TEAM ALIAS: FORTIER

IN THE MATTER OF AN ARBITRATION UNDER THE RULES OF THE

STOCKHOLM CHAMBER OF COMMERCE (2017)

SCC ARBITRATION V2018/003858

BETWEEN:

FENOSCADIA LIMITED

(CLAIMANT)

AND

THE REPUBLIC OF KRONOS

(RESPONDENT)

MEMORANDUM FOR RESPONDENT

i

TABLE OF CONTENTS

Table of Contents .................................................................................................................. i

Table of Abbreviations and Definitions ............................................................................ iii

Treaties, Conventions and Rules ......................................................................................... v

Table of Authorities ............................................................................................................ vi

Table of Cases ....................................................................................................................... x

Preliminary Statement ......................................................................................................... 1

Statement of Facts ................................................................................................................ 2

Summary of Arguments ....................................................................................................... 7

Jurisdiction, Admissibility and Counterclaim ................................................................... 8

I) This Tribunal lacks jurisdiction ratione personae ...................................................... 8

A. Claimant falls outside of Respondent’s consent to arbitrate .................................... 8

B. The Tribunal should construe the applicable nationality standard in light of the

VCLT ....................................................................................................................... 9

i. Claimant is not a Ticadian investor under the “siège social” test .......................... 11

ii. Claimant is not a Ticadian enterprise under the “control” standard ...................... 12

II) Claimant’s claim is inadmissible since the FITR provision in the KT-BIT was

triggered ....................................................................................................................... 13

III) Respondent’s counterclaim is admissible.................................................................. 17

A. Respondent’s counterclaim has a close connection with Claimant’s claim ........... 17

B. The counterclaim is well-founded on Article 9(2) of the KT-BIT......................... 19

Merits ................................................................................................................................... 22

I) Respondent acted in accordance with its legitimate Police Powers ........................ 22

A. The Decree served Kronos public purpose ............................................................ 24

B. The Decree was issued in accordance with due process of law ............................. 25

ii

C. The Decree was a non-discriminatory regulatory measure .................................... 27

D. Respondent’s actions were proportionate .............................................................. 28

E. Claimant has no right to be compensated ............................................................... 30

II) Respondent’s actions fall within the General Exceptions clause ............................ 33

A. Respondent’s actions were within the scope of Article 10(1)(a) and (c) of the KT-

BIT ......................................................................................................................... 34

B. Respondent’s actions comply with the requirements set forth in Article 10(2) of

the KT-BIT ............................................................................................................. 35

i. The Decree did neither arbitrarily nor unjustifiably discriminate between

investors ................................................................................................................. 36

ii. The Decree is not a disguised restriction on international investment .................. 37

Prayer for Relief ................................................................................................................. 40

iii

TABLE OF ABBREVIATIONS AND DEFINITIONS

Abbreviation Definition

§/§§ Section/sections

¶/¶¶ Paragraph/paragraphs

Agreement Concession Agreement (2000)

ARA Answer to Request for Arbitration (2018)

BIT Bilateral Investment Treaty

Claimant Fenoscadia Limited

CVD Cardiovascular disease

Decree Decree No. 2424 (2016)

ed. Edition

eds. Editors

Exhibit(s) FDI Moot Problem 2018

FITR Fork in the road

House Kronian House of Representatives

i.e. That is to say

Ibid. At the same place

ICJ International Court of Justice

ICSID International Centre for Settlement of Investment Disputes

Id. The same

IFC International Finance Corporation

ILC International Law Commission

KEA Kronian Environmental Act (2015)

MAFL Kronian Ministry for Agriculture, Forestry and Land

MEM Kronian Ministry for Environmental Matters

p/pp Page/pages

PCA Permanent Court of Arbitration

PCIJ Permanent Court of International Justice

PO No. 1 Procedural Order No. 1 (2018)

PO No. 2 Procedural Order No. 2 (2018)

PO No. 3 Procedural Order No. 3 (2018)

iv

RA Request for Arbitration (2017)

Respondent Republic of Kronos

SCC Stockholm Chamber of Commerce

Site Area of Respondent’s inner territory were lindoro was found

Speaker Speaker of the House

Study The study published by the University (2016)

SUF Statement of Uncontested Facts

Ticadia Republic of Ticadia

UNCITRAL United Nations Commission on International Trade Law

University Kronian Federal University

Vol. Volume

WTO World Trade Organization

v

TREATIES, CONVENTIONS AND RULES

Abbreviation Citation Paragraph

GATT General Agreement on Tariffs and Trade (1947) ¶134

HARVARD DRAFT Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens (1961)

¶124

KT-BIT The Kronos-Ticadia Bilateral Investment Treaty (1995)

¶¶22, 27, 31, 50, 61, 63, 78,

80, 81, 86, 100, 128, 139,

142 & 147

RIO DECLARATION

The Rio Declaration on Environment and Development (1992)

¶113

SCCR Stockholm Chamber of Commerce Rules (2017) ¶82

VCLT Vienna Convention on the Law of Treaties (1969) ¶¶23, 30, 45, 79 & 89

WATER CONVENTION

Convention on the Protection and Use of Transboundary Watercourses and International Lakes (1992)

¶9

vi

TABLE OF AUTHORITIES

Abbreviation Citation Paragraph

ALDRICH George Aldrich, What Constitutes a Compensable Taking of Property? The Decisions of the Iran United States Claims Tribunal, American Journal of International Law, 1994.

¶124

ALVAREZ & BRINK

Jose E. Álvarez & Tegan Brink, Revisiting the necessity defense, New York University Public Law and Legal Theory Working Papers, 2010.

¶135

AMERICAN LAW INSTITUTE

American Law Institute, The Restatement of the Law: The Foreign Relations Law of the United States, 1987.

¶124

BARTELS Lorand A. Bartels, The Chapeau of Article XX GATT: A New Interpretation, Social Sciences Research Network, Electronic Journal, 2014.

¶142

BEN HAMIDA Walid Ben Hamida, L’arbitrage Etat-investisseur cherche son équilibre perdu: Dans quelle mesure l’Etat peut introduire des demandes reconventionnelles contre l’investisseur privé?, Vol. 7, International Law FORUM du droit international, 2005.

