ARBITRAL TRIBUNAL

OF

THE
INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES

2008

SUPER TECH ENTERPRISES LTD.

[CLAIMANT]
V

THE REPUBLIC

OF

FRUGALIA

[RESPONDENT]

MEMORANDUM
for
CLAIMANT

ii
-Table of Contents-

TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................................................ 2
TABLE OF ABBREVIATIONS................................................................................................... i
INDEX OF AUTHORITIES..................................................................................................... 2
STATEMENT OF JURISDICTION.............................................................................................. 6
QUESTIONS PRESENTED..................................................................................................... 7
STATEMENT OF FACTS....................................................................................................... 8
PLEADINGS AND AUTHORITIES........................................................................................... 14
I. There exists a valid arbitration clause showing ICSID to be the preferred form of
arbitration............................................................................................................. 14
1.1. THE ARBITRATION CLAUSE IN THE AGREEMENT IS VALID...............................................14
1.2. THE PARTIES BY VIRTUE OF THE AGREEMENT INTENDED THAT ICSID WOULD BE THE FORUM FOR
ARBITRATION.......................................................................................................... 15
1.3 THE REFERENCE TO RULES USED IN WASHINGTON D.C. REVEALS THE CONCERNED PARTIES
INTENTION TO ARBITRATE UNDER RULES WITH A SPECIFIC LINK TO WASHINGTON D.C., I.E. ICSID.
........................................................................................................................... 16
1.4. THE REFERENCE TO INTERNATIONAL ARBITRATION RULES DOES NOT INVALIDATE THE PARTIES
INTENTION TO ARBITRATE UNDER THE ICSID...................................................................17
2. Super-Tech, for the purpose of the ICSID convention is a Rotundian National.. .17
2.1. FRUGALIA IS ESTOPPED FROM TAKING ACTION AGAINST SUPER TECH...............................18
2.2. SUPER TECH, FOR THE PURPOSE OF THE ICSID, IS A NATIONAL OF ROTUNDIA.....................19
3. SUPER-TECH IS ENTITLED TO APPROACH THE ICSID ARBITRAL PANEL DIRECTLY UNDER ARTICLE 3
OF THE BIT............................................................................................................... 20
3.1. OBLIGATION OF MOST FAVOURED NATION TREATMENT EXTENDS TO DISPUTE RESOLUTION
PROCEDURES.......................................................................................................... 20

MEMORANDUM for CLAIMANT

iii
-Table of Contents3.2. PROVISIONS OF ARTICLE 8(2) AND 8(3) DO NOT LIMIT THE SCOPE OF ART 3 OF THE BIT .....22
3.3. THE PROCEDURE LAID DOWN BY ARTICLE 8(2) AND (3) IS LESS FAVOURABLE THAN THAT
ACCORDED TO INVESTORS OF OTHER COUNTRIES.............................................................23
4. The Respondents Tax-Measures, to the Extent they Concern Rotundian
Investors, are Violative of Fair and Equitable Treatment Obligation and is violative
of Article 2 of the BIT............................................................................................. 24
4.1. THE OBLIGATION UNDER ARTICLE 2 OF THE BIT IS NOT LIMITED TO INTERNATIONAL MINIMUM
STANDARDS............................................................................................................ 24
4.2. ARGUENDO, THE INTERNATIONAL MINIMUM STANDARDS OF FAIR AND EQUITABLE TREATMENT
INCLUDES PROTECTION OF LEGITIMATE EXPECTATIONS......................................................26
4.3 THE RESPONDENT ,THROUGH ITS CHANGE IN TAX POLICY HAS BREACHED THE OBLIGATION OF
FAIR AND EQUITABLE TREATMENT...............................................................................26
5. The Tax Measures of the Respondent Amount to Unjustified Expropriation
Under International Law and is Violative of Article 4 of the BIT.............................27
5.1. TAX MEASURES OF THE RESPONDENT AMOUNT TO INDIRECT EXPROPRIATION UNDER
INTERNATIONAL LAW................................................................................................ 27
5.2. THE IMPUGNED EXPROPRIATION BY THE RESPONDENT IS ILLEGAL IN INTERNATIONAL LAW....29
5.3. THE IMPUGNED MEASURE IS NOT JUSTIFIED AS AN EXERCISE OF THE POLICE POWERS OF THE
STATE................................................................................................................... 30
5.4. ARGUENDO, THE STATE IS PRECLUDED FROM THE EXERCISE OF ITS POLICE POWERS TO THE
EXTENT IT HAS UNDERTAKEN OBLIGATIONS TO THE CONTRARY...........................................30
REQUEST FOR RELIEF........................................................................................... 32

MEMORANDUM for CLAIMANT

iv
-Table of Abbreviations-

TABLE OF ABBREVIATIONS
Am. Rev. Intl Arb.

American Review of International Arbitration

Arizona J. Intl & Comp. L.

Arizona Journal of International and Comparative Law

Art.

Article

BIT

Bilateral Investment Treaty

Cir.

Circuit

CLOUT

Case Law on UNCITRAL Texts

Disp. Resol. J.

Dispute Resolution Journal

Dist.

District

Ed.

Edition

ICAB

International Court of Arbitration Bulletin

ICC

International Chamber of Commerce

ICCA

International Council for Commercial Arbitration

ICJ

International Court of Justice

ICSID

International Centre for Settlement of Investment

Disputes

I.L.C.

International Law Commission

Intl Arb. L. Rev

International Arbitration Law Review

Intl Arb. Rep.

International Arbitration Law Reports

Ltd.

Limited

NAFTA

North American Free Trade Agreement

no.

Number

Rep.

Report/ Reports

UNCITRAL

United Nations Commission on International Trade Law

v.

Versus

VCLT

Vienna Convention on the Law of Treaties

Vol.

Volume

WTO

World Trade Organisation

YCA

Yearbook of Commercial Arbitration

MEMORANDUM for CLAIMANT

v
-Index of Authorities-

INDEX OF AUTHORITIES
International Treaties and Conventions
Energy Charter Treaty, (signed 17 December 1994, entered into force 30 December 1999), 2080
UNTS 100 [hereinafter E.C.T]...................................................................................................17
General Agreement on Tariff and Trade, 1994..............................................................................12
ICSID Conventions, Regulations and Rules, available online at
http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc_en-archive/ICSID_English.pdf.............5
North American Free Trade Agreement (adopted December 17, 1992, entered into force 1
January 1994) CTS 1994 No. 2..................................................................................................17
The Association of South Asian Nations Agreement for The Promotion and Protection of
Investments (signed 15 December 1987) (1988) 27 ILM 612, 613...........................................17
VIENNA CONVENTION ON THE LAW OF TREATIES, May 23,1969..................................................10
U.N. Documents
Intl L. Commn, Report of the International Law Commission, 56th Sess., U.N. Doc. A/59/10 at
13..................................................................................................................................................9
Treatises
Born, Gary B., INTERNATIONAL COMMERCIAL ARBITRATION : COMMENTARY AND MATERIALS, 2ND
ED., ARDSLEY, NEW YORK, 2001.................................................................................................4
Craig, Lawrence, Park, William, Paulsson, Jan; INTERNATIONAL CHAMBER OF COMMERCE
ARBITRATION, 3RD ED., OCEANA PUBLICATIONS , PARIS/LONDON 2000.........................................4
Fouchard, Philippe, Gaillard, Emmanuel, Goldman, Berthold, INTERNATIONAL COMMERCIAL
ARBITRATION, KLUWER LAW INTERNATIONAL, THE HAGUE, 1999, 478.....................................6
I. Sinclair, The Principles of Treaty Interpretation and their Application by the English Courts,
39 I.C.L.Q. 12 (1963).................................................................................................................10
M.N. Shaw, INTERNATIONAL LAW 839, (2003).............................................................................10
Mc Nair, THE LAW OF TREATIES, 365 (1961)................................................................................10
OPPENHEIMS INTERNATIONAL LAW, 1272 (Jennings & Watts,ed) (1999)....................................10
P. Craig, ADMINISTRATIVE LAW, (2003), 5th Ed., Sweet & Maxwell, London).....................15
Redfern, Alan, Martin, Hunter, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL
ARBITRATION, 4TH ED., SWEET & MAXWELL, LONDON, 2004, Para. 1-99......................................4
T.O. Elias, THE MODERN LAW OF TREATIES.................................................................................11
Works of Publicists
G. Fitzmaurice, Vae Victic or Woe to the Negotiators! Your Treaty or our interpretation of it? 39
A.J.I..L. 65 (1971)......................................................................................................................10

MEMORANDUM for CLAIMANT

vi
-Index of Authorities-

Lee, Lawrence J., BARCELONA TRACTION IN THE 21 CENTURY: REVISITING ITS CUSTOMARY AND
POLICY UNDERPINNINGS 35 YEARS LATER 42, STAN. J. INTL LAW 245 (2006)...........................9
LY Fortier & SL Drymer, Indirect Expropriation in the Law of International Investment: I
Know it when I see it, or Caveat Investor, (2004) 19 ICSID Rev-FILJ 293,pp.299-305.......18
O.E.C.D, Indirect Expropriation and the Right to Regulate in International Investment Law,
Working Papers on International Investment, No. 2004/4, September 2004.............................17
O.E.C.D, The Multilateral Agreement on Investment Negotiating Text available at
http://www.oecd.org/dataoecd/4640/1895712.pdf (visited on 8.2.2008)...................................17
Organization for Economic Development and Co-operation [hereinafter O.E.C.D.], Indirect
Expropriation and the Right to Regulate in International Investment Law, Working Papers on
International Investment, No. 2004/4, September 2004, pp. 3-4...............................................16
S. Vesel, Clearing a Path through a Tangled jurisprudence: Most-Favoured-Nation Clauses and
Dispute Settlement Provisions in Bilateral Investment Treaties, 32 YALE J. INTL L. 125 (2007)
....................................................................................................................................................10
ST

MEMORANDUM for CLAIMANT

vii
-Statement of Jurisdiction-

STATEMENT OF JURISDICTION

The Claimant has the Honour of Submitting this Memorandum before the Tribunal under Art. 8
(1) of the Agreement Between the Republic of Frugalia and the Democratic Republic of
Rotundia for the Promotion and Protection of the Investments and the Encouragement and
Reciprocal Protection of Investments (Entered Into force on 1st March 2004.

MEMORANDUM for CLAIMANT

viii
-Questions Presented-

QUESTIONS PRESENTED

1. Whether there exists a valid arbitration agreement between the parties designating the ICSID
Arbitral tribunal as the preferred forum and the corresponding rules of international arbitration as
the applicable rules.
2. Whether the CLAIMANT can be considered a national of Rotundia for the purpose of this
proceeding.
3. Whether the CLAIMANT can rely on Art. 3 of the BIT to establish the jurisdiction of the
Tribunal notwithstanding the provisions of Art. 8(2) and 8(3) of the said Agreement.
4. Whether the impugned tax measure violates Art. 2 and Art. 4 of the Agreement.

MEMORANDUM for CLAIMANT

ix
-Statement of Facts-

STATEMENT OF FACTS
I

The Republic of Frugalia, [Frugalia] an under-developed country in South-East Asia, has been
under communist rule for the past six decades. Primarily an agrarian economy, it had been facing
a crisis from the late 1990s, culminating in a near-complete breakdown in 2003, which
incidentally also coincided with a famine, which lasted for five years.
II
Subsequently, the communist government was voted out of power and the new government
chose to transform the economy to a capitalist system in a phased manner to save Frugalia from
further worsening of the economic Situation. As part of this policy, the government agreed to
open up the economy to foreign investment, and accordingly entered into several Bilateral
Investment Treaties [hereinafter BIT] with different countries. This was to enable rapid inflow of
funds into the country thereby facilitating economic development.
III
The Democratic Republic of Rotundia, [ hereinafter, Rotundia] is a country in Western Europe,
with a booming capitalist economy. In February 2004, Frugalia entered into a BIT with Rotundia
with a view to capitalize the economic success of the latter.
IV
Frugalia has also entered into BITs with 24 other countries apart from the one with Rotundia. In
April 2004, it entered into a BIT with the Republic of Oceania, [hereinafter Oceania] a country in
the Middle East on whom Frugalia is heavily dependent for its oil resources. Of the 25 BITs
Frugalia has entered into so far, 24 contain dispute resolution clauses identical to Art. 8 of the
treaty with Rotundia. However, the BIT with Oceania does not contain provisions equivalent to
Art. 8(2) and Art. 8(3) of the Frugalia-Rotundia BIT. All of these countries, i.e. Frugalia,
Rotundia, Hypocritea and Oceania are parties to the International Convention on the Settlement
of Investment Disputes [hereinafter ICSID].

MEMORANDUM for CLAIMANT

x
-Statement of Facts-

V
Super-Tech Enterprises Ltd. [hereinafter Super-Tech], incorporated in the State of Enemia,
[hereinafter Enemia] is a leader in the field of infrastructure, executing some of the biggest
infrastructural projects around the world. MagnaTech Industries[hereinafter MagnaTech],
incorporated in Rotundia, owns 90% of the shareholding in Super-Tech and has the right to
appoint 3 out of 5 members on the Board of Directors of Super Tech. One Mr. Sheorpani, a
national of Gregeria, has a 55% shareholding in MagnaTech. Frugalia has not entered into a BIT
with Gregaria. Gregaria and Enemia are not parties to the ICSID.
VI
In 2001, Frugalia enacted the Taxation of Investments Act, 2001. The charging section of the Act,
S. 2, read as follows, [a]ll investors investing in Frugalia, whether directly or indirectly, in the
sectors specified in Schedule I, shall be charged tax at the rates specified in the rules to be made
in this behalf by the Government. Schedule I included inter alia infrastructure, construction,
housing and other such activities as a listed section. S. 9 of the Act provided for the constitution
of the Central Board of Taxation. Further, S. 10 specified that, [t]he Board constituted under S.
9 has the power to issue clarificatory circulars to resolve doubts regarding the interpretation
and application of this Act. The circulars issued under this Section shall be binding on the
Government in the exercise of its power to collect taxes under this Act. In pursuance of the
power to make rules granted by S. 2 of the Act, the then Government of Frugalia enacted the
Taxation Rules, 2002. Rule 6 set the level of taxation for the purposes of the Act at a rate of 90%
of the returns generated through the investment.
VII
In spite of the change in Government in 2003, and the resultant shift in policy, a few areas of the
legal system in Frugalia continued to act as potential hurdles to the opening up of the economy to
global capital inflow. The prohibitive rate of taxation under Rule 6 of the Taxation Rules, 2002
for an instance acted as a strong disincentive to foreign investment. Foreign enterprises did not
see the economic rationale of making an investment where all the profits would be taken away in
taxes. Therefore, despite entering into a large number of BITs, Frugalia could not attract
significant foreign investment. This was noted by the Frugalian Government, which took various
MEMORANDUM for CLAIMANT

xi
-Statement of Facts-

steps to try and attract foreign investment. Finally, the Government decided to exempt foreign
investors from the purview of Rule 6 of the Taxation Rules. In February 2005, the Central Board
of Taxation issued a circular (CBT/1543/05) under S. 10 of the Act, which stated [t]he word
'investor' in S. 2 of the Act does not, in our considered opinion, include foreign investors.
VIII
Even before this circular was issued, Super-Tech had entered into a few small-scale
infrastructure contracts with the Government of Frugalia. Each of these contracts contained
dispute-resolution clauses referring disputes under the Contract to a Tribunal constituted under
the ICSID, which however had never been invoked.
IX
A number of foreign investors declared that they were not sufficiently convinced by the declared
tax exemption and refrained from making an investment in Frugalia. Super-Tech, however,
declared in a press conference that, in view of the successful commercial relationship it had
enjoyed with the Frugalian Government in the past, and since foreign investors had been
declared exempt from the taxation structure, they were prepared to utilize this opportunity and
invest in the Frugalian economy. As a result, in March 2005, they unveiled a plan to invest one
billion dollars in a phased manner over the next three years, projected to reap substantial profits
at the end of this period. This investment structure was carried out successfully, and on 1st
January, 2007 Super-Tech announced in a press conference that their investment plan in Frugalia
was proceeding on schedule and a profit of twenty million dollars was expected in the next
financial year.
X
In making the investment, Super-Tech had not relied on any professional legal advice on the
status of the circular issued by the Central Board of Taxation, as it felt that the clarificatory
circular was self-explanatory. Some months after Super-Tech had made the initial investment, a
domestic non-governmental organisation in Frugalia challenged the constitutionality of the
circular by way of a writ petition before the Supreme Court of Frugalia. The Constitution of
Frugalia provides in Art. 9, [a]ll laws, ordinances, rules, regulations, circulars, or any other

MEMORANDUM for CLAIMANT

xii
-Statement of Facts-

instruments, having the force of law, may be struck down as unconstitutional for violating the
rights guaranteed under this Constitution. If any such instrument is struck down under this
Article, it shall be void ab initio. The Supreme Court, in a judgment dated 5th May, 2007, held,
relying on a series of its previous judgments dealing with the issue of reasonable classification,
that the circular created an artificial distinction between domestic and foreign investors, and that
such a distinction was not tenable. The circular was declared to be null and void ab initio under
Art. 9 of the Constitution because it violated the Constitutional provisions granting the right to
equality.
XI
On 1st June, 2007, following the judgment of the Supreme Court, the Tax Department of
Frugalia sent a notice to Super-Tech stating, [i]n view of the Supreme Court's decision, SuperTech cannot claim any exemption as a foreign investor and is liable to pay tax according to the
specified rates. Accordingly, the taxation department levied tax at the rate of 90% against
Super-Tech in accordance with established procedure. Super-Tech appealed against the decision
of the tax authorities to the Taxation Appellate Tribunal of Frugalia. On 10th August, 2007, the
appeal was dismissed on merits by the appellate tribunal. The tribunal stated in this judgment,
[t]he circular has been declared to be null and void ab initio. That being the case, the word
'investor' in S. 2 of the Act must include, and must be taken to always have included, foreign
investors. Clearly then, foreign investors are also within the ambit of the charge of this tax.
Super- Tech then sought leave to appeal against this decision of the Tribunal, before the Supreme
Court of Frugalia. On 6th September 2007, the Supreme Court, in accordance with the
discretionary power provided to it under the Constitution of Frugalia, refused to admit this
appeal because the case involves no question of law which would merit the time and attention of
this Court.
XII
Following the decision of the Supreme Court, Super-Tech has approached the ICSID Tribunal to
arbitrate on this dispute. Super-Tech has not invoked the provision for a Probable Cause Hearing
under Art. 8 of the BIT. The financial condition of Super-Tech is such that that any award after
the expiry of 8 months, no matter how generous, will fail to avert financial ruin, and would

MEMORANDUM for CLAIMANT

xiii
-Statement of Facts-

therefore be of no use to them. Super-Tech is of the considered opinion that it has a very good
chance of getting a favourable arbitral award by the ICSID Tribunal within a few months.
Frugalia has also agreed to submit the dispute to the ICSID Tribunal, its consent being limited to
permitting the Tribunal to determine its own jurisdiction. Frugalia has reserved its right to
challenge the jurisdiction of the Tribunal.

MEMORANDUM for CLAIMANT

xiv
-Summary of Pleadings-

SUMMARY OF PLEADINGS

1.THERE EXISTS A VALID ARBITRATION CLAUSE SHOWING ICSID TO BE THE PREFERRED FORM OF
ARBITRATION.

It is submitted that there exists a valid arbitration clause in the agreement entered into by the
concerned parties, which indicated ICSID to be the preferred form of arbitration. Furthermore,
the parties, by virtue of the agreement intended ICSID to be the forum for arbitration. Moreover,
the reference to Rules of arbitration used in Washington D.C. reveals the concerned parties
intention to arbitrate under rules with a specific link to Washington D.C., i.e. ICSID.
2.SUPER-TECH, FOR THE PURPOSE OF THE ICSID CONVENTION IS A ROTUNDIAN NATIONAL.
It is submitted that for the purpose of the ICSID convention, Super Tech is a Rotundian National.
Frugalia, by allowing Super Tech to make small investments in the country accepted Super Tech
as a Rotundian National. Furthermore, there exists a genuine link between Super Tech and
Rotundia, which suffices to establish nationality.
3.SUPER-TECH

APPROACH

IS ENTITLED TO

THE

ICSID

ARBITRAL PANEL DIRECTLY UNDER

ARTICLE 3 OF THE BIT.

The text of Article 3 of the BIT mandates its application to all matters relating to commerce and
dispute resolution in investment matters all squarely within its ambit. Article 8(2) and 8(3) set the
minimum standards and are provisional in nature and are over-ridden by Art 3 when a more
favourable treatment in this regard is accorded to a third State. As a right to approach an arbitral
tribunal directly, a treatment more favourable than what has been granted to the Rotundian
investors, has been accorded to investors of a third State, Art 3 entitles the CLAIMANT to the same
treatment.
4. THE RESPONDENTS TAX-MEASURES ,
INVESTORS,

ARE

VIOLATIVE

VIOLATIVE OF ARTICLE

OF

FAIR

TO THE

AND

EXTENT

THEY

CONCERN ROTUNDIAN

EQUITABLE TREATMENT OBLIGATION

2 OF THE BIT.

MEMORANDUM for CLAIMANT

AND IS

xv
-Summary of Pleadings-

The impugned measure violates the norms of stability of framework and protection of
legitimate expectations. Even assuming that only international minimum standards of fair and
equitable treatment are mandated by Art 2, it is submitted that protection of legitimate
expectations falls squarely within such standards.
5.THE TAX MEASURES OF THE RESPONDENT AMOUNT TO UNJUSTIFIED EXPROPRIATION UNDER
INTERNATIONAL LAW AND IS VIOLATIVE OF ARTICLE 4 OF THE BIT.
The tax measures amount to indirect expropriation owing to the substantial, prejudicial and
permanent nature of its interference with enjoyment of property and economic viability of
operations. The same is not justified as compensation has not been paid. It is also not justified as
an act of in exercise of police powers as the matter does not fall within the ambit of such powers.
Even assuming that the matter falls within police powers, the State is precluded from exercising
such powers owing to its undertakings to the contrary.

MEMORANDUM for CLAIMANT

1
-Pleadings and Authorities-

PLEADINGS AND AUTHORITIES

I. There exists a valid arbitration clause showing ICSID to
be the preferred form of arbitration.
It is submitted that the arbitration clause in the agreement between Frugalia and Rotundia
(hereinafter the arbitration clause), article 8(1), is valid and not void on grounds of uncertainty.
Furthermore, the Arbitral Tribunal has the authority to decide on its own jurisdiction. Washington
D.C., the seat of ICSID, is also the seat of dispute resolution as per article 8(1) of the arbitration
clause. Since the arbitration is governed by the law of the seat of the Arbitration Tribunal 1, the
ICSID convention, rules and regulations applies as the lex loci arbitri. Pursuant to Article 41(1)
of the said convention, which reads The Tribunal shall be the judge of its own competence, it
is submitted that the Arbitration Tribunal has Competence-Competence.
It is submitted that a valid arbitration agreement and the choice of arbitration rules that belong to
an arbitral institution are essential for the tribunal to have jurisdiction in an institutionalized
arbitration.2 In the instant case, the parties have validly agreed on arbitration and that the forum
for arbitration is the ICSID.
It will be established that the Arbitral Tribunal has jurisdiction based on article 8(1) of the
parties arbitration agreement leading to institutionalized proceedings under the Rules of
Arbitration ICSID Convention, Regulations and Rules.
1.1. THE ARBITRATION CLAUSE IN THE AGREEMENT IS VALID.
It is submitted that the primary source of an arbitral tribunals jurisdiction is the arbitration
clause in the agreement between the two parties. 3 By signing an agreement containing an explicit
arbitration clause, the parties are deemed to have agreed on arbitration.4
1

Born, Gary B., INTERNATIONAL COMMERCIAL

NEW YORK, 2001, [hereinafter Born] pg. 573.

ARBITRATION

: COMMENTARY

AND

MATERIALS, 2 ND

ED.,

ARDSLEY,

Redfern, Alan, Martin, Hunter, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, 4TH ED., SWEET
& MAXWELL, LONDON, 2004. [hereinafter Redfern/Hunter].. 1-99,
3

Redfern/Hunter, (Supra, note 2),.1-13; Craig, Lawrence, Park, William, Paulsson, Jan; INTERNATIONAL CHAMBER
COMMERCE ARBITRATION, 3RD ED., OCEANA PUBLICATIONS, PARIS/LONDON
2000, [hereinafter
Craig/Park/Paulsson]. p. 44.
OF

ICC Award No. 2321; Zurich Chamber of Commerce, 25 Nov. 1994

MEMORANDUM for CLAIMANT

2
-Pleadings and Authorities-

In the instant case, the relevant arbitration clause, dealing with the intention of the parties
provides that:Article 8- Dispute Resolution
1. Any dispute in connection with this agreement shall be resolved by such International
Arbitration as is appropriate for such disputes, in accordance with the International
Arbitration Rules used in Washington D.C.
The above mentioned clause unequivocally shows that the parties intended any disputes arising
out of this agreement shall be resolved by such International Arbitration as is appropriate for
such disputes, in accordance with the International Arbitration Rules used in Washington D.C.5
Therefore, it is submitted that the arbitration clause is valid. The RESPONDENTS claim that the
arbitration clause is uncertain has been dealt with in the next sub contention.
1.2. THE PARTIES

BY VIRTUE OF THE AGREEMENT INTENDED THAT

ICSID WOULD

BE THE FORUM

FOR ARBITRATION.

It is submitted that the arbitration clause clearly establishes that any dispute between the
concerned parties would be resolved by International Arbitration as is appropriate for such
disputes, in accordance with the International Arbitration Rules used in Washington D.C.6
The ICSID, which was created under the auspices of the World Bank, is seated at Washington
D.C. Furthermore, article 62 of the ICSID provides that the arbitration proceedings shall be held
at the seat of the Center (i.e. ICSID) unless the parties explicitly agree for proceedings to be held
at the seat of the Permanent Court of Arbitration or any other appropriate institution (article 63).7
Therefore, it is submitted that looking at the provisions of the arbitration clause and in the
absence of anything contrary provided in the facts, the fact that on previous occasions the same
two parties have entered into agreements to refer disputes under the contract to a tribunal

Annexure, Facts.

Id.
International Centre for Settlement of Investment Disputes [hereinafter ICSID], Conventions, Regulations and
Rules, available online at http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc_en-archive/ICSID_English.pdf.
7

MEMORANDUM for CLAIMANT

3
-Pleadings and Authorities8

constituted under the ICSID, clearly shows that the parties intended ICSID to be the dispute
resolution body.
1.3 THE REFERENCE TO RULES USED IN WASHINGTON D.C. REVEALS THE CONCERNED PARTIES
INTENTION TO ARBITRATE UNDER RULES WITH A SPECIFIC LINK TO WASHINGTON D.C.,
I.E. ICSID.
It is submitted that according to the rules of effective interpretation, an arbitration clause is to be
interpreted in a manner which gives the clause an effect, rather than making it devoid of
meaning.9
The wordings of article 8(1) of the agreement refer to International Arbitration Rules used in
Washington D.C.. It is contended that in the instant case the dispute is investment related, the
arbitration clause provides for arbitration in Washington D.C. and that the same two parties in an
earlier contract had inserted a clause that invoked the jurisdiction of the ICSID for any dispute.
Furthermore, in the absence of any other clause in the facts, it can be safely inferred that the
reference was with regard to ICSID and not any other arbitral tribunal.
In GERMAN COFFEE ASSOCIATION, 28 SEPTEMBER 1992, the parties to the contract
stipulated an arbitration clause which read as Arbitration: Hamburg, West Germany. Even
though there are various courts of arbitration attached to coffee trade organizations worldwide
like the United Kingdom Coffee Trade Federation, Belgian Coffee Import Association, but only
one in Hamburg, the tribunal considered it sufficiently unambiguous to initiate institutionalized
arbitral proceedings and to apply the arbitration rules of the German Coffee Association at the
Hamburg Chamber of Commerce.10
Furthermore, in BULGARIA COURT OF ARBITRATION, AWARD NO. 151, the parties to the
contract had inserted an arbitration clause which read-All possible disputes shall be resolved by

Facts, .8.

Fouchard, Philippe et al. INTERNATIONAL COMMERCIAL

1999, [hereinafter Fouchard/Gaillard/Goldman]. 478.

ARBITRATION,

Kluwer Law International, The Hague,

10

Panamanian buyer v. Papua New Guinean seller, (September 28, 1992), Rechtsprechung kaufmannischer
Schiedsgerichte, Vol. V, Sect. 3B as cited in Berger, KP, Power of Arbitrators to Fill Gaps and Revise Contracts to
Make Sense, (2001),Arbitration International, Vol XVII, No. 1, [hereinafter Berger]pp.1-17.

MEMORANDUM for CLAIMANT

4
-Pleadings and Authorities11

the International Arbitration at the Bulgarian Foreign Chamber. In this case, there existed
ambiguity because neither the Court of Arbitration or the Bulgarian Chambers of Commerce and
Industry were named accurately. The Arbitral Tribunal, however, concluded that since there were
no other institutions in Bulgaria to settle international commercial arbitration, the intention of the
contracting parties was to refer the dispute to the Bulgarian Chamber of Commerce and Industry
and that the said institutions rules shall apply.
Therefore, it is submitted that there is no ambiguity or uncertainty in the arbitration clause.
1.4. THE

INTERNATIONAL ARBITRATION RULES

PARTIES INTENTION TO ARBITRATE UNDER THE ICSID.
REFERENCE TO

DOES NOT INVALIDATE THE

It is submitted that as reiterated above, the fact that the parties chose Washington D.C. as the seat
of arbitration, that the dispute was investment related, that the same two parties had inserted
arbitration clauses in previous agreements for disputes to be heard before a tribunal constituted
under the ICSID, and in the absence of any other clause to the contrary, it can be safely inferred
that the concerned parties intended for the instant dispute to be adjudicated upon by the ICSID.
Therefore, the mere difference in the names of arbitration rules does not invalidate the real
intention of the parties, nor does it make the arbitration clause void on ground of uncertainty. 12

2. Super-Tech, for the purpose of the ICSID convention is a

Rotundian National.
It is submitted that for the purpose of the ICSID convention, Super Tech is a Rotundian National.
Frugalia, by allowing Super Tech to make small investments in the country accepted Super Tech
as a Rotundian National. Furthermore, there exists a genuine link between Super Tech and
Rotundia, which suffices to establish nationality.
11

Bulgarian Sport Organisation v. Greek Sports Organisation, (December 3, 1984), (Award No. 151/1984),
Yearbook of Commercial Arbitration, Vol XV, pg. 63.
12

A v B.GmbH, Interim Award (August 27, 1999), Geneva Chamber of Commerce and Industry, ASA Bulletin, Vol.
XIX, No. 2, 2001;Verveniotis, George, Arbitrators and Contractual Gaps, (1988),Journal of International
Arbitration, Vol. V, No. 3, pp.103-110.

MEMORANDUM for CLAIMANT

5
-Pleadings and Authorities-

2.1. FRUGALIA IS ESTOPPED FROM TAKING ACTION AGAINST SUPER TECH.

It is submitted that a foreign investor could invest in Frugalia only by virtue of the BIT.
Paragraph two of the facts reads-As a part of this policy, the government agreed to open up the
economy to foreign investment, and accordingly entered into a number of Bilateral Investment
Treaties (hereinafter BIT) with different nations. This was to enable a rapid inflow of funds into
the country13
The Frugalian economy, at that point of time was a stagnating one. There was widespread famine
in the country.14 The Government started entering into BITs from 2004. This policy was taken to
allure foreign investors to the country by giving them certain benefits under the BIT. It is an
established principle of economics that when the economy is in recession, the investor would
prefer keeping his assets with him rather than investing in the stagnating economy.
Therefore, it is submitted that firstly, there was a lack of foreign investments between 2003 and
February, 2004, which prompted the government to enter into BITs, and secondly, the wordings
of the facts, and accordingly entered intoand the wordings on paragraph seven of the
facts which reads-despite entering into a large number of BITs, Frugalia could not attract
significant foreign investment. indicates that the process of opening up of the economy was
only through the BITs and that BITs were the only means of foreign investment. (emphasis
added)
Since it has been established that the only legal way for foreign investors to invest in Frugalia
was by way of the provisions of the BIT, it is submitted that by allowing Super Tech to make
investments in Frugalia, the Frugalian government accepted the said company as a national of
Rotundia as there was no other way Super Tech could have invested in Frugalia due to the
absence of a BIT between Frugalia and Enemia.
Therefore, it is contended that Frugalia is estopped from challenging the nationality of SuperTech being Rotundian. it is submitted that Frugalia had the option to not allow initial investments
made by Super Tech. It however, did not object to the same. Furthermore, it allowed Super Tech
13

Facts, .2.

14

Ibid.

MEMORANDUM for CLAIMANT

6
-Pleadings and Authorities-

to make a massive investment of One Billion Dollars. This investment was made on the basis of
the circular issued by the Frugalian Central Board of Taxation, which, under S. 10 of the
Taxation of Investment Act, 2001, were binding on the Government.15
It is submitted that the fact that the returns from the investment were to be taxed, means the
investment was legal, and for the investment to be legal, it had to be under the provisions of the
BIT. There existed no BITs between Frugalia and Enemia and Frugalia and Gregaria. This
implies that the Frugalian government accepted Super Tech as a national of Rotundia and
therefore allowed them to invest in the country, and since it allowed the same, it is estopped from
challenging the nationality of Super Tech.
2.2. SUPER TECH, FOR THE PURPOSE OF THE ICSID, IS A NATIONAL OF ROTUNDIA.
It is submitted that nationality is a legal bond having as its basis a social fact of attachment, a
genuine connection of existence, interests and sentiments, together with the existence of
reciprocal rights and duties.16
The ICJ in Barcelona Traction case17 considered the concept of nationality of a corporation and
laid down the rule that the nationality of a corporation is to be dertermined by the its
incorporation, however recognizing impliedly certain exceptions to the said rule. The legal
position as established by Barcelona Traction has been codified by the International Law
Commission (hereinafter ILC) as- For purposes of diplomatic protection of corporations, the
State of nationality means the State under whose law the corporation was formed and whose
territory it has registered office or the seat of its management or some similar connection.18
It is submitted that in the instant case, Magna Tech owned 90% shares in Super Tech and had the
power to appoint three out of five board of directors, implying the seat of effective control and
15

16

Facts, . 6.
Nottebohm Case (Liechtenstein v. Guatemala), ICJ Reports, 1955, pp. 4, 23.

17

Barcelona Traction, Light and Power Co. (second phase) (Belgium v. Spain) 1970 I.C.J., 3, (Feb. 5) [hereinafter
Barcelona Traction Case].
18

International Law Commision, Report of the International Law Commission, 56th Sess., U.N. Doc. A/59/10 at 13
(May 3- June 4and July 5 to August 6, 2004 (hereinafter 2004 ILC REPORT); Lee, Lawrence J., Barcelona
traction in the 21st century: revisiting its customary and policy underpinnings 35 years later ,(2006) 42, STAN. J.
INTL LAW 245.

MEMORANDUM for CLAIMANT

7
-Pleadings and Authorities-

management being Rotundia. Therefore, it is contended that there is a connection of the sort as
envisaged by the ILC and a genuine link between the Claimant and Rotundia.
Hence it is submitted that the Claimant for the purposes of the present proceedings is to be
considered a Rotundian National.
3. SUPER-TECH IS ENTITLED TO APPROACH
ARTICLE 3 OF THE BIT

THE

ICSID

ARBITRAL PANEL DIRECTLY UNDER

It is submitted that the CLAIMANT is entitled to approach this panel directly notwithstanding the provisions
of Article 8(2) and 8(3) of the Agreement between the Republic of Frugalia and the Democratic Republic
of Rotundia for the Promotion and Protection of Investments and the Encouragement and Reciprocal
Protection of Investments (hereinafter, the BIT). Though Clauses 8(2) and 8(3) of the BIT prescribe
probable cause hearing as a precondition for arbitration, the wide ambit accorded to Article 3 of the BIT
by the CONTRACTING PARTIES extends most favourable nation (hereinafter, MFN) treatment to all matters
relating to commerce, including dispute resolution procedure and mandates the extension of the more
favourable treatment in dispute settlement procedure accorded by Frugalia to investors of certain other
States to be extended to the Rotundian investors.

3.1. OBLIGATION OF MOST FAVOURED NATION TREATMENT EXTENDS

PROCEDURES

TO DISPUTE

RESOLUTION

The CLAIMANT submits that (1) textual interpretation is to be accorded to the provisions of Article 3 of the
BIT, (2) textual interpretation in good faith of the Art 3(1) accommodates dispute settlement procedure
within its ambit. It is further submitted that Art 8 of the BIT does not limit the scope of Art 3 and that any
construction to the contrary will frustrate the basic objectives of the MFN clause.

3.1.1. Textual interpretation is to be accorded to the provisions of the BIT

International law attributes primacy to a textual method of treaty interpretation 19 in light of the object and
purpose of the treaty.20 This method mandates that the terms of the treaty are to be given their ordinary
19

VIENNA CONVENTION ON THE LAW OF TREATIES, May 23,1969, art. 31, 1155 U.N.T.S., 331, U.N. Doc.
A/Conf.39/27 (1969) [hereinafter V.C.L.T.]; M.N. Shaw, INTERNATIONAL LAW 839, (2003); OPPENHEIMS
INTERNATIONAL LAW, 1272 (Jennings & Watts,ed) (1999); G. Fitzmaurice, Vae Victic or Woe to the Negotiators!
Your Treaty or our interpretation of it? 39 A.J.I..L. 65 (1971); I. Sinclair, The Principles of Treaty Interpretation
and their Application by the English Courts, 39 I.C.L.Q. 12 (1963).
20

Air Transport Services Agreement Arbitration, (U.S.A. v. France), (1963) ILR 38, pp. 182, 228 9; Italy-United
States Air Transport Arbitration, (1965) ILR 45, pp. 393, 412-13; South West Africa cases (Liberia v. South Africa),
1962 ICJ 336; Re Competence of Conciliation Commission, (1955) ILR 22, pp. 867, 871; Italian Republic v. Federal
Republic of Germany, (1959) ILR 29, pp. 442, 460; Greece (in behalf of Apostilidis) v. Federal Republic of

MEMORANDUM for CLAIMANT

meaning with due regard to the purpose of the treaty.

21

-Pleadings and AuthoritiesThis approach has been espoused in numerous

decisions22 of the International Court of Justice [hereinafter I.C.J.] and is well established in customary
international law.23

3.1.2. Textual interpretation of the MFN clause accommodates dispute settlement within its
ambit
Article 3(1) of the BIT mandates the extension of MFN treatment to all matters relating to commerce. 24
The said phrase is of wide import and is capable of holding within its ambit all matters bearing a
relationship with commerce, including dispensation of justice. It is true that the administration of
justice, when viewed in isolation, is a subjectmatter other than commerce (), but this is not
necessarily so when it is viewed in connection with the protection of the rights of traders. Protection of
the rights of traders naturally finds a place among the matters dealt with by treaties of commerce (...)
Therefore it cannot be said that the administration of justice, in so far as it is concerned with the
protection of these rights, must necessarily be excluded from the field of application of the mostfavored
nation clause, when the latter includes all matters relating to commerce ()25 Consular jurisdiction and
access to justice has always been considered essential for the protection of rights of traders and, hence,
were regarded not merely as procedural devices but as arrangements designed to better protect the rights
of such persons abroad, implying that such arrangements, even if not strictly a part of the material aspect

Germany, (1960) ILR 34, pp. 219, 241; Mc Nair, THE LAW OF TREATIES, 365 (1961); S. Vesel, Clearing a Path
through a Tangled jurisprudence: Most-Favoured-Nation Clauses and Dispute Settlement Provisions in Bilateral
Investment Treaties, 32 YALE J. INTL L. 125 (2007).
21

I. Sinclair, (Supra, note 19); Ndive Kofele-Kal, Asserting Permanent Sovereignty over Ancestral Lands: The
Bawerki Land Litigation against Cameroon, 13 ANN. SURV. INTL & COMP. L. 103 (2007); Reports of the
International Law Commission to the General Assembly, [1966] 2. Y.B. INTL L. COMM N 218, U.N. Doc
A/6309/Rev. 1/1966.
22

Competence of the General Assembly for the admission of a State to the United Nations, (Second Admissions
Case), 1950 ICJ 8; Yearbook of the International Law Commission, 1996, Vol. 2, p. 219, para 5. Annuaira de L
Institut de Droit International, Vol. 44, Tome 1 (1952), p. 199; T.O. Elias, THE MODERN LAW OF TREATIES, 73,
South West Africa Cases (Second Phase) 1966 ICJ 6.
23

Certain Expenses of the United Nations ((Article 17, paragraph 2, of the Charter), 1962 ICJ 158 9; Second
Admissions Case, ICJ Rep (1950), p. 8; Frigerio v. Federal Department of Transport, (1968), ILR, 72, p. 679;
Belgium et al v. Federal Republic of Germany (Young Loan Arbitration), (1980), ILR, 59, pp. 495, 529; Restrictions
to the Death Penalty, (1983), ILR, 70, pp. 449, 466.
24

Annexure, Facts.

25

Ambatielos Claim, (Greece v United Kingdom,), Merits, 1953, ICJ Rep 10; Emilio Agustn Maffezini v Spain,
Decision on Objections to Jurisdiction, ICSID Case No ARB/97/7, IIC 85 (2000) 25 January 2000

MEMORANDUM for CLAIMANT

9
-Pleadings and Authoritiesof the trade and investment policy pursued by treaties of commerce, were essential for the adequate
protection of the rights they sought to guarantee.26
In light of the foregoing it is submitted that the text of Article 3 in its plain meaning in good faith
accommodates dispute resolution procedure within its ambit and mandates MFN treatment in respect of
the same.

3.2. PROVISIONS OF ARTICLE 8(2) AND 8(3) DO NOT LIMIT THE SCOPE OF ART 3 OF THE BIT
It is submitted that provisions of Art 8(2) and 8(3) cannot be said to be a limitation on the scope of Art 3
as the same have been designed to be provisional in nature governing dispute settlement proceedings until
a more favourable treatment in this regard is accorded by one of the CONTRACTING PARTIES to the
investors of a third State.

3.2.1. Provisions of Art 8(2) and 8(3) are Provisional in Nature and are over-ridden By Article 3
if More Favourable Treatment in Dispute Resolution is extended to a Third Country
The intention of parties that the MFN Clause shall hold within its ambit even dispute settlement
procedures is evident from the use of the phrase all matters relating to commerce as has been sufficiently
ascertained in the foregoing submission. Given this, it is submitted that the dispute settlement mechanism
as envisaged under Art 8 was designed to provide access to the investors of one CONTRACTING PARTY
in the territory of the other only so long as a more favourable mechanism is available to them by
operation of Article 3. An analogy in this regard can be drawn from the WTO practice whereby each
Member under its GATT schedule enlists the bound rate of tariffs applicable to the other Members. 27
Though the bound rates determine the tariff obligations of the Members, the extension of a more
favourable treatment to a third party by a Member entitles all other Members to the same treatment. 28
Similarly, in the instant matter Article 8 lays down a negotiated and accepted procedure for settlement of
disputes. But the same loses significance when the operation of Article 3 entitles the party to a more
favourable procedure.

26

Emilio Agustn Maffezini v Spain, Id.

27

Art. 2, General Agreement on Tariff and Trade, 1994; WTO, EC Export Subsidies on Sugar, Report of the Panel,
(15 October 2004), WT/DS265, 266, 283/R
28

Art I, GATT 1994

MEMORANDUM for CLAIMANT

10
-Pleadings and Authorities-

3.2.2. Considering the Provisions of Article 8(2) and 8(3) as mandatory will frustrate the
operation of the MFN clause
An MFN clause is inserted into an agreement with a view to prevent benefit erosion. It is submitted that a
favourable treatment is beneficial only if it directly or indirectly confers a market advantage. 29 Countries
insert MFN clauses into international treaties with a view to prevent the other party fro extending more
favourable treatment to a third country thereby depriving the former of a market edge it has secured in
exchange for certain reciprocal concessions. 30 In the instant matter, if Articles 8(2) and 8(3) are
considered mandatory notwithstanding the absence of such clauses in the agreements between the
RESPONDENT and third States, the investors of third States will have better access to arbitration and
hence better protection for their investments while Rotundian investors are accorded lesser protection and
are exposed to higher risks. This vitiates the purpose of the MFN clause by taking away any market
advantage conferred upon Rotundian investors by the BIT and resulting in benefit erosion.

3.3. THE PROCEDURE LAID DOWN BY ARTICLE 8(2) AND (3)

ACCORDED TO INVESTORS OF OTHER COUNTRIES

IS

LESS FAVOURABLE

THAN THAT

A right to approach an arbitral tribunal directly without complying with pre-requisites is a treatment more
favourable than a right to approach an arbitral tribunal contingent upon the compliance with prerequisites.31 It is submitted that an advantage or benefit is to be judged with respect to the recipient and
not with respect to the party granting it. 32 In the instant matter, with reference to the Rotundian investors
in general and Super-Tech in particular, dispute settlement mechanism envisaged in Article 8 of the BIT
exposes the investor to a two fold proceeding which involves unnecessary delay which in turn implies a
disadvantageous market position. Hence, it is submitted that the treatment accorded to the Rotundian
investors by virtue of Article 8(2) and (3) is less favourable than that accorded to the investors of third
States.

29

WTO, Canada Measures Affecting the Export of Civilian Aircraft, Report of the Appellate Body, (10 March
1997) WT/DS71/AB/R and WT/DS70/AB/R
30

Robert Z. Lawrence, A New Compensation Mechanism for Preference Erosion in the Doha Round, available
online at http://www.iie.com/publications/papers/lawrence1006-044.pdf
31

Emilio Agustn Maffezini v Spain, (Supra, note 25).

32

Canada Aircraft, (Supra, note 29).

MEMORANDUM for CLAIMANT

11
-Pleadings and Authorities-

4. The Respondents Tax-Measures, to the Extent they Concern

Rotundian Investors, are Violative of Fair and

Equitable Treatment Obligation and is violative of
Article 2 of the BIT

It is submitted that the tax measures of the RESPONDENT to the extent they concern Super-Tech are
violative of the Article 2 of the BIT as the obligations arising out of this provision include not only the
international minimum standards of fairness and equity but also includes a number of other elements
which the Tribunal is competent to decide upon, including the stability of regulatory framework and
protection of legitimate expectations. In the alternative, even assuming that the obligation cast by the said
provision is confined to the international minimum standards, it is submitted that the said elements of
stability of framework and protection of legitimate expectations can be accommodated fairly within such
minimum standards.

4.1. THE OBLIGATION UNDER ARTICLE 2

MINIMUM STANDARDS

OF THE

BIT

IS NOT

LIMITED

TO

INTERNATIONAL

It is submitted that a textual interpretation of the provisions of Article 2 in good faith and in light of the
object and purpose of the agreement as evidenced by the Preamble accords to it a scope that is not limited
to the international minimum standards of fair and equitable treatment. The international minimum
standards are meant to create a floor, but not a ceiling 33 and the clause in question, interpreted in light of
the objects and purpose of the BIT as evident from the Preamble creates an obligation upon the parties to
ensure stability of investment framework and accord protection to legitimate expectations.

4.1.1. Provisions of the Treaty are to be Interpreted Textually in Good-faith and in light of the
Object and Purpose of the Treaty as Evidenced by the Preamble
The words of a treaty are to be accorded their plain meaning in good-faith 34 and are to be interpreted in
light of the object and purpose and context of the treaty35. The usefulness of the Preamble in ascertaining

33

Azurix Corporation v. Argentine Republic (Jurisdiction) , 2004 43 ILM 262 (ICSID, 2003, Sureda, P Lauterpacht
& Martins) .361.
34

Art 31(1), VCLT.

35

Republic of Ecuador v. Occidental Exploration and Production Co,. [2005] EWCA Civ 1116; [2006] 432 (CA);
AdT SA v. Republic of Bolivia (Jurisdiction), (2005) ICSID Rev-FLJ 450 (ICSID 2005, Caron P, Alberro-Semerena
& Alvarez).

MEMORANDUM for CLAIMANT

12
-Pleadings and Authoritiesthe object and purpose of the treaty is well established in international law. It is submitted that Article 2
36

of the BIT is to be interpreted in plain meaning in good faith and in the light of its Preamble.

4.1.2. Article 2 of the BIT Interpreted Textually in Light of the Object and Purpose Mandates
Stability of Framework
It is submitted that in international investment law, fair and equitable treatment is inseparable from
stability and predictability.37 The preamble of the BIT mentions stability of investment framework in the
context of fair and equitable treatment. 38 The ICSID panels while interpreting Fair and Equitable
Treatment clauses in agreements containing Preambles pari materia with the said clause have held that
stability of legal and business environment39 is an essential feature of fair and equitable treatment as
interpreted in light of the objectives of the treaty. 40

4.1.3 Fair and Equitable Treatment Mandates Protection of Legitimate Expectations.

It is well established that if a public body has led an entity to believe that the latter will have a particular
right, over and above that generally required by the principles of fairness and natural justice, then the
latter is said to have legitimate expectations that can be protected.41
Fair and Equitable Treatment mandates the CONTRACTING PARTIES to provide to international
investments treatment that does not affect the basic expectations that were taken into account by the
foreign investor to make the investment. 42 The foreign investor is entitled to a legitimate expectation of
consistency and freedom from ambiguity in policy and rules relating to the investment. 43
36

Art 31(2), VCLT.

37

CMS Gas Transmission Co v. Argentine Republic, ICSID Case No. ARB/01/8, (May 12, 2005); Republic of
Ecuador v. Occidental Exploration and Production Co., (Supra, note 35).
38

Appendix, Facts, Preamble,.4.

39

CMS Gas Transmission Co v. Argentine Republic, (Supra, note 37).. 274.

40

Azurix Corporation v. Argentine Republic (Jurisdiction) ,(Supra, note 33); CMS Gas Transmission Co v.
Argentine Republic, ., (Supra, note 37).; Republic of Ecuador v. Occidental Exploration and Production Co., (Supra,
note 35).
41
P. Craig, ADMINISTRATIVE LAW, (2003), 5th Ed., Sweet & Maxwell, London), Chapter 13.
42

Tecnicas Medioambientales Tecmed SA v. United Mexican States (Award), (2004) 43 ILM 133 (ICSID (AF), 2003,
Grigeria Naon P, Fernandez Rozas & Bernal Verea); CME Czech Republic BV (The Netherlands) v Czech Republic (
Partial Award,) 9 ICSID Rep 121,238 (UNCITRAL, 2001, Kuhn C., Schwebel & Handl), Republic of Ecuador v.
Occidental Exploration and Production Co., (Supra, note 35).
43

Republic of Ecuador v. Occidental Exploration and Production Co., (Supra, note 35);Tecnicas Medioambientales
Tecmed SA v. United Mexican States (Award),Id., CME Czech Republic BV (The Netherlands) v Czech Republic
( Partial Award,) Id.

MEMORANDUM for CLAIMANT

13
-Pleadings and Authorities-

4.2. ARGUENDO, THE INTERNATIONAL MINIMUM STANDARDS OF FAIR

TREATMENT INCLUDES PROTECTION OF LEGITIMATE EXPECTATIONS

AND

EQUITABLE

Assuming but not admitting that the scope of the obligation under Article 2 of the BIT is restricted to the
international minimum standards, it is submitted that such minimum standards would include an
obligation to protect legitimate expectations. The doctrine of good-faith is of sound standing in
international law. It is a part of customary international law and has been incorporated into a number of
international treaties. While dealing with the topic of legitimate expectations, arbitral tribunals have
located its origin within the doctrine of good-faith. 44 For instance, it was held in Tecnicas
Medioambientales Tecmed SA v. United Mexican States: the good faith principle established by
international law requires the contracting parties to provide international investments treatment that does
not affect the basic expectations that were taken into account by the foreign investor to make the
investment45. Similarly in the Nuclear Tests case, the legitimate expectation created by the President of
France and the obligations of France arising therefrom were located within the principle of good-faith. 46
In light of the above, it is submitted that even assuming that the obligation under Article 2 of the BIT
extends only to the international minimum standards of fair and equitable treatment, the protection of
legitimate expectations can be located within such minimum standards.

4.3 THE RESPONDENT ,THROUGH ITS CHANGE

OF FAIR AND EQUITABLE TREATMENT

IN

TAX POLICY

HAS

BREACHED

THE

OBLIGATION

It has been sufficiently established by the foregoing submissions that preservation of stability of
investment framework and protection of legitimate expectations are mandated by the obligation of fair
and equitable treatment. Alteration of tax structure, imposing an additional tax burden of 90% on the
CLAIMANT altered the legal and business climate in which the CLAIMANT decided to invest and has affected
prejudicially the CLAIMANTS legitimate expectations regarding the economic viability and expected
returns from its investments in the RESPONDENT state. Hence, there has been a violation of the obligation
of fair and equitable treatment in terms of substantial alterations in the investment framework and a
failure to protect legitimate expectations.

44

Tecnicas Medioambientales Tecmed SA v. United Mexican States (Award), (Supra, note 42); ADF Group
Incorporated v. United States of America (Award), 6 ICSID Rep 449.
45

Tecnicas Medioambientales Tecmed SA v. United Mexican States (Award),, (Supra, note 42).

46

Nuclear Tests (New Zealand v. France) case, ICJ Reports, 1995, pg. 288.

MEMORANDUM for CLAIMANT

14
-Pleadings and Authorities-

5. The Tax Measures of the Respondent Amount to

Unjustified Expropriation Under International Law and
is Violative of Article 4 of the BIT
It is submitted that the tax measure imposed by the RESPONDENT amounts to an act of indirect
expropriation as the same has effects equivalent to that of expropriation and owing to its permanent
nature. It is also submitted that the purpose and context of the measure does not negate it being an act of
expropriation and that the same is not justified as an exercise of the police powers of the State. Further, it
is submitted that the expropriation is illegal owing to the non- payment of compensation.

5.1. TAX MEASURES OF THE RESPONDENT

INTERNATIONAL LAW

AMOUNT TO

INDIRECT EXPROPRIATION UNDER

5.1.1. Expropriation as Understood in International Law includes Indirect Expropriation

Expropriation in international law includes both direct and indirect expropriation. Indirect expropriation is
said to have occurred when there is an interference by a state in the use of property or with the enjoyment
of the benefits without the seizure of the property and without affecting the legal title to the property 47.
Expropriation includes covered or incidental interference with the use of property which has the effect of
depriving the owner in whole or in signinficant part of the () reasonably to- be expected economic
benefit of property even if not necessarily to the obvious benefit of the host State. 48 The concept of
indirect expropriation has been accorded international recognition by the way of it being discussed in a
number of international texts including Bilateral Investment Treaties, Model BITs and Arbitral Awards. 49
Whether or not a regulatory measure amounts to indirect expropriation is to be judged in terms of i) the
47

Organization for Economic Development and Co-operation [hereinafter O.E.C.D.], Indirect Expropriation and
the Right to Regulate in International Investment Law, Working Papers on International Investment, No. 2004/4,
September 2004, pp. 3-4; Waste Management Inc v. United Mexican States (Award), (2004) 43 ILM 967
(NAFTA/ICSID (AF), 2004, Crawford P, Civiletti & Magallon Gomez; Middle East Cement Shipping & Handling
Co. SA v. Arab Republic of Egypt (Award), ICSID CaseArb/99/6 (ICSID, 2002, Bocksteigel P, Bernardini &
Wallace).
48

Metalclad Corporation v. United Mexican States (Award), 5 ICSID Rep 209,(NAFTA/ICSID (AF), 2000,
Lauterpacht P., Civiletti, Siqueiros).
49

O.E.C.D,
The
Multilateral
Agreement
on
Investment
Negotiating
Text
available
at
http://www.oecd.org/dataoecd/4640/1895712.pdf (visited on 8.2.2008); Art 1101(1), North American Free Trade
Agreement (adopted December 17, 1992, entered into force 1 January 1994) CTS 1994 No. 2 [hereinafter
N.A.F.T.A.]; Art 13(1), Energy Charter Treaty, (signed 17 December 1994, entered into force 30 December 1999),
2080 UNTS 100 [hereinafter E.C.T]; Art VI; The Association of South Asian Nations Agreement for The Promotion
and Protection of Investments (signed 15 December 1987) (1988) 27 ILM 612, 613; Nycomb Synergetics
Technology Holding AB v Rep. of Latvia (Award), SCC Case No. 118/2001(SCC 2003, Haug C, Schutze and
Gernandt) 4.3.1

MEMORANDUM for CLAIMANT

15
-Pleadings and Authoritiesdegree of interference with the property right, ii) the character of governmental measures, i.e. the purpose
and the context of the governmental measure, and iii) the interference of the measure with reasonable and
investment-backed expectations.50

5.1.2. The Measure in Question has an Effect on the Investor Equivalent to Expropriation
Severity of the economic impact caused by a government action is to be treated as an important element
in determining whether it rises to the level of an expropriation requiring compensation. 51 The intent of the
government is less important than the effects of the measures on the owner, and the form of the measures
of control or interference is less important than the reality of their impact.52 A regulatory measure
amounts to expropriation if it significantly interferes with the investors property rights.53
In the instant matter, the economic impact of the governmental action on the investor is such that failure
to get a favourable decision in this regard in a span of eight months will result in financial ruin of the
CLAIMANT.

54

Hence it is submitted that the impugned measure has imposed on the CLAIMANT such

hardship that in ordinary course of events continued activity is not viable. This has substantially the same
impact on effective control over use and operation as if the properties were themselves conceded and
hence the impugned measure amounts to indirect expropriation. 55

50

O.E.C.D, Indirect Expropriation and the Right to Regulate in International Investment Law, Working Papers on
International Investment, No. 2004/4, September 2004.
51

Handyside v. United Kingdom, 24 Eur. Ct. H.R. (ser.A) at 29 (1976); Poiss v. Austria, 117 Eur. Ct.H.R. (ser.) 84,
108 (1987); Matos e Silva, Lda v. Portugal, App. No. 15777/89, 24 Eur. Ct. H.R. rep. 573, 600-01 (1996).
52

Tippetts, Abbett, Mc Carthy, Stratton v. TAMMS-AFFA Consulting Engineers of Iran,(1984) 6-UNSCTR 219, 225;
Ebrahimi (Shahin Shaine) v Islamic Republic of Iran,(1994) 30-Iran-UNSCTR 170,190, Phillips Petroleum Co Iran
v. Islamic Republic of Iran, the National Iranian Oil Co., (1989) 21 Iran-UNSCTR 79,115, Antoine Biloune and
Marine Drive Complex Ltd. v. Ghana Investment Centre and Government of Ghana (Awards), 95 ILR 183 (1993)
(1989 & 1990, Schwebel P, Wallace & Monroe Leigh).
53

Feldman v United Mexican States (Award), ARB(AF)/99/1, Award of 16 December 2002, 39, 59.

54

Facts, 12.

55

Revere Copper & Brass Inc. v. Overseas Private Investment Corporation, 56 International Legal Materials
258;Pope &Talbot Inc v. Government of Canada (Interim Award),7 ICSID Rep 69, 87; Gami Investment Inc v.
Government of New Mexican States (Award),(UNCITRAL/NAFTA, 2004, Reisman P, Muro & Paulsson); LY Fortier
& SL Drymer, Indirect Expropriation in the Law of International Investment: I Know it when I see it, or Caveat
Investor, (2004) 19 ICSID Rev-FILJ 293,pp.299-305; Art 103(a),Harvard Draft Convention on the International
Responsibility of States for Injuries to Aliens.

MEMORANDUM for CLAIMANT

16
-Pleadings and Authorities-

5.1.3. The Measure in Question Amounts to Expropriation in View of its Permanent Nature
The duration of the regulation or interference has been accepted as an important criterion in determining
whether it qualifies to be an act of expropriation. 56 Tribunals have considered the fact that the economic
impact of the measure is not merely ephemeral but of a lasting or irreversible nature as a sufficient
indicator of the measure being expropriatory. 57 In the instant matter, there is no mention of any intention
on the part of the RESPONDENT to restore the CLAIMANT to its economic viability. Moreover, the fact that
the result of not being able to secure a favourable award in a span of eight months is foreseen to be
financial ruin shows the irreversible nature of the impact. Hence it is submitted that in view of the
foregoing, the impugned measure, in terms of the duration of its impact, amounts to indirect
expropriation.

5.2. THE IMPUGNED EXPROPRIATION BY THE RESPONDENT IS ILLEGAL IN INTERNATIONAL LAW

Payment of adequate compensation inter alia is necessary accord legality to an expropriation in
international law. Though there are differences on the quantum of compensation the international
community converges on the existence of the obligation to compensate for expropriation. 58 Even a public
purpose or the permissibility/necessity of expropriation under domestic or international law would not
absolve the State of its obligation to compensate.59
In the instant matter, the expropriation has been carried out without any compensation whatsoever. Hence,
it is submitted that the expropriation is illegal in international law and violative of Art. 4 of the BIT.

5.3. THE IMPUGNED MEASURE IS NOT JUSTIFIED AS AN EXERCISE OF THE POLICE POWERS OF
THE STATE
It is submitted that though police powers constitute an exception to the rule of compensation,
every act of regulation or taxation cannot be brought within its ambit.

60

Police powers refers to

56

Tippetts, Abbett, Mc Carthy, Stratton v. TAMMS-AFFA Consulting Engineers of Iran,( (Supra, note 52);helpsDodge Corp. & Overseas Pvt. Investment Corporation v. Iran, (1986) 10 Iran-UNSCTR 121; Tecnicas
Medioambientales Tecmed SA v. United Mexican States (Award), (Supra, note 42)..
57

Id.

58

Indirect Expropriation and the Right to Regulate in International Investment Law,(Supra, note 50).
Compaa del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1,(February
17, 2000).
59

60

Compaa del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No. ARB/96/1,(February 17,
2000); Harold Birnbaum v. Iran, (1993) 29 Iran-USCTR 260-270; Phillips Petroleum Co Iran v. Islamic Republic of
Iran, the National Iranian Oil Co., (Supra, note 52); Ebrahimi (Shahin Shaine) v Islamic Republic of Iran, (Supra,
note 52).

MEMORANDUM for CLAIMANT

17
-Pleadings and Authorities-

measures that justify state action which would otherwise amount to a compensable deprivation or
appropriation of property.61 The distinction between regulatory measures and exercise of police
powers has been stressed upon by a number of eminent scholars. 62 International law recognizes
only two broad categories of police power regulation that might justify non-compensation where
there is a deprivation: (i) public order and morality; and (ii) protection of human health and the
environment.63 In the instant matter, tax measure imposed by the RESPONDENT, though regulatory
in nature, does not fall within either of the said categories and hence does not qualify to be
protected as an exercise of police powers.
5.4. ARGUENDO, THE STATE IS PRECLUDED FROM THE EXERCISE OF ITS POLICE POWERS
EXTENT IT HAS UNDERTAKEN OBLIGATIONS TO THE CONTRARY

TO THE

It is submitted that the ability of the state to justify non-compensation on the two above
mentioned grounds will be affected by the extent to which the state had made legally binding
commitments to the contrary.64 When a State induces the investor to believe that a legal
obligation is not binding upon the latter and the latter has acted relying on the said belief, the
State is precluded from enforcing the said legal provision on the investor in exercise of its police
powers.65
In the instant matter, the circular (CBT/1543/05) issued by the Central Board of Taxation had
exempted the CLAIMANT from the obligation under the Taxation of Investments Act, 2001. 66
Moreover by incorporating Art 2 in the BIT the RESPONDENT has undertaken a legally binding
61

Andrew NewCombe, The Boundaries of Regulatory Expropriation in International Law, (2005) 20:1 ICSID
Review,pp.20-23; Revere Copper and Brass, Inc. and Overseas Private Investment Corporation, (1980) 56 I.L.R.
258.
62

R. Higgins, The Taking of Property by the State: Recent Developments in International Law,(1982) 176 Rec.
des Cours 259; D.F. Vagts, Coercion and Foreign Investment Rearrangements (1978) 72 A.J.I.L. 17; G.C.
Christie, What Constitutes a Taking of Property under International Law (1962) 33 B.Y.I.L. 307; B.H. Weston,
Constructive Takings under International Law: A Modest Foray into the Problem of Creeping Expropriation
(1975) 16 Va. J. Int'l L. 103.
63

Andrew NewCombe, The Boundaries of Regulatory Expropriation in International Law, (2005) 20:1 ICSID
Review, (Supra note 60).
64

Biloune v. Ghana Investment Centre, 95 ILR, pp. 183, 207-10.

65

Id.

66

Facts, . 6.

MEMORANDUM for CLAIMANT

18
-Pleadings and Authorities67

commitment to maintain stability of the investment framework . In light of this binding

commitment and the reliance placed by the CLAIMANT on the same, it is submitted that even
assuming that the matter falls within police powers of the State, the RESPONDENT is precluded
from exercising such powers in this regard.

67

Appendix, Facts.

MEMORANDUM for CLAIMANT

19
-Prayer for Relief-

PRAYER FOR RELIEF

In light of the above submissions, Counsel respectfully requests that the Tribunal to determine:
1)

That the Tribunal has jurisdiction over all matters raised by the CLAIMANT;

2)

That the CLAIMANT is a national of Rotundia for the purpose of this proceeding

3)

That the CLAIMANT is entitled to rely on Art. 3 of the BIT to establish the jurisdiction of the
Tribunal

4)

That the impugned tax measure violates the obligations of the RESPONDENT under Art. 2
and Art. 4 of the BIT

Sd/-

______________________
COUNSEL FOR CLAIMANT

MEMORANDUM for CLAIMANT