2003.
8

Problem File, 10.

Fedax N.V. (Netherlands Antilles) v. Republic of Venezuela (Fedax), 37 I.L.M. (1998) 1378, Decision on Jurisdiction, 11 July 1997.
10

Ceskoslovenska Obchodni Banka, S.A. v.The Slovak Republic (CSOB), 14 ICSID Review- FILJ (1999), Decision on Jurisdiction, 24 May 1999.
11

Id at 72; Enron v. Argentina, 11 ICSID Reports 273, 14 January 2004, 70.

[2]

capacitors, when considered together, makes the contract an investment. Hence there is an investment on part of the Claimant. B. An exclusive dispute resolution clause in the contract does not affect the Tribunals jurisdiction. An exclusive dispute resolution clause in a contract cannot operate as a bar to the application of the BIT [1] and the Tribunal may consider contractual claims while determining a violation of the BIT [2]. 1. The exclusive dispute resolution clause does not bar the Tribunals jurisdiction under the BIT. Contractual dispute resolution clauses do not affect the jurisdiction of Tribunals constituted for violations of the BIT.12 A State cannot rely on an exclusive jurisdictional clause in a contract to avoid the characterization of its conduct as internationally unlawful under a treaty. 13 Therefore the forum selection clause of the Contract between the Claimant and the Respondent State14 does not affect this Tribunals jurisdiction to hear matters which relate to the BIT. In the event of prima facie overlap of the jurisdiction of the two forums, (contract and the BIT) the jurisdiction of the tribunal constituted under the BIT must prevail, as its jurisdiction is wider than that of the jurisdiction of the forum under the contract.15 2. The Tribunal may consider contractual claims to determine a violation of the BIT. Claimant maintains that the Tribunal may consider contractual issues in determining claims based on a BIT despite the fact that contract claims and treaty claims have different legal bases. A particular investment dispute may at the same time involve issues of the interpretation and

12

Azurix Corp. v. Argentine Republic, 43 I.L.M. 262 (2004) (Azurix), Decision on Jurisdiction, December 8, 2003.

13

Compania de Aguas del Aconquija S.A. and CompagnieGenerale des Eaux v. Argentine Republic, 41 I.L.M. 1135 (2002), 95,96,101,103 (Compania), Decision on Annulment, 3 July 2002.
14

Problem File, Annexure 7, Clause 4. Greek Government v. VulkanWerke, (1925) 3 I.L.R. 402.

15

[3]

application of BIT standards as well as questions of a contract.16 It is proper and often necessary for a Tribunal to interpret a contract and consider issues of contractual performance in accordance to the relevant law governing the contract. This can be in order to determine whether there has been a violation of international law under the BIT, and its jurisdiction allows it to resolve an underlying contractual issue for the same.17 C. Contractual breaches of the Respondent State give rise to a violation of the BIT. Claimant argues that the violation of contractual obligations by the Respondent State lead to a violation of the BIT. The Claimant maintains that the Tribunal in this case needs only to be satisfied that if the facts or the contentions alleged by the Claimant are ultimately proven true, they would be capable of constituting a violation of the BIT [1]. Further, Article X of the BIT allows contractual breaches to be treated as treaty breaches [2]. In the present case, the governmental acts violate the provisions of the BIT regarding national treatment [3], fair and equitable treatment [4] and full protection and security [5]. 1. There is a prima facie case of a BIT violation for the purposes of establishing jurisdiction. The prima facie test applied in UPS v. Canada18 and the assumption relied upon in Methanex v. United States19 shoes that, for the limited purpose of determining jurisdiction, the Claimants factual contentions are prima facie deemed to be correct. The prima facie test has also been applied in a number of ICSID cases, including Maffezini,20 CMS,21 Azurix,22 SGS v. Pakistan23

16

Compania, Supra n.13, 60,72,76. Bayindir v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005, at 270. UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award, 24 May 2007, 83. Methanex v. United States, 44 I.L.M. 1345 (2002).

17

18

19

20

Emilio Agustn Maffezini v. Kingdom of Spain, 16 ICSID Rev.FILJ 212 (2001), Decision on Objections to Jurisdiction, January 25, 2000.
21

CMS Gas Transmission Company v. Argentine Republic, 42 I.L.M. 788 (2003), Decision on Jurisdiction, July 17, 2003.
22

Supra n.12.

[4]

and Salini v. Morocco.24 Hence the Tribunal should prima facie accept the Claimants contentions that the actions of the Respondent State lead to a violation of the BIT. 2. Article X of the BIT allows contractual breaches to be treated as treaty breaches. Claimant maintains that Article X of the BIT which is an umbrella clause, makes contractual breaches, breaches of the BIT. Article X is a provision that guarantees the observation of obligations assumed by the host state vis--vis the investor. This provision must be interpreted broadly to mean that the implication of such a clause is to convert a breach of contract to a breach of treaty. Such a broad interpretation has been supported by Joachim Karl,25 Ibrahim Shihata,26 F.A. Mann,27 M. Nash Leich,28 Dolzer and Stevens,29 Antonio Parra30 and an UNCTAD publication of 1998 on BIT practice.31 Such an interpretation is in consonance with Article 31 of the Vienna Convention on the Law of Treaties, which requires an interpretation in good faith of the particular clause of the treaty. The object and purpose rule in the Article also supports such an interpretation.32 Here an interpretation that interprets the clause in exclusive favour of the investors is justified. Any other interpretation would deprive Article X of practical

23

SGS Socit Gnrale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Rev. FILJ 301 (2003), Decision on Objections to Jurisdiction, August 6, 2003.
24

Supra n.8. J Karl, The Promotion and Protection of German Investment Abroad, (1996) 11 ICSID RevFILJ 1, 23.

25

26

I Shihata, Applicable Law in International Arbitration: Specific Aspects in the Case of the Involvement of State Parties, in The World Bank in a Changing World (1995) vol. II, 595, 601.
27

FA Mann, British Treaties for the Promotion and Protection of Investments, (1981) 52 BYIL 241, 245-6.

28

M Nash Leich, Contemporary Practice of the United States relating to International Bilateral Investment Treaties, (1990) 84 AJIL 895, 898.
29

R Dolzer& M Stevens, Bilateral Investment Treaties, Martinus Nijhoff Publishers, 1995, p. 81-2.

30

A Parra, Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Instruments on Invest ment, (1997) 12 ICSID RevFILJ 287.
31

UNCTAD, Bilateral Investment Treaties in the mid-1990s (Geneva, 1998) 54-6. SGS v. Philippines, 8 ICSID Reports (2005) 518, Decision on Jurisdiction, 29 January 2004.

32

[5]

content and reference has necessarily to be made to the principle of effectiveness in interpreting BIT provisions.33 3. The impugned acts violate the National Treatment requirement. National treatment refers to the post-entry treatment of foreign investors.34The relative standard of national treatment ensures that foreign investors are not treated less favourably35 than domestic investors36 so that they are not singled out.37 Determination of the violation of this standard is done in three stages, (1) identification of the relevant subjects for comparison; (2) consideration of the relative treatment each comparator receives and (3) consideration of whether any factors exist that justify any deviation in the treatment. 38 The comparison should be made between the claimant or its investment and any other domestic investors or investments operating in the same business or economic sector.39 The relevant subjects for comparison are Wayne Calona and the local manufacturer. 40The treatment that Wayne Calona received by the government shows that the installation date given to them was 28th November 2010, whereas they requested for an extension till 18th December 2010. The Government however treated the local manufacturer differently by allowing them an installation date of 18th December 2010. This was much more than that given to Wayne Calona.41No factors justified such a difference in treatment because they did not have a better manufacturing quality.42 Therefore, the local manufacturer was treated more favourably.

33

Feldman v. Mexico, 18 ICSID Review-FILJ (2003) 488, Award, 16 December 2002, 171.

34

Problem File, Annexure 1, Article IV; Peter Mulchinski, Fedrico Ortino&Christoph Shreuer, The Oxford Handbook of International Investment Law, Oxford University Press, New York, 2008.
35

UPS v. Canada, UNCITRAL Arbitration Proceedings (NAFTA) Award , 24 May 2007, 83.

36

Marc Jacob, International Investment Agreements and Human Rights, INEF Research Paper Series Human Rights, Corporate Responsibility And Sustainable Development 03/2010.
37

ADC Affiliate Ltd. v. Hungary, ICSID (W. Bank) Case No.ARB/03/16, Award, October 2, 2006. Pope & Talbot, Inc v. Canada, 40 I.L.M. 258 (2000), . 96-98. Id. Problem File, 19. Problem File, 20.

38

39

40

41

[6]

Moreover there was a discriminatory intent43 of the Government because the Government treated Wayne Calona less favourably than the local manufacturer in like circumstances44 as the latter was given a substantially greater installation time.45 4. The impugned acts violate the requirement for fair and equitable treatment. The requirement of fair and equitable treatment46 has been defined as the good faith principle under which foreign investors expect the host State to act in a consistent manner without arbitrarily revoking any pre-existing decisions.47 Some of the contexts in which the standard has been applied concern compliance with stability [a], contractual obligations [b], due process and action in good faith [c].48 a. The Government of Calona did not maintain stability in the legal order. Stability of the legal and business framework in the State party is an essential element of fair and equitable treatment.49 In the present matter, at the time of the signing of the BIT, the investors had the support of the Government, even though there were allegations of corruption right from the beginning.50 Now, with the public support shifting towards the Communist Party of Calona, the Government thought is wise and tactical to expropriate on the pretext of seizure for criminal charges,51 thus disturbing the stability in their legal stand and policy and disappointing the

42

Problem File, 19.

43

Seimens v. Argentina, ICSID Case No. ARB/02/8, Decision on Jurisdiction, August 3, 2004; Eureko B.V. v. Republic of Poland, 12 ICSID Reports 335, 19 August 2005.
44

Supra n.31. Problem File, 20. Problem File, Annexure 1, Article V. TECMED S.A. v. Mexico, (2003) 43 I.L.M. 133, 122

45

46

47

48

Rudolf Dolzer, The Impact of International Investmenton Domestic Administrative Law, International Law and Politics, Vol. 37:953, November 2006.
49

LG & E Energy Corp and ors v. Argentina, (2007) 46 I.L.M. 3. Problem File, 26. Problem File, 25.

50

51

[7]

legitimate investor expectation.52 Where the investor has relied on the representations of the government and taken an action based on that, the legitimate investor expectations play a crucial factor in determining whether violation of the fair and equitable standard has taken place. 53 State responsibility could attach where the investor has placed detrimental reliance upon legitimate expectation.54 The statements by the Finance Ministers of both States during the signing of the BIT about ensuring easier flow of trade;55 the statement by the Prime Minister Neer Venkatstation about attracting foreign investment56 were relied upon by Wayne Enterprises who invested in Calona with expectations of profit, but was let down by these acts of the Government. b. The Government of Calona did not comply with the contractual obligations. The obligation to observe contractual obligations towards the investor is covered under this standard because pacta sunt servanda is an obvious application of the stability standard.57 The reasons adduced for the Governments refusal to make payment under the contract indicate that the Government did not act puissance publique, i.e., the activity were not within that of an ordinary contracting party.58 Therefore, the Respondents failure to perform its contractual obligations leads to violation of this standard.59 c. The Government did not observe due process in its actions. The due process requirement imposes an obligation on States to maintain and make available to aliens a fair and effective system of justice60 including reasonable advance notice and a fair

52

GAMI v. Mexico, 44 I.L.M. 545 (2005), Award, 16 December 2004, 93. MTD Equity SdnBhd and MTD Chile SA v. Republic of Chile, 44 I.L.M. 91 (2005), Final Award, 25 May 2004.

53

54

Case Concerning the Temple of PreahVihear (Cambodia v. Thailand) 1962 I.C.J.6 (I.C.J Report (Merits); JF OConnor, Good Faith in International Law, Aldershot, Dartmouth, 1991, at 92-3.
55

Problem File, 4. Problem File, 5. Noble Ventures v. Romania, ICSID Case No.ARB/01/11, Award, 12 October 2005, 182. Impreglio v. Pakistan, 12 ICSID Reports 245, Decision on Jurisdiction, 22 April 2005. Infra, Arguments Advanced, II. Loewen v. United States, 42 I.L.M. 811 (2003), Award, 26 June 2003.

56

57

58

59

60

[8]

hearing before an impartial adjudicator.61 This principle can be violated if the conduct of the host state is outrageous and shocks the legal conscience,62 or if it is grossly unjust.63In the present case, the independent report by a reputed consultancy firm estimated that a criminal case in Calonian courts would take between 6 to 8 years to conclude and would involve another 3 to 4 years for appeals.64 Therefore, since the justice system available does not ensure effective remedy, the due process requirement has been violated. d. The Government did not adhere to the principle of good faith. The principle of good faith requires that every right be exercised with honesty and loyalty.65 Any fictitious exercise of right, based on local favouritism,66 for the purpose of evading either a rule of law or a contractual obligation will constitute an abuse of the right prohibited by law. 67 First, the Government had given additional installation time to the local manufacturer.68 Next, the Government of Calona had made a sudden statement that they would not be making the payment.69 Then the seizure occurred after the public support shifted towards the Communist Party of Calona.70 Hence, all these facts go on to show that the Government had not acted bona fide as is indicated by their sudden change in their policy.

61

Supra n.35; British Petroleum v. Libya, (1979) 53 ILR 297. Neer v. Mexico, 4 R.I.A.A 60, (1926). Waste Mgmt., Inc. v. Mexico, 43 I.L.M. 967 (2004) 171, 175. Problem File, 3. Genin v. Estonia, 17 ICSID Review FILJ (2002) 395, Award, 25 June 2001. Supra, n.17. Anglo Norwegian Fisheries Case (United Kingdom v. Norway), (1951) ICJ Reports 116. Problem File, 19. Problem File, 22. Problem File, 24.

62

63

64

65

66

67

68

69

70

[9]

5. The impugned acts violate the requirement for full protection and security. Full protection and security71 means that the government would provide the investor with a guarantee against all losses suffered due to the destruction of the investment for whatever reason and without any need to establish who the person that caused the damage was. 72 It also includes legal security which entails the duty of the host state to grant the investor access to judicial system.73 Denial of effective means of asserting claims and enforcing rights in the Respondent State violates the requirement of full protection and security.74 In the present case, however, the judicial system is such that it does not ensure the investor effective remedy.75 D. The jurisdiction of the Tribunal does not get affected even if there is a multi-tier arbitration clause. Even if clause 4 in the Agreement signed on July 6, 2010 between Wayne Electronics and Ministry of Sports, Government of Calona (contract)76, is a multi-tier arbitration clause, the jurisdiction of this Tribunal does not get affected with respect to the claims involving the contract. Failure to comply with pre-arbitral stages does not exclude the Tribunals jurisdiction. By the arbitration agreement, the parties mutually granted this authority to a tribunal and excluded state courts. To argue that this choice is contingent on certain pre-arbitral steps would imply that failure to take them would allow a party to withdraw from its commitment to arbitrate, which cannot be the case.77 It has been also held that ICSID jurisdiction would not be subordinated by any requirement of prior exhaustion of local negotiations.78

71

Case Concerning Electronica Sicula SpA (ELSI), (United States of America v. Italy), (1987) ICJ Reports 3 Asian Agricultural Products Ltd. v. Republic of Sri Lanka, 30 I.L.M. 577 (1991). Lauder v. Czech Republic, 9 ICSID Report 66, Award, 3 September 2001, 314. at

72

73

74

White Industries Australia Limited v. Republic of India, Final Award, available http://ilcurry.files.wordpress.com/2012/02/white-industries-award-ilcurry.pdf, Last Visited on 14 March, 2012.
75

Problem File, 3. Problem File, Annexure 7, Clause 4

76

77

Alexander Jollies, Consequences of Multi-Tier Arbitration Clauses : Issues of Enforcement, Reprinted from (2006) 72 Arbitration 329338 Sweet & Maxwell Limited.
78

AES Corp. v. Argentina, 12 ICSID Reports 312, Decision on Jurisdiction, 26 April 2005.

[10]

E. The Tribunal has jurisdiction even if the contract is tainted with corruption. A contract tainted by corruption remains a commercial contract and is therefore referable to arbitration.79 Previous tribunals have retained jurisdiction even when the contract had questions of bribery.80 This is also the arbitral practice which deals with contractual cases as commercial disputes even if corruption is involved. In this case the Claimant was charged with corruption under the Calonian Prevention of Corruption Act by the Special Bureau of Investigation on grounds of incompetence in delivering the capacitors on time, as under the contract. 81 However, as has been proved, the Tribunals jurisdiction does not get affected even when the contract is tainted with corruption.82

79

Supra n.15, 39-40. World Duty Free Company Limited v. the Republic of Kenya, ICSID Case No. ARB/00/7, Award, 4 October 2006. Problem File, 24. Westacre Investments Inc v. Jugoimport SPDR Holding Co Ltd, [1999] APP.L.R. 05/12.

80

81

82

[11]

II.

THE ACTIONS OF THE GOVERNMENT OF CALONA INCLUDING THE CALONAS ASSETS, WERE A VIOLATION OF THE BIT.

SEIZURE OF

WAYNE

The Claimant contends that the actions of the Government of Calona violate the BIT. This is because the actions of the Government amount to expropriation [A] and the expropriation is illegal under the BIT [B]. A. The actions of the Government of Calona amount to expropriation. The Claimant asserts that the acts of the Government of Calona amount to expropriation since Waynes assets including the factory, bank accounts were expropriated [1]. Further, the avoidance of the contract has led to expropriation of the contractual rights [2] leading to indirect expropriation [3]. 1. There has been expropriation of Wayne Calonas assets. Expropriation can be of tangible property such as real estate or factory, 83 or of intangible property such as bank accounts.84 Thus, in the present case, the seizure of the assets of Wayne Calona, including their factory and bank accounts, valued approximately $22 million, by Calonas Special Bureau of Investigation, resulted in expropriation.85 Thus, Calona has breached its guarantee to its investors.86 2. Avoidance of contract can lead to expropriation of contractual rights. If the State has acted in its sovereign capacity exercising its governmental or public power or authority,87 intangible property including contractual rights88 can be expropriated.89 If a

83

Phillips Petroleum Co. Iran v. Iran, 21 Iran- U.S. C.T.R. 79, 29 June 1989; Mobil Oil v. Iran, 16 Iran- U.S. C.T.R. 3, July 14, I987; Amoco Intl Finance Corp v. Iran,16 Iran - U.S. C.T.R. 3, 24, 14 July 1987.
84

American Bell Intl, Inc. v. Iran, 12 Iran- U.S. C.T.R. 170, 19 September 1986. Problem File, 25. Problem File, 26.

85

86

87

Shufedlt Claim (U.S. v. Guatemala), (1930) 2 R.I.A.A. 1079; Jalapa Jailroad and power Co, American- Mexican Claims Commission, 1948, 8 Whiteman, Digest of International Law 908 (1976).
88

Libyan American Oil Company (LIAMCO) v. The Libyan Arab Republic, (1982) 62 I.L.R. 14; Biloune v. Ghana, (1993) 95 I.L.R. 183, 207; Siemens A.G. v. Argentina, ICSID Case No.ARB/02/08, Award, 6 February 2007, 267.

[12]

Government agrees to pay money for commodities and fails to make payment, then the purchase price of the commodities would have been expropriated.90 Thus, serious underpayment91 or failure to pay certain sums due92 could be regarded as a measure equivalent to expropriation. In the present matter, due to their disappointment with Wayne Enterprises performance, the Government stated that they would not be making any payment under the contract. 93 This refusal to make payments under the contract amounts to expropriation. 3. The investors property has been indirectly expropriated. Expropriation can be open, deliberate and acknowledged transfer of title in favour of the host State, and also covert, incidental or indirect interference with the use of property which has the effect of depriving the owner of the expected economic benefit.94 In the present BIT, indirect or direct expropriation through measures equivalent to expropriation is prohibited.95 The acts of the Respondent amount to indirect expropriation because they fulfil the requirements under Article VI of the BIT as well as other elements of indirect expropriation.96 Thus, the acts amount to expropriation because measures are so severe in light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith [a] and they are discriminatory measures [b].

89

G. C. Christie, What Constitute a Taking of Property under International Law?, BYIL, Vol. 38, 1962, p. 338 Singer Sewing Machine Company Arbitration (United States v. Turkey), (1929) 4 R.I.A.A. 47.

90

91

Thomas Wlde & Kaj Hobr, The First Energy Charter Treaty Arbitral Award, Journal of International Arbitration, Vol. 22, 2005, p. 97.
92

Supra n. 63, 170. Problem File, 22. Metalclad v. United Mexican States, 40 I.L.M. 36 (2001). Problem File, Annexure 1. Supra, n.34.

93

94

95

96

[13]

a. The measures are so severe in light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith. The seizure of Waynes assets was severe in light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith97 because the intensity of the measure resulted in substantial deprivation [i]; the seizure was a disproportional measure as deprivation of property was permanent [ii]; and that the measure was not intended for a bona fide public purpose [iii]. i. The intensity of the measure has resulted in substantial deprivation.

The intensity requirement has been described as the degree or extent98 to which the effect is reflected by the measures being equivalent to that of an expropriation.99 Thus, the effect of an indirect expropriation should be severe enough to result in substantial deprivation100 of property rights to render them useless101 or destruction102 of the commercial value of the investment and effective neutralisation of enjoyment of property.103 The properties of Wayne Calona were frozen and their assets were seized, 104 hence, financially Wayne Calona was rendered useless, and practically they were left dysfunctional without their assets. The seizure of assets and freezing of properties of Wayne Calona resulted in a devastating economic effect depriving it of approximately $22 million.105 Moreover, their contractual rights were expropriated causing them a further loss of $2 million.106 Hence, by the time this case is
97

Problem File, Annexure 1, Art. VI. Tippetts v. TAMS-AFFA Consulting Engineers of Iran, 6 Iran-U.S. C.T.R. 219, 29 June 1984. Supra n. 58. Supra n. 38, 102. Supra n.47. Supra n.12, 322. Supra n.21,259. Problem File, 25,26. Problem File, 25. Problem File, Annexure 2,1.

98

99

100

101

102

103

104

105

106

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resolved, Wayne Calona would lose millions107 keeping in mind the huge backlog in the Calonian Courts.108 ii. The seizure was a disproportional measure as deprivation of property was permanent. Expropriation occurs where there is permanent economic deprivation.109 However, even temporary measures for e.g. the seizure of two hotels for one year,110 suspension of an export license for four months111 was found to be a permanent measure, thus amounting to expropriation. Likewise, in the present case, even if the property is returned within a matter of time, it would still amount to expropriation due to the substantial loss during the period. In any case, the justice delivery system is slow with backlogs so it is uncertain as to how long the proceedings would be pending before the court.112 There must also be proportionality between the means employed and the aim sought to be realised by any measure depriving the person of his possession.113 The freezing of properties and seizing of assets was meant to be a temporary measure as it was passed as an interim order by the lower court.114 But, in light of the long-drawn legal proceedings in Calona,115 the seizure may not continue to remain temporary. Hence it would be a disproportional measure.

107

Problem File, 26. Problem File, 3.

108

109

Supra n. 47; S.D. Myers, Inc. v. Canada, 40 I.L.M. 1408 (2000); Phelps Dodge Corp. and Overseas Private Investment Corp. and Iran, 10 Iran U.S. C.T.R. 157, 19 March 1986; Hauer v. Land Rheinland-Pfalz, [1979] E.C.R 2749 ,Case no. 44/79, 13 December 1979.
110

Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No.ARB(AF)/98/4, Award, 8 December 2000.

111

Middle East Cement Shipping and Handling Co. S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002.
112

Problem File, 3. Press Compania Naviera S.A. & Others v. Belgium, (1997) 21 E.H.R.R. 301. Problem File, 25. Problem File, 3.

113

114

115

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iii.

The measure was not intended for a bona fide public purpose.

Although the effect of the governmental action rather than its purpose or intent is the major factor in determining whether or not expropriation has occurred,116 the measures must still be for a bona fide public purpose.117 Public purpose means general welfare, public utility, public good or anything that is of vital public interest.118 In cases where measures cannot be justified on the grounds of genuine public interest,119 the arbitrary nature of the act would be evident.120 It is thus submitted, that the measure in the instant case cannot be justified on the grounds of bona fide public purpose because the State has purposely expropriated the property on the ground of corruption, even though previously they had not paid any heed to the allegations of bribery.121 Now, with the public support122 on the side of the Communist Party of Calona, the Government has sought to expropriate property. Levelling charges of corruption was also to further avoid paying the sum agreed upon by the contract, 123 thereby indirectly benefitting the government. b. The measure of the government was discriminatory. The intentionally124 discriminatory nature of the State measures aimed at excluding foreign control from the host state market would result in establishing expropriation.125 Thus, the expropriation, having been made for purely extraneous political reasons was arbitrary and

116

German Interests in Polish Upper Silesia (Germany v. Poland), PCIJ Rep. Series A. No. 7, 25 May 1926. Goetz and Others v. Republic of Burundi, ICSID Case No. ARB/95/3, Decision on Liability, 2 September 1998. Norwegian Shipowners' Claims (Norway v. United States), (1992) 1 R.I.A.A. 307. Supra,n.117 126. F. V. Garcia Amador, Special Rapporteur Report, International Law Commission (1959). Problem File, 9. Problem File, 24. Infra, Arguments Advanced, III, E. Supra n.19, 7. Supra, n.43.

117

118

119

120

121

122

123

124

125

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discriminatory in character126 since like persons were treated in an unequal manner.127 It was done for purely political reasons as can be seen from the previous nonchalance of the Government to allegations of bribery, and their quick action after public support shifted to the Communist Party of Calona.128 However, expropriation may take place even where the benefit of deprivation does not accrue to the host State129 but to third parties,130 which in this case was the local manufacturer. This was because tainting Waynes contract with corruption131 could adduce legitimacy to the Governments act of subsequently contracting with the local manufacturer.132 This was done in violation of the requirement of non-discrimination in Article VI of the BIT and therefore has let down the expectation of the investor to be treated equally with the domestic enterprises.133 Therefore, the seizure of assets including the factory and bank accounts and freezing of properties resulted in indirect expropriation. B. The expropriation by the Government of Calona is illegal. When expropriation is in breach of contractual or treaty obligations, it has to be considered illegal.134 Article VI of the BIT states that investments made by nationals of one Contracting Party shall not be expropriated by the other Contracting Party, either directly or indirectly, except in such circumstances where the expropriation would be legal under international law. For an expropriation to be lawful the customary requirements have been identified and which have been
126

Supra n.37,p. 329.

127

A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of Non -Discrimination in International Law of Foreign Investment: An Overview, 8 J. Transnational Law & Policy, 57-59, 67-70.
128

Problem File, 24. Supra n.94, 103. James v. United Kingdom, (1986) 8 E.H.R.R. 123. Supra, Arguments Advanced, III, E. Problem File, 19. Infra, Arguments Advanced, II, A, 3, b.

129

130

131

132

133

134

B. H. Weston, Community Regulation of Foreign -Wealth Deprivations: A Tentative Framework for Inquiry, in R. S. Miller and R. J. Stanger (eds. by), Essays on Expropriation, Ohio State University Press, 1967, p. 119.

[17]

violated in the present case are public purpose135, non-discrimination136, compensation [1] and due process [2].137 1. There was no payment of compensation. The government had unjustly enriched itself at the expense of Wayne Enterprises and hence, adequate compensation must be paid.138 Further, even if a regulation is enacted for a public purpose, this prong of the expropriation test does not trump the requirement that compensation be rendered to foreign investors where government regulation has damaged or totally destroyed the value of their investments.139 Hence, fair market value should be paid for the expropriated assets of Wayne Calona.140 2. Due process was not observed. The requirement of due process mandates provision of effective remedy, sufficient notice and fair hearing before an impartial adjudicator.141 The remedy in the present case is not effective as a criminal case in Calonian courts would take between 6 to 8 years to conclude and would involve another 3 to 4 years for appeals. 142 Hence, due process has not been observed while freezing the assets as an interim measure, as they would

135

Supra, Arguments Advanced, II, A, 3, b. Supra, Arguments Advanced, II, A, 2.

136

137

Ian Brownlie, Principles of Public International Law, 5th Edition., Oxford University Press, 1998; Compaiadel Desarrollo de Santa Elena, S.A. v. Costa Rica , ICSID Case No. ARB/96/1, Award, 17 February 2000; Sedco, Inc. v. Natl Ir. Oil Co., 10 Iran- U.S. C.T.R. 180, 1986; OECD, Draft Convention on the Protection of Foreign Property, 1967; A. Reinisch, Legality of Expropriations, in A. Reinisch (ed. by), Standards of Investment Protection, Oxfrod, Oxford University Press, 2008, p. 174.; de Sabla Claim (US v. Panama), (1933) 6 RIAA 358.
138

Sea-Land Service Inc. v. Iran, 6 Iran U.S. C.T.R.149, Award, 20 June 1984; Christoph H. Schreuer, Unjustified Enrichment in International law, 22 AM. J. Comp. L. 281, 1974.
139

Feldman v. United Mexican States, ICSID, 42 I.L.M. 625 (2003); Metalclad Corp. v. United Mexican States, 40 I.L.M. 36 (2001); Pope & Talbot, Inc. (U.S.) v. Canada , 40 I.L.M. 258 (2000).
140

UNCTAD, Taking of Property, 2000. Supra, Arguments Advanced, I, C, 4, c. Problem File, 3.

141

142

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evidently remain frozen for a very long time.143 Also, Wayne Calonas property was seized immediately144 after the order passed by the lower court without any serving of notice 145, hence, it is against due process.

143

Problem File, 3. Problem File, 25. British Petroleum v. Libya, (1979) 53 ILR 297.

144

145

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III.

THE RESPONDENT IS NOT ENTITLED TO AVOID THE CONTRACT.

The Claimant contends that Respondent cannot avoid the contract as the alternatives provided were in conformity with the contract [A]. Claimant is also not liable for the late delivery of the original consignment [B]. Arguendo, the contract cannot be fully avoided [C]. The act of Respondent was not in good faith to the Claimants performance [D] and even the claim of corruption cannot lead to a right of avoidance [E]. A. Respondent cannot avoid the contract on the ground of defect in alternatives provided, as the same were in compliance of the contractual terms. Claimant asserts that Respondents right to avoid the contract does not arise as the alternatives provided were mutually agreeable and were in compliance of the contractual terms [1], the contract was substantially performed [2]; the all best endeavours obligation was fulfilled[3] and the stipulation in the contract for sale was a warranty [4]. 1. Variation to the terms of the original Contract was mutually agreed. When some representation is made by one contracting party to the original terms of the contract146 and the same is accepted, it amounts to variation.147 The original terms continue to be part of the contract and are not rescinded or superseded except in so far as they are inconsistent with the variations or modifications made.148 For a variation to become effective, it must fulfil the criteria of offer, acceptance and consideration. In the present matter, Claimant made a representation to the Respondent to provide industrystandard capacitors instead of customized capacitors (provided in the original terms of contract), which do not fit the technical specifications set out in Annexure 1 of the original contract.149 The

146

J.Beatson, Ansons Law of Contract, 28th edition, Oxford University Press, 2002. Scarf v. Jardine, (1882) 7 App Cas 345, 351. Juggilal Kamlapat v. NV International Credit-En-Handels, Vereeldging Rotterdam, AIR 1955 Cal 65. Problem File, Annex XIII.

147

148

149

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variation to the terms of contract was subsequently accepted by the Respondent and therefore results into a binding contract.150 Claimants subsidiary, Wayne Calona, as per modified terms of the contract, performed its part of the contract, making delivery of standard capacitors within the stipulated time 151 and thus Respondent cannot avoid the contract. 2. The doctrine of substantial performance is applicable. Where the contract is substantially performed, the injured party is not discharged from the obligation to pay,152 but is protected by the counter claim or set-off for any loss which may have been sustained by reason of the incomplete or defective performance. 153 The fact that the work was done badly does not mean that it had not been performed at all.154 In the instant case, the contract for the delivery of industry-standard capacitors within the stipulated time was substantially performed by the Claimant, although to the Respondents dissatisfaction.155 However, this does not provide any right to the Respondent to avoid the contract for the reason of bad performance. The contract has been substantially, if not precisely, performed. The Respondent may raise any issue for counter-claim for bad performance from the Claimant but a question of avoidance does not arise. 3. The all best endeavours obligation has been fulfilled by the Claimant. The obligation to use best endeavours has been held to oblige the party to do all that a reasonable person could do in the circumstances.156 It does not require actions which would be detrimental

150

Problem File, Annex XIV. Problem File, Annex XVI. Sim v. Rotherham Metropolitan Borough Council, (1987) Ch. 216 at p.253. Boone v. Eyre, (1779) 1 H.Bl. 273; Broom v. Davis, (1794) 7 East 480. Glanville Williams, Partial Performance of the Entire Contracts, (1941) 57 Law Quarterly Review 373. Problem File, Annex XVI. Pips (Leisure Production) Ltd. v. Walton, [1980] 43 P & CR 415.

151

152

153

154

155

156

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to the financial interests of the company.157 In the case of Rhodia International Holdings Limited v. Huntsman International LLC,158 the Court stated that a party who is under the best endeavour obligation must pursue all reasonable courses of action to achieve the main object until they are exhausted. In the present case, all best endeavours obligation, imposed on the Claimant, had been incorporated in the terms of the contract159 mandating Claimant to use all reasonable courses to achieve the desired result. The Respondent had imposed the obligation on the Claimant to ensure the delivery of alternatives in time.160 The Claimant, according to the contractual terms, and the obligation imposed on it made the delivery of alternatives within the time specified.161 4. A breach of a warranty does not give rise to a right of avoidance. Where stipulation in contract of sale is warranty, its breach may give rise to claim for damages but not to a right to reject the goods and treat the contract as repudiated.162 Warranty means an agreement with reference to goods which are subject of a contract of sale, but collateral to the main purpose of such a contract.163 A warranty must be an agreement or promise that the representation is or will be true;164 and the agreement must be collateral to the main purpose of the contract. Such purpose being the transfer of property in, and possession of, goods of description contracted for.165 With respect to an option for alternatives, Claimant made a representation that standard capacitors are generally used in floodlights but did not fit the exact specifications made out in
157

Rackham v. Peek Foods Limited, (1990) BCLC 895. Rhodia International Holdings Limited v. Huntsman International LLC, (2007) EWHC 292 (Comm). Problem File, Annex VII, 3. Problem File, Annex XII. Problem File, 17 Chanter v. Hopkins (1838) 4 M & W 399 at 404. Wallis, Son and Wells v. Pratt and Hyanes (1910) 2 K.B. 1003 at 1012. Behn v. Burness, (1863) 32 LJQB 204. Halsburys Law of England, Fourth Edition, Butterworths Lexis Nexis, London 2002.

158

159

160

161

162

163

164

165

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Annex 1 of the contract.166 On the reliance of this promise, Respondent accepted, the varied terms of contract,167 and thus breach of warranty will entitle the Respondent to only claim for damages but no right to avoid the contract. Further, as Claimant performed the contract (with its varied terms) within the stipulated time, no right arises in Respondents favour for avoiding the contract as to the failure of this condition. B. Claimant is not liable for the late delivery of the original consignment. Claimant asserts that late delivery of the original consignment was not due the failure on its part and Respondent cannot maintain the issue of avoidance on this ground. Claimant submits that late delivery of the original consignment was beyond its control [1] and acceptance of the offer of delivery was communicated to the Respondent [2]. 1. Late delivery of the original consignment was beyond Claimants control. A party is excused of non-performance, if it proves that non-performance was due to an impediment beyond its control and could not have reasonably been foreseen by it at the time of making the contract, nor could it have avoided or overcome it or its consequences.168 It is submitted that the contract contained a clause for the exclusion of liability for any event occurring beyond the control of a party.169 The non-performance of the original supply occurred due to unavoidable manufacturing issues which were beyond the control of the Claimant. The event could not have reasonably been foreseen at the time of conclusion of the contract and wee beyond the control of either party. Therefore, Claimant can claim the benefit of the exclusion clause, provided in the contract and is not liable for the delay of the original consignment.

166

Problem File, Annex XIII. Problem File, Annex XIV.

167

168

Joern Rimke, Force Majeure and Hardship: Application in international trade practice with specific regard to CISG and the UNDROIT principles of international commercial contracts Pace review on the Convention on Contracts for International sale of goods, Kluwer, 1999-2000, 197-243.
169

Problem File, Annex II, 7.

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2. Mere representation does not bind Claimant for misrepresentation. In Heilbut, Symons and Co. v. Buckleton170, the courts laid down certain factors to determine whether a particular statement is a mere representation or term of contract. One of the factors was that the maker of the statement had specialist knowledge or was in a better position than the other party to verify the statements accuracy.171 It is submitted that in the instant case, the statement made by the Claimant, about the capability of Star Technologies top credentials and a good supply record, was not based on any specialist knowledge of the Claimant, neither was it in any better position than the other party as the facts stated by the Claimant were on the basis of the information available on the website of Star Technologies.172 Therefore, Claimant cannot be held liable for misrepresentation leading to late delivery. C. Arguendo, the contract could not be avoided fully. Claimant asserts that the Respondent cannot avoid the entre contract as the contract is divisible in nature [1] and Respondent had accepted the partial performance of the contract [2]. 1. The contract cannot be fully avoided as it is divisible in nature. When the contractual terms are not in its entirety and can be divided into uniform divisible units then each such unit contracted, in legal parlance constitutes a separate agreement to obtain the agreed commodity.173 A divisible contract is a contract, the consideration of which is, by its terms, susceptible to apportionment on either side i.e. it is ascertained with the quantity of work to be done. When the contract itself has divided performance of work and payment of consideration expressly, then the contract is divisible.174

170

Heilbut, Symons and Co. v. Buckleton , (1913) A.C. 30.

171

Harling v. Eddy, (1951) 2 KB 739; Oscar Chess v. William, (1957) 1 All ER 325; Dick Bentley Productions v. Harold Smith Motors, (1965) 2 All ER 65.
172

Problem File, 12. Sumpter v. Hedges, (1898) 1 QB 673. Steele v. Tardiani, (1946) 72 C.L.R. 386.

173

174

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In the instant case the contract provided for performance in two consignments, one of 50 highpower generators and second of 25000 Electric double layer (Gold) capacitors, to an agreed equal value of $1 million DES.175 Thus, the contract, by virtue of its terms, is divisible in nature and Claimant has the right to obtain the benefit for the due performance done for each divisible part. 2. The contract cannot be avoided fully as partial performance was accepted by the Respondent. A party who renders incomplete performance of an entire contract may nevertheless claim remuneration where the other party has freely accepted such partial performance. 176 This principle comes into play when the party from whom the benefit is demanded has received a benefit from the partial performance. The Claimant, as per the terms of contract, delivered the first consignment which was accepted by the Respondent.177 The conduct of the Respondent indicates sufficient acceptance of partial performance by the Claimant and therefore, Claimant can validly claim remuneration for the work done. D. The act of the Respondent was not in good faith with respect to Claimants Performance. Claimant submits that before the conclusion of the contract according to the varied terms, Respondent accepted the offer of variation of Claimant but not in good faith which is essential for every contract concluded [1] and evidence for the same can be adduced from another private arbitration to prove the intention of bad faith of the Respondent [2].

175

Problem File, Annex II, 1. Baltic Shipping Co. v. Dhillon, (1993) 176 C.L.R. 344, at p.378. Problem File, 15.

176

177

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1. Respondent did not act in good faith. The notion of good faith in contract law usually means honesty and fair dealing. 178 The good faith is the governing principle applicable to all contracts and dealings. 179 In applying the doctrine of good faith, courts usually see the intention of the parties rather than the actual contractual terms.180 In the present case, even though Respondent did not expect the delivery of original capacitors from the Claimant within the stipulated time,181 they entered into the contract by mandating the delivery of goods at the time specified. The intention revealed showed bad faith on the part of Respondent and thus it can be directed for the specific performance of the contract against the innocent party. 2. Evidence can be obtained from another private arbitration to prove the intention of the Respondent. In the case of United States v. Panhandle Eastern Corp.,182 the federal court found that, absent explicit agreement by the parties or institutional rules on point, arbitration proceedings are not necessarily confidential.183 The confidentiality was not made an essential attribute of the arbitral process i.e. parties could no longer expect that any element of their arbitral proceedings would remain protected by an umbrella of confidentiality. 184 Even if a duty of confidentiality does exist by virtue of parties contract, it is not absolute.185 The definite statement emerged from the conflicting position of confidentiality in arbitration in the case of Emmott v. Michael Wilson and

178

Beatson and Friedmann, Good Faith and Fault in Contract Law, Clarendon Press, 1995. Carter v. Boehm, (1766) 97 ER 1162. Supra, n.165. Problem File, 20. United States v.Panhandle Eastern Corp., 118 F.R.D. 346 (D.Del.1998).

179

180

181

182

183

Charles S. Baldwin, Protecting Confidential and Proprietary Commercial Information in International Arbitration, 31 Tex. Intl L.J. 451,456 n.21 (1996).
184

Esso Australia Resources v. Plowman, 128 A.L.R. 391 (1995). Id, 401-402.

185

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Partners186 where the Court did recognize potential exceptions to the confidentiality rule one of which was that disclosure is permissible when in the interest of justice or public interest. The evidence found by Mr. Sersee, in the course of arbitration proceedings continuing between NLS with the Respondent showed that Respondent did not expect the delivery of capacitors by the Claimant on the expected date,187 and thus allowed other suppliers also to deliver late. The act of Respondent of avoiding the contract was not in good faith, with respect to Claimant and allowing others, at the same time, to deliver late. The evidence procured should be admitted by the tribunal as the same is in the interest of justice. E. Corruption cannot invalidate the contract and give rise to a right of avoidance. Claimant asserts that Respondent cannot bring the issue of corruption to render the contract invalid as a whole as the Respondent cannot rely on the corrupt acts of its officials to escape responsibility [1]. In any case, the corruption charges were mere allegations [2] and it may go against the intent and the purpose of the BIT [3]. 1. The Respondent cannot rely on the corrupt acts of its officials to escape responsibility. An arbitral tribunal may find the contract valid and enforceable, even if it is tainted by corruption. International law contains the fundamental principle of state responsibility,188 referring to the accountability of the states for the violation of international law and the requirement that states makes reparation for such violations.189 As there is State responsibility on part of the Respondent which also includes contractual responsibility, the Respondent must in general meet its obligations as a contractual party in spite of the corrupt activities of its officials.190 It is submitted that in the instant case, there exist a responsibility on the part of

186

Emmott v. Michael Wilson and Partners,(2008) EWCA (Civ) 184 (C.A.). Problem File, 20. Article 50, Vienna Convention on the Law of Treaties, 1969, 1155 U.N.T.S. 331, 8 I.L.M. 679.

187

188

189

Paul E Comeaux and N. Stephan Kinsella, Protecting Foreign Investment under International Law: Legal Aspects of Political Risk, Dobbs Ferry, New York, Oceana, 1997.
190

Marc Blessing, State Arbitrations: Predictably Unpredictable Solutions? presentation at 8 th IBA International Arbitration Day Geneva, 18 March 2005, 22 J Intl Arb 435 (2005).

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Respondent not to avoid the contract on the charges of bribery as it may have serious effects on the economy of the host state, including its infrastructure. It is the duty of the State to bear the consequences of corruption and assume full responsibility for the actions of its organs. 2. The Corruption charges were mere allegations. In the case of Himpurna California Energy Limited (Bermuda)v.PT. (Persero) Perusahaan Listruik Negara,191 the arbitral tribunal set a high threshold to prove corruption. It is submitted that the charges for corruption have not been proved by the Respondent and they are mere allegations. Therefore, Respondent cannot avoid the contract stating it to be invalid on the ground of corruption. 3. Allowing avoidance based on corruption would be against the spirit of the BIT. The BIT called for promotion and reciprocal protection of investments.192 The Respondents attempt to avoid the contract on the ground of corruption would impede the host states obligation of investment protection. If the investors cannot trust in the responsibility of the State towards its contractual obligations, this will have negative effects on the investment climate and on the States attractiveness to foreign investors.193 Therefore, the action of the Respondent, in avoiding the contract, on the charge of corruption is against the intent of the BIT.

191

Himpurna California Energy Limited (Bermuda) v. PT. (Persero) Perusahaan Listruik Negar a, Final Award, 4 May 1999, (2000) XXV Yearbook of Commercial Arbitration.
192

Problem File, Annex I.

193

Raeschke Kessler, Corruption in Foreign Investment Contracts and Dispute Settlement between Investors, States and Agents, Journal of World Investment and Trade, Vol. 9, No.1, February 2008, pp. 5-33.

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PRAYER FOR RELIEF

In light of the facts of the case, issues raised and arguments advanced, Counsel for Claimant respectfully requests the Tribunal to: 1) Declare that the Tribunal has jurisdiction over the present matter. 2) Declare that the actions of the Government of Calona, including the seizure of Wayne Calonas assets, were a violation of the Calona-Nolania BIT. 3) Hold that the State of Calona is not entitled to avoid the contract. 4) Direct the State of Calona to make payment of $2 million as specified in the January 1, 2010 contract.

All of which is respectfully affirmed and submitted

Sd/Counsel for Claimant

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