¶81

BENVENISTI Eyal Benvenisti, Margin of Appreciation, Consensus and Universal Standards, New York University Journal of International Law and Politics, 1999.

¶¶96 & 114

BROWNLIE Ian Brownlie, Principles of Public International Law, 7th ed., 2008.

¶37

CHOUDHURY Barnali Choudhury, Recapturing public power: Is investment arbitration’s engagement of the public interest contributing to the democratic deficit?, Vanderbilt Journal of Transnational Law, Vol. 41, 2008.

¶115

DIEHL Alexandra Diehl, The Core Standard of International Investment Protection: Fair and Equitable Treatment, Wolters Kluwer, 2012.

¶37

DOLZER & SCHREUER

Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law, Oxford University Press, 2012.

¶¶37, 52 & 124

DOLZER & STEVENS

Rudolf Dolzer & Margrete. Stevens, Bilateral Investment Treaties, Kluwer Law International, 1995.

¶37

vii

DOUGLAS Zachary Douglas, The International Law of Investment Claims, Cambridge University Press, 2009.

¶¶37, 44 & 56

DOUGLAS II Zachary Douglas, The Enforcement of Environmental Norms in Investment Treaty Arbitration, [in:] Pierre-Marie Dupuy & Jorge Viñuales (eds.), Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards, Cambridge University Press, 2013.

¶70

FEINGOLD Cora Feingold, Doctrine of Margin of Appreciation and the European Convention on Human Rights, Notre Dame Law Review, 1977.

¶¶96 & 114

HENCKELS Caroline Henckels, Proportionality and Deference in Investor – State Arbitration: Balancing Investment Protection and Regulatory Autonomy, Cambridge University Press, 2015.

¶113

HUTCHINSON Michael Hutchinson, The Margin of Appreciation Doctrine in the European Court of Human Rights, The International and Comparative Law Quarterly, 1999.

¶¶96 & 114

JARAMILLO & SALDARRIAGA

Eduardo Z. Jaramillo & Andrea Saldarriaga, et al., Treaty Planning: Current Trends in international Investment Disputes that Impact Foreign Investment Decisions and Treaty Drafting [in:] M. Á. Fernández-Ballesteros & David Arias eds., Liber Amicorum Bernardo Cremades, 2010.

¶37

JENNINGS & WATTS

Sir Robert Jennings & Sir Arthur Watts, Oppenheim’s International Law, 9th ed. Vol. 1 Peace, 2008.

¶102

KJOS Hege E. Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law, Oxford Scholarship, 2013.

¶70

KRIEBEL David Kriebel et al., The precautionary principle in environmental science, Environmental Health Perspectives, 2001.

¶113

LALIVE Pierre Lalive, The First “World Bank” Arbitration (Holiday Inns v. Morocco) - Some Legal Problems, Vol. 51, British Yearbook of International Law, 1980.

¶26

MOLOO & JACINTO

Rahim Moloo & Justin M. Jacinto, Standards of Review and Reviewing Standards: Public Interest Regulation in International Investment Law, Yearbook on International Investment Law and Policy 2011–2012, 2013.

¶¶95 & 114

viii

MONTT Santiago Montt, State Liability in Investment Treaty Arbitration Global Constitutional and Administrative Law in the BIT Generation, Hart Publishing, 2012.

¶124

MOSTAFA Ben Mostafa, The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law, Australian International Law Journal, 2008.

¶124

NEWCOMBE Andrew Newcombe, The boundaries of regulatory expropriation in international law, ICSID Review: Foreign Investment Law Journal. Vol. 20, Nro.1, 2005.

¶92

NIKIÈMA Suzy H. Nikièma, “Best Practices: Definition of Investor”, The International Institute for Sustainable Development, 2012.

¶124

OECD OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, OECD Working Papers on International Investment, 2004.

¶¶90 & 124

PALOMBINO Fulvio Maria Palombino, Laicità dello Stato ed esposizione del crocifisso nella sentenza della Corte europea dei diritti dell’uomo nel caso Lautsi, Rivista di diritto internazionale, 2010.

¶¶96 & 114

REINISCH August Reinisch, Is expropriation ripe for codification? The example of the non-discrimination requirement for lawful expropriations, International Investment Law and Soft Law, 2012.

¶108

RUBINS & KINSELLA

Noah Rubins & Sthephan Kinsella, International Investment, Political Risk and Dispute Resolution, Oceana TM, 2005.

¶37

SAUL Matthew Saul, The European Court of Human Rights’ Margin of Appreciation and the Processes of National Parliaments, Human Rights Law Review, 2015.

¶¶96 & 114

SAUVÉ Paul Sauvé, Trade and Investment Rules: Latin American Perspectives, CEPAL, 2006.

¶37

SCHREUER Christoph Schreuer, The ICSID Convention: “A Commentary”, Cambridge University Press, 2009.

¶¶29 & 76

SCHREUER-VIVENDI

Christoph Schreuer, Investment Treaty Arbitration and Jurisdiction over Contract Claims – the Vivendi I Case Considered [in:] Todd Weiler (editor), International Investlment Law and Arbitration: Leading Cases from ICSID, NAFTA Bilateral Investment Treaties and Customary International Law, 2005.

¶¶53 & 83

ix

SIMPSON & FOX John L. Simpson and Hazel Fox, International Arbitration: Law and Practice, Stevens, 1959.

¶70

SOLOWAY Julie Soloway, Environmental Regulation as Expropriation: The Case of NAFTA’s Chapter 11, Canadian Business Law Journal, 2000.

¶124

SORNARAJAH Muthucumaraswamy Sornarajah, The International Law of Foreign Investment, 2nd ed., Cambridge University Press, 2010.

¶¶37 & 90

THORN & DOUCLEFF

Rachel Thorn & Jennifer Doucleff, Disregarding the Corporate Veil and Denial of Benefits Clauses: Testing Treaty Language and the Concept of Investor in: M. Waibel et al eds., The Backlash Against Investment Arbitration, 2010.

¶37

TITI Aikaterini Titi, The Right to Regulate in International Investment Law, Oxford: Hart, Nomos, Dike, 2014.

¶90

TURNER Peter Turner, The Fork in the Road Revisited, in Federico Ortino et al. eds. Investment Law –Current Issues, Vol. I, British Institute of International and Comparative Law, 2006.

¶53

UNCTAD UNCTAD Series on Issues in International Investment Agreements II, Expropriation, 2012.

¶¶96, 102, 109, 124, 127 & 129

UNCTAD II UNCTAD Series on Issues in International Investment Agreements, Environment, 2001.

¶129

UNCTAD III UNCTAD Series on Issues in International Investment Agreements, Scope and Definition, 1999.

¶37

WAGNER Martin J. Wagner, International Investment, Expropriation and Environmental Protection, Golden Gate University Law Review, 1999.

¶124

XU, WU & JIA Shu Wu, Yingying Wu and Henry Hailong Jia, Investment law’s Roots in Customary International law - Why Investment Law and Trade Diverge Regarding the Right to Regulate, Yearbook on International Investment Law and Policy, 2017.

¶132

ZARRA Giovani Zarra, Right to Regulate, Margin of Appreciation and Proportionality: Current Status in Investment Arbitration in Light of Philip Morris v. Uruguay, Revista de Direito Internacional, 2017.

¶115

x

TABLE OF CASES

Abbreviation Citation Paragraph

ADC ADC Affiliate Limited and ADC & ADMC Management Limited v. Hungary, ICSID Case No ARB/03/16, Award, 2 October 2006.

¶¶102 & 109

AIG AIG Capital Partners, Inc. and CJSC Tema Real Estate Company Ltd. v. Kazakhstan, ICSID Case No. ARB/01/6, Award, 7 October 2003.

¶102

Ambatielos Ambatielos case (merits: obligation to arbitrate), ICJ Judgement, 19 May 1953.

¶25

Amco Amco v. Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983.

¶¶66 & 76

Application Bosnia - Yugoslavia

Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Yugoslavia), ICJ Counter-Claims, Order, 17 December 1997.

¶69

Armed Activities Case Concerning Armed Activities on the Territory of the Congo (Congo v. Uganda), ICJ Judgment, 19 December 2005.

¶70

Armed Activities Counterclaim

Case Concerning Armed Activities on the Territory of the Congo (Congo v. Uganda), ICJ Order on Counterclaims, 29 November 2001.

¶¶67 & 69

Bayindir Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005.

¶76

Chemtura Chemtura Corporation v. Canada (formerly Crompton Corporation v. Government of Canada), UNCITRAL, Award, 2 August 2010.

¶¶92 & 124

Chevron Chevron Corporation and Texaco Petroleum Company v. Ecuador, UNCITRAL, Third Interim Award on Jurisdiction, 27 February 2012.

¶53

CMS Annulment CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc committee on the application for annulment of Argentina, 25 September 2007.

¶¶129 & 132

Continental Casualty Jurisdiction

Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Decision on Jurisdiction, 22 February 2006.

¶76

xi

Continental Casualty Merits

Continental Casualty Company v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008.

¶¶132 & 133

Dominican Republic-Cigarettes

Dominican Republic - Measures Affecting the Importation and Internal Sale of Cigarettes, Report of the Panel, WT/DS302/R, 26 November 2004.

¶135

Duke Energy Duke Energy International Peru Investments No. 1 Ltd. v. Peru, ICSID Case No. ARB/03/28, Decision on Jurisdiction, 1 February 2006.

¶¶76 & 77

Eastern Carelia Status of Eastern Carelia, Advisory Opinion, 1923 PCIJ, 23 July 1923.

¶25

EC-Asbestos European Communities – Measures Affecting Asbestos and Asbestos – Containing Products, Report of the Panel, WT/DS135/R, 18 September 2000.

¶¶135, 146 & 147

EC-Hormones European Communities – EC Measures Concerning Meat and Meat Products (Hormones), Report of the Appellate Body, WT/DS26/AB/R; WT/DS48/AB/R, 16 January 1988.

¶140

EC-Tyres Brazil – Measures Affecting Imports of Retreaded Tyres, Report of the Panel, WT/DS332/R, 12 June 2007.

¶135

El Paso El Paso Energy International Co. v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2001.

¶¶76, 77 & 108

Enron Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Decision on Jurisdiction, 14 January 2004.

¶76

Enron Annulment Enron Corporation and Ponderosa Assets, L.P. v. Argentina, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of Argentina, 30 July 2010.

¶132

Eureko Eureko B.V. v. Poland, UNCITRAL, Partial Award, 19 August 2005.

¶¶53, 83 & 109

Feldman Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002.

¶124 & 127

Gami Gami Investments, Inc. v. Mexico, UNCITRAL, Award, 15 November 2004.

¶¶108 & 109

Georgia v. Russian Federation

Case concerning application of the international convention on the elimination of all forms of racial discrimination (Georgia v. Russia), ICJ Judgement, 1 April 2011

¶¶53 & 83

xii

GFT Guardian Fiduciary Trust, Ltd, f/k/a Capital Conservator Savings & Loan, Ltd v. Macedonia, former Yugoslav, ICSID Case No. ARB/12/3, Award, 22 September 2015.

¶46

Greater Modesto Too v. Greater Modesto Insurance Associates, Case No 880, Iran-United States Claims Tribunal, 29 December 1989.

¶¶91 & 124

Helnan Helnan International Hotels A/S v. Egypt, ICSID Case No. ARB/05/19, Decision on Jurisdiction, 17 October 2006.

¶76

Holiday Inns Holiday Inns S.A. and Others v. Morocco, ICSID Case No. ARB/72/1, Decision on Jurisdiction, 12 May 1974.

¶26

Impregilo Impregilo S.p.A. v. Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005.

¶76

Jan de Nul Jan de Nul N.V. and Dredging International N.V. v. Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006.

¶76

Joy Mining Joy Mining Machinery Limited v. Egypt, ICSID Case No. ARB/03/11, Award, 6 August 2004.

¶76

Kardassopoulos Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007.

¶76

Klöckner Klöckner Industrie – Anlagen GmbH et al. v. Cameroon & Société Camerounaise des Engrais S.A., ICSID Case No. ARB/81/2, Award, 21 October 1983.

¶68

Korea-Beef Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Report of the Appellate Body, WT/DS161/AB/R; WT/DS169/AB/R, 11 December 2000.

¶135

KT Asia KT Asia Investment Group B.V. v. Kazakhstan, ICSID Case No. ARB/09/8, Award, 17 October 2013.

¶37

Lauder Ronald S. Lauder v. The Czech Republic, UNCITRAL, Final Award, 3 September 2001.

¶91

LESI & Astaldi L.E.S.I. S.p.A. and ASTALDI S.p.A. v. Algeria, ICSID Case No. ARB/05/3, Decision on Jurisdiction, 12 July 2006.

¶76

LG&E LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. Argentina, ICSID Case No. ARB/02/1, Decision on Liability, 3 October 2006.

¶¶113, 124, 127 & 132

xiii

Maffezini Emilio Agustín Maffezini v. Spain, ICSID Case no. ARB/97/7, Award, 13 November 2000.

¶123

MCI M.C.I. Power Group L.C. and New Turbine, Inc. v. Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007.

¶76

Metalpar Metalpar S.A. and Buen Aire S.A. v. Argentina, ICSID Case No. ARB/03/5, Award on the Merits, 6 June 2008.

¶108

Methanex Methanex Corporation v. United States of America, UNCITRAL, Award, 3 August 2005.

¶¶77, 91, 92 & 124

Methanex Jurisdiction

Methanex Corporation v. United States of America, UNCITRAL, Partial Award (Preliminary Award on Jurisdiction and Admissibility), 7 August 2002.

¶77

Micula Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction, 24 September 2008.

¶76

Monetary Gold Case of the monetary gold removed from Rome in 1943, ICJ Judgment, 15 June 1954.

¶25

Murphy Murphy Exploration & Production Company International v. Ecuador, PCA Case No. 2012-16, Partial Award on Jurisdiction, 13 November 2013.

¶77

Nicaragua v. United States

Case concerning military and paramilitary activities in and against Nicaragua (Nicaragua v. United States), Merits, ICJ Judgement, 27 June 1986.

¶89

Noble Energy Noble Energy, Inc. and Machalapower Cia. Ltda. v. Ecuador, ICSID Case No. ARB/05/12, Decision on Jurisdiction, 5 March 2008.

¶76

Noble Ventures Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, 12 October 2005.

¶115

Oil Platforms Case concerning Oil Platforms (Iran v. United States), ICJ Order of Counterclaim, 10 March 1998.

¶¶69 & 70

Pan American Pan American Energy LLC and BP Argentina Exploration Company v. Argentina, ICSID Case No. ARB/03/13, Decision on Preliminary Objections, 27 July 2006.

¶76

Pantechniki Pantechniki S.A. Contractors & Engineers v. Albania, ICSID Case No. ARB/07/21, Award, 30 July 2009.

¶¶54 & 55

xiv

Philip Morris Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016.

¶¶89, 91, 92, 95, 114, 119, 124 & 126

Plama Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005.

¶¶46 & 76

Rompetrol • The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility, 18 April 2008.

¶37

Rusoro Rusoro Mining Ltd. v. Venezuela, ICSID Case No. ARB(AF)/12/5, Award, 22 August 2016.

¶108

S.D. Myers S. D. Myers Inc. v. Canada, UNCITRAL, Partial Award, 12 November 2000.

¶¶91, 95, 96 & 114

Saipem Saipem Saipem S.p.A. v. Bangladesh, ICSID Case No. ARB/05/07, Decision on Jurisdiction, 21 March 2007.

¶76

Salini Salini Costruttori S.p.A. and Italstrade S.p.A. v. Jordan, ICSID Case No. ARB/02/13, Decision on Jurisdiction, 29 November 2004.

¶76

Saluka Saluka Investments B.V. (The Netherlands) v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2006.

¶¶33, 90, 91, 92, 124 & 127

Saluka Counterclaim

Saluka Investments B.V. The Netherlands v. The Czech Republic, UNCITRAL, Decision on Jurisdiction over the Czech Republic’s Counterclaim, 7 May 2004.

¶¶66 & 68

Sedco Sedco, Inc. v. National Iranian Oil Co., Iran-U.S. C.T.R, Interlocutory Award No. ITL55-129-3, 28 October 1986.

¶¶124 & 127

Sempra Annulment Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16, Decision on the Argentina’s Application for Annulment of the Award, 29 June 2010.

¶132

SGS SGS Société Générale de Surveillance S.A. v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004.

¶¶76 & 77

Siag Waguih Elie George Siag and Clorinda Vecchi v. Egypt, ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007.

¶76

xv

Siemens Siemens A.G. v. Argentina, ICSID Case No. ARB/02/83, Decision on Jurisdiction, 3 August 2004.

¶76

Suez Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. Argentina, ICSID Case No. ARB/03/17, Decision on Liability, 30 July 2010.

¶¶124 & 127

Supervisión Supervision y Control S.A. v. Costa Rica, ICSID Case No. ARB/12/4, Final Award, 18 January 2017.

¶56

TECMED Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, 29 May 2003.

¶¶96, 124, 125 & 127

Teinver Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. Argentina, ICSID Case No. ARB/09/1, Award, 21 July 2017.

¶138

Telenor Telenor Mobile Communications AS v. Hungary, ICSID Case No. ARB/04/15, Award, 22 June 2006.

¶76

Tenaris Tenaris S.A. and Talta – Trading e Marketing Sociedade Unipessoal Lda. v. Venezuela, ICSID Case No. ARB/11/26, Award, 29 June 2016.

¶¶37, 53 & 83

Thunderbird International Thunderbird Gaming Corporation v. Mexico, UNCITRAL, Award, 26 June 2006.

¶46

Tokios Tokelés Dissent

Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Dissenting Opinion of Chairman Prosper Weil, 29 April 2004.

¶32

TSA TSA Spectrum de Argentina S.A. v. Argentina, ICSID Case No. ARB/05/5, Award, 19 December 2008.

¶¶29, 37 & 46

Urbaser Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. Argentina, ICSID Case No. ARB/07/26, Award, 8 December 2016.

¶70

US-Gambling United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, Report of the Appellate Body, WT/DS285/AB/R, 7 April 2005.

¶135

US-Shrimp United States – Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Appellate Body, WT/DS58/AB/R, 12 October 1998.

¶142

Waste Management

Waste Management, Inc. v. Mexico, ICSID Case No. ARB(AF)/98/2, Award, 2 June 2000.

¶58

xvi

Wena Hotels Wena Hotels v. Egypt, ICSID Case No. ARB/98/4, Decision on Jurisdiction, 29 June 1999.

¶76

Wintershall Wintershall Aktiengesellschaft v. Argentina, ICSID Case No. ARB/04/14, Award, 8 December 2008.

¶25

Woodruff Woodruff Case, Mixed Claims Commission United States-Venezuela, Award, 17 February 1903.

¶54

Yukos Yukos Universal Limited (Isle of Man) v. Russia, UNCITRAL, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility, 30 November 2009.

¶33

1

PRELIMINARY STATEMENT

“Sustainable development is the pathway to the future we want for all”

Ban Ki-Moon

1. It is universally accepted that Respondent, Kronos, has the right, indeed the duty, to protect the

life and health of its citizens – this is what Kronos has done here, triggering these claims by a

mining corporation that harmed the environment and the health and lives of Kronians, leaving

Respondent with the third most polluted river in the world and disclaiming any responsibility

for the pollution it caused.

2. Respondent’s authorities took urgent and necessary measures to protect its population. Claimant

seeks compensation while abjuring any responsibility for the harm it caused. Claimant’s claim

should be rejected; Respondent’s counterclaim should be vindicated.

2

STATEMENT OF FACTS

The discovery of lindoro in Kronos and Claimant’s concession

3. Claimant is a company formally incorporated in Ticadia, but its sole activity is the exploitation

of lindoro in Kronos.1 Respondent, the Republic of Kronos, is an underdeveloped country2

historically known as an exporter of agricultural commodities.3

4. In March 1997, the Kronian Federal University discovered a large reserve of a rare mineral

called lindoro in the northern region of Kronos (the Site), the only place in Kronos where lindoro

was found.4 In August 1997, Respondent took out a loan from the IFC to fund further research,5

which confirmed the existence of the lindoro reserve.6

5. There were no Kronian companies with the expertise to extract the metal. 7 Therefore, in

November 1998, Respondent invited foreign companies to bid for the concession of the rights

to extract lindoro from the Site.8

6. In 2000, Claimant won the auction for that concession. 9 Consequently, Claimant and

Respondent entered into a concession Agreement 10 which provided for Claimant to pay

Respondent 22% of the monthly gross revenue arising from the extraction and

commercialization of lindoro in exchange for the rights to mine and sell the mineral.11

1 RA, p. 7, ¶¶15-17. 2 Id., p. 32, ¶2. 3 RAR, p. 14, ¶8. 4 SUF, p. 32, ¶3. 5 Ibid. 6 Ibid. 7 SUF, p. 32, ¶4. 8 Ibid. 9 Id., p. 32, ¶5. 10 SUF, p. 33, ¶8. 11 Id., p. 33, ¶8.

3

7. Exploitation of lindoro started in August 2008.12 In 2010, Claimant transferred all its mining

activities and resources to Kronos and effectively shut down its mining operations in Ticadia.13

Claimant’s remaining activities in Ticadia were essentially ministerial.14 Claimant’s decisions

increasingly favored its interests in Kronos.15

Regulatory framework for the exploitation of lindoro

8. Respondent had neither a mining regulatory framework nor comprehensive environmental

regulation when the concession Agreement was concluded.16 However, the Agreement provided

that Claimant should comply with “good practices for the sustainable exploitation of Lindoro,

including the disposal of waste material”,17 which included both the indirect and direct waste

resulting from the exploitation.18 The Agreement also provided that Respondent could conduct

inspections every two years.19

9. In 2015, Respondent became a party to the Water Convention.20 In 2015, the House passed the

KEA which, among other provisions, required operators to protect the waters of the regions

where minerals were mined from toxic waste.21 Operators that failed to comply would be

subjected to severe penalties, fines, the immediate withdrawal of environmental licenses leading

to the forfeiture of facilities, and be subjected to the payment for the environmental damage

caused.22

12 Ibid. 13 SUF, p. 33, ¶12. 14 ARA, p. 13, ¶4; SUF, p. 33, ¶12. 15 SUF, p. 33, ¶12. 16 Id., ¶10. 17 Exhibit 2, Article 2.2, p. 47. 18 Ibid. 19 Exhibit 2, pp. 47/48. 20 Id., p. 32, ¶2. 21 Id., p. 34, ¶16. 22 Ibid.

4

10. The day that the KEA passed, Respondent’s Government created the MEM, in charge of

formulating and enforcing environmental-related policies including the KEA. 23 MEM was

necessary because the previous ministry did not have the authority to impose sanctions and was

limited to the collection of information.24

The discovery of water contamination and Respondent’s measures

11. In 2015, the Ministry of Environmental Matters (MEM) released data to the effect indicating

that the concentration of toxic waste found in the Rhea River, Respondent’s largest river, had

sharply increased since 2010, i.e. soon after Claimant started to extract lindoro.25 The data was

largely based on the inspections carried out since 2011 by the Kronian Ministry of Agriculture,

Forestry and Land (MAFL).26

12. The University later conducted research and published the Study focused on two key aspects:

the contamination of the river and new diseases. Regarding the first, it concluded that “the

contamination of the Rhea River is undoubtedly a direct consequence of the exploitation of

lindoro” [emphasis added].27 Indeed, the Study noted the presence in the Rhea River of graspel

– a toxic substance released during the exploitation of lindoro – which only Claimant could have

caused.28

13. As to the second point, the Study showed that since lindoro began to be exploited, there had

been a sharp increase of CVD and microcephaly cases in residents of areas surrounding lindoro

extraction.29 Before Claimant’s lindoro mining activities at the Site, microcephaly was virtually

23 SUF, p. 35, ¶18. 24 ARA, p. 15, ¶15. 25 SUF, p. 35, ¶20. 26 Ibid. 27 Exhibit 4, p. 51. 28 Ibid. 29 SUF, p. 35, ¶22.

5

unknown in Kronos; – but by the time the Study was published, 88% of the examined new-borns

had shown early symptoms of microcephaly.30

14. To be sure, the Study is not conclusive as to Claimant’s activities having directly caused the

rising rate of specific diseases, e.g., CVD and microcephaly, both virtually non-existent prior to

Claimant operations in Kronos.31 But the inference to that effect is virtually irresistible, as there

is no other identifiable factor to have caused a sudden explosion in the incidence of such

diseases.32

15. The Study’s conclusions were corroborated by other prestigious universities. Namely, over the

last 5 years, top-tier universities and independent researchers across the globe conducted and

published at least 10 different studies, showing, a connection between water contamination and

the increase in CVD in the population of the areas surrounding the Site.33

16. Given these overwhelming findings, Respondent issued the Decree on 7 September 2016.34 The

Decree immediately barred the exploitation of lindoro in Kronos, putting an end to further

harmful activities by Claimant.35 Respondent took over Claimant’s stores of lindoro to secure

some form of compensation for Claimant’s alleged environmental damage.36 This inventory of

lindoro had already been mined, and therefore its possible sale would not add to the

environmental harm its extraction has caused.

17. On 8 September 2016, Claimant submitted to Kronos’ courts the dispute it raises in this

arbitration.37 However, on 22 February 2017, Claimant withdrew its claim.38 Finally, in spite of

30 Exhibit 4, p. 51. 31 Ibid. 32 Ibid. 33 Ibid. 34 Exhibit 5, p. 52; Exhibit 6, p. 53. 35 SUF, p. 36, ¶23. 36 Exhibit 5, p. 52. 37 SUF, p. 36, ¶25. 38 Id., p. 36, ¶26.

6

its prior submission to court proceedings, on 27 April 2017, Claimant notified Respondent of its

intention to pursue arbitration under the KT-BIT.39

39 Id., pp. 36/37, ¶27.

7

SUMMARY OF ARGUMENTS

Jurisdiction

18. This Tribunal lacks jurisdiction ratione personae because Claimant is not of Ticadian

nationality and consequently is prevented from invoking the dispute settlement clause of the

KT-BIT. Indeed, Claimant’s effective seat is in Kronos. Moreover, Claimant is effectively

controlled by Kronian nationals and for that reason alone is barred from invoking the KT-BIT.

Admissibility

19. Claimant’s claim is not admissible because it has already been submitted to Respondent’s local

courts, triggering the FITR provision of the KT-BIT. The “same fundamental basis” test

compels the conclusion that the claim raised in local courts is the same as the claim sought to

be vindicated here, thus triggering FITR preclusion.

Counterclaim

20. Respondent’s counterclaim based on severe environmental damage caused by Claimant is

admissible because it arises out of the KT-BIT and has a close connection with Claimant’s

primary claim. Indeed, the counterclaim is inextricably intertwined with the primary claim and

arises out of the same set of events and circumstances. Furthermore, it is well founded on Article

9(2) of the KT-BIT.

Merits

21. The Decree prohibiting the exploitation of lindoro was not expropriatory: it was a legitimate

exercise of police powers. Additionally, it complied fully with international doctrine and arbitral

jurisprudence on fair regulation. The Decree was aimed at securing Kronos’ highest public

purpose, i.e., to safeguard health and life; complied with due process and principles of non-

discrimination and proportionality. Wholly aside from the foregoing, Respondent’s actions are

not even a violation of the KT-BIT because they fall well within the General exceptions of

Article 10 of the KT-BIT.

8

JURISDICTION, ADMISSIBILITY AND COUNTERCLAIM

I) THIS TRIBUNAL LACKS JURISDICTION RATIONE PERSONAE

22. The KT-BIT covers only disputes between a Contracting Party and an “investor of a Contracting

Party”.40 An investor of a “non-contracting” party is not protected by the KT-BIT. Article 1(4)

of the KT-BIT defines “investor of a Contracting Party” as:

“[A] Contracting Party, or a person or an enterprise of a Contracting Party, that seeks to make, is making, or has made an investment in the other Contracting Party’s territory” [emphasis added].41

23. But, the KT-BIT does not establish how to determine if an enterprise is “of” a Contracting Party.

Therefore, Respondent respectfully invites the Tribunal to determine nationality here in

accordance with international law and the methods that the VCLT provides to interpret

treaties.42

24. In the present case, Claimant is not a Ticadian investor and therefore is not protected under the

KT-BIT because: [A] Claimant falls outside of Respondent’s consent to arbitrate and, [B]

following the standards applicable under the VCLT Claimant also fails to qualify as a Ticadian

investor. Therefore, the Tribunal lacks jurisdiction ratione personae.

A. Claimant falls outside of Respondent’s consent to arbitrate

25. The Tribunal should exercise due caution when interpreting the consent given by Respondent

as it relates to its independence as a sovereign State. Jurisdiction over Kronos here is a matter

of consent.43 Consent cannot simply be presumed.44 Therefore, the Tribunal must be limited in

its findings that Kronos consented here to arbitrate against an enterprise such as Claimant that

is Ticadian, if at all, in form only.

40 KT-BIT, Article 11, p. 44. 41 Id., Article 1(4), p. 39. 42 VCLT, Article 31(1). 43 Eastern Carelia, p. 27; Monetary Gold, p. 32; Ambatielos, p. 19. 44 Wintershall, pp. 99/100.

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26. The tribunal in Holiday Inns, in assessing the plaintiff’s nationality, held that a State’s consent

to international adjudication of disputes with its “own nationals” – in the present case, Claimant

really is one – is a decision so unusual and important as to deserve “unequivocal expression”.45

27. In the present case, there is no expression of such consent whatsoever, much less unequivocal.46

Therefore, Respondent’s consent to arbitrate was not aimed at – and hence does not include –

Claimant.

B. The Tribunal should construe the applicable nationality standard in light of the VCLT

28. As mentioned above, the KT-BIT does not provide the nationality standard expressly. 47

Therefore, the Tribunal is empowered to determine which is the applicable test and should do

so by interpreting the KT-BIT in light of the provisions of the VCLT.

29. A sound reading of the KT-BIT pursuant to the VCLT and principles of international law

compels the application of the “siège social” or “control” test and to the denial of jurisdiction.48

These are the tests that look to substance; any other test stumbles on corporate formalities and

should be rejected.

30. Article 31(1) of the VCLT provides:

“A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”.49

31. The object and purpose of the KT-BIT is to promote investments that flow from one Contracting

State to the other. The title of the KT-BIT defines it as an agreement “for the promotion and

reciprocal protection of investments” [emphasis added]. 50 The preamble of the KT-BIT

provides that its goal is to stimulate “mutually beneficial business activity” [emphasis added].51

45 Holiday Inns (as cited by LALIVE, pp. 139/141). 46 KT-BIT, Article 1(4), p. 39. 47 Ibid. 48 TSA, ¶145; SCHREUER, p. 323. 49 VCLT, Article 31. 50 KT-BIT, Preamble, p. 38. 51 Ibid.

10

Therefore, it is clear that, the KT-BIT calls for bilateralism and reciprocity in exchange for its

protection.

32. It is for this reason that the availability of the dispute settlement mechanism in the KT-BIT is

limited only to investors of the “other” Contracting State. The KT-BIT does not contemplate a

Contracting State being hauled into arbitration by its own nationals. Consequently, in

determining Claimant’s nationality the Tribunal should pay due regard to the object and purpose

of the KT-BIT and bar a national of the host State from availing itself of corporate formalities

to sue its own State.52

33. This is particularly relevant in the present case because the KT-BIT does not establish a

particular criterion – it does not expressly provide that formalities e.g. place of incorporation,

are conclusive as to nationality. In this regard, when the tribunals in Saluka53 and Yukos54

examined the nationality of the investor, they held that a company with no real connection to

the other Contracting State should not be entitled to invoke the provisions of that treaty,55 and

suggested that if the applicable BIT had not established explicitly the “place of incorporation”

test – which is absent in the KT-BIT –, they would have adopted a different test to preclude the

possibility of treaty-shopping.56

34. This is precisely the situation here: Claimant has no real connection with Ticadia and the KT-

BIT requires no express nationality test. Therefore, the Tribunal should prevent the possibility

of treaty-shopping by applying a test that looks beyond mere formalities i.e., the “siège social”

or “control” test.

35. Accordingly, Claimant is not a Ticadian investor and therefore not protected under the KT-BIT

because [i] it is not a Ticadian enterprise under the “siège social” test; and, [ii] fails to qualify

as a Ticadian enterprise under the “control” standard of nationality.

52 Tokios Tokelés Dissent, ¶5. 53 Saluka, ¶240. 54 Yukos, ¶¶413/414. 55 Saluka, ¶240; Yukos, ¶¶413/414. 56 Saluka, ¶240.

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i. Claimant is not a Ticadian investor under the “siège social” test

36. Claimant has its principal place of business and effective management (siège social) in Kronos,

not in Ticadia, and thus fails to meet the nationality requirement.57

37. “Siège social” refers to the place of actual or effective management;58 and is one of the two

main criteria for corporate nationality – the other being the “place of incorporation”. 59

Following professors RUBINS & KINSELLA “[A] juridical person may be considered a national

of the State where it has its effective headquarters (or ‘siège social’)”.60

38. According to Claimant’s own RA, it is a company that exploits lindoro in Respondent’s territory

as “its sole activity”.61 In other words, it does not have any other business activities elsewhere.

Furthermore, although it remains incorporated in Ticadia, it has acknowledged that what

remains there are mere formalities.62 Given that Claimant’s only business is in Kronos,63 it is

undeniable that its place of effective management is also in Kronos.

39. Even though Claimant started as a company in Ticadia,64 progressively over time, it transferred

all its activities to Kronos to the extent that, at the time of the issuance of the Decree, its only

activity was the exploitation of lindoro in Kronos.65 As far back as in 2010, Claimant transferred

its mining activities and resources to Kronos and shut down its mining operations in Ticadia.66

57 SUF, pp. 33/34, ¶12. 58 Tenaris, ¶154; UNCTAD III, p. 39; RUBINS & KINSELLA, p. 409; SORNARAJAH, p. 324; SAUVÉ, p. 22; DIEHL, p. 63; JARAMILLO & SALDARRIAGA, p. 1222; THORN & DOUCLEFF, pp. 6/7; BROWNLIE, p. 484; DOLZER & STEVENS, pp. 35-38; KT Asia, ¶123; DOUGLAS, p. 22. 59 DOLZER & SCHREUER, p. 47; Rompetrol, ¶61; TSA, ¶144. 60 RUBINS & KINELLA, p. 409. 61 RA, p. 7, ¶¶15-17. 62 SUF, pp. 33/34, ¶12. 63 RA, p. 7, ¶¶15-17. 64 SUF, p. 32, ¶6. 65 RA, p. 7, ¶¶15-17. 66 SUF, p. 33, ¶12.

12

40. Further, in 2012, Kronian nationals acquired 35% of Claimant’s shares,67 who started to exert

considerable influence over Claimant’s decision-making, favouring its interest in Kronos.68

Around the same time, Kronian nationals were appointed as directors in the board and they have

held the majority of it for the past five years.69 Currently, Claimant no longer has any ties with

Ticadia except for mere corporate formalities, as Claimant itself has recognized.70

41. Claimant’s effective management is undoubtedly in Kronos, where it undertakes its sole

business activity and where its CEO must stay for long periods to manage the company.71

42. In view of the above, Claimant’s siège social is in Kronos and therefore, it is not a Ticadian

enterprise and does not qualify as a protected investor under the KT-BIT. On that basis alone,

there is no arbitral jurisdiction here.

ii. Claimant is not a Ticadian enterprise under the “control” standard

43. In any event, Claimant is effectively controlled by Kronian nationals, and on that basis, it is a

Kronian enterprise. The Tribunal should deny jurisdiction on that basis alone.

44. According to Professor DOUGLAS, “control” should be examined at all times:

“Whether or not the term ‘control’ is actually used in the text of the investment treaty, it is clear that it must be implied. In each and every case, the claimant must have had control over the investment that has been affected by measures of the host state in order to fall within the scope of the tribunal’s jurisdiction ratione personae”. 72

45. The “control” test in this case is compatible with a sensible interpretation of the nationality

provision in light of the object and purpose of the KT-BIT to promote bilateralism.73

67 SUF, pp. 32/33, ¶6. 68 SUF, p. 33, ¶7. 69 Ibid. 70 SUF, pp. 33/34, ¶12. 71 Ibid. 72 DOUGLAS, p. 300. 73 VCLT, Article 31(1).

13

46. Control has to be assessed in all its forms, i.e., legal control and effective control. In this regard,

in the Plama case, when the tribunal analysed the issue of control, it held that control included

“control in fact” and defined it as an “ability to exercise substantial influence over legal entity’s

day-to-day management and operations”.74 The same standard was also endorsed by several

other tribunals.75

47. In the present case, Claimant is effectively controlled by Kronians. Indeed, Claimant itself has

conceded that Kronian nationals exercise decisive influence over its decision-making. 76

Claimant conceded further that such influence is exercised in relation to the operation and

management of its lindoro mining activities in Kronos,77 which is concededly as well the

company’s sole activity.78 Therefore, Kronian nationals exercise at the very least substantial

influence over Claimant’s entire business and have effective control over Claimant. This

deprives Claimant of Ticadian nationality.

48. In view of the above, Claimant is not a protected investor under the KT-BIT and arbitral

jurisdiction is absent here on that ground alone.

II) CLAIMANT’S CLAIM IS INADMISSIBLE SINCE THE FITR PROVISION IN THE KT-BIT WAS

TRIGGERED

49. Claimant triggered the FITR provision79 set forth in Articles 11(2) and 11(3) of the KT-BIT,

thus precluding the Tribunal from deciding the present re-submitted dispute.80 Claimant gets to

pick the forum, but it does not get two successive choices; it has to stay with the choice it made

first – the courts of Kronos.

50. Article 11 of the KT-BIT contains a FITR provision as follows:

74 Plama, ¶170. 75 TSA, ¶¶160/162; GFT, ¶¶131/137; Thunderbird, ¶106. 76 SUF, p. 33, ¶7. 77 Ibid. 78 RA, p. 7, ¶15; Id., ¶17. 79 ARA, pp. 13/14, ¶5; SUF, p. 36, ¶23. 80 ARA, p. 14, ¶¶6/7.

14

“2. In the event of an investment dispute, […] the national or company concerned may choose to submit the dispute for resolution: (a) to the domestic courts or administrative tribunals of the Contracting Party that is a party to the dispute; or (b) in accordance with any applicable previously agreed dispute-settlement procedures […] 3 Provided that the national or company concerned has not submitted the dispute for resolution under (a) or (b) of the second paragraph […] the national or the company concerned may choose to consent in writing to the submission of the dispute for settlement by binding arbitration under the Arbitration Institute of the Stockholm Chamber of Commerce and in accordance with its Arbitration Rules” [emphasis added].81

51. The three choices of forum or procedures available to an investor under the foregoing82 are

mutually exclusive and may not be invoked seriatim. The third choice – this arbitration – is not

available because Claimant already resorted to litigation in domestic courts.

52. As Professors DOLZER & SCHREUER explain, the so-called FITR provision provides that the

investor must choose between litigation in the host State’s domestic courts or international

arbitration. That choice, once it has been made – as it was made here already –, is final. 83

53. Accordingly, if the dispute submitted to both forums overlap, then the FITR provision is

triggered and thus precludes the claim in this forum. The relevant test to assess whether the

dispute in the earlier forum bars the assertion of the dispute in the later forum is the so-called

“same fundamental basis” test. The so called “triple identity” test – for which no doubt Claimant

would be expected to advocate – should be rejected as formalistic, because such test undermines

the effet utile84 of the FITR provision depriving them of any practical effect. As the Chevron

tribunal compellingly held, a strict application of it would deprive the FITR provision of all or

most of its practical effect.85

54. As per Pantechniki and Woodruff, the “same fundamental basis” test examines whether the

fundamental basis of a claim sought to be brought before the international forum is similar to

81 KT-BIT, Article 11. 82 SUF, p. 44, ¶2. 83 DOLZER & SCHREUER, p. 216. 84 Eureko, ¶248; Tenaris, ¶151; Georgia v. Russian Federation, ¶133; SCHREUER-VIVENDI, p. 30. 85 Chevron, ¶4.76; TURNER, p. 177.

15

claims heard elsewhere.86 It is a practical test that looks to the reality of the two claims i.e. their

fundamental basis rather than the procedural formalism that can easily be manipulated to skirt

the requirements of the FITR provision. The tribunal rejected the mere assertion that claims

based on treaty provisions are different from those brought before the local courts – such

argument is based on labelling and not analysis.87

55. The application of the “same fundamental basis” test varies in each case. Sole arbitrator Jan

Paulsson looked at whether the claims shared the same normative source in Pantechniki, but he

acknowledged that such statement is abstract, and each situation must be regarded with practical

discernment.88

56. Following Pantechniki, the tribunal in Supervisión observed that the purpose of forum-selection

clauses is to avoid the significant risk of duplication of claims89 and held that if the disputes in

both fora have significant overlap, then the risk is present.90

57. In the present case, Claimant’s dispute in both forums have significant overlap so as to create

such risk. Before submitting the dispute to these proceedings, Claimant filed a motion before

Kronos’ federal courts seeking to declare the Decree unconstitutional.91 If the federal court had

ruled in favor of Claimant, the Decree would have been set aside and Claimant would have been

able to use that decision in a separate civil proceeding to obtain compensation.92 There is such

a high degree of overlap in this case to the extent that if the local remedy had been granted, the

claim before this Tribunal would not have existed. Indeed, Claimant would have been able to

resume its exploitation of lindoro and it would have neither legal nor factual basis to bring this

claim before the Tribunal.

86 Pantechniki, ¶61; Woodruff, pp. 222/223. 87 Pantechniki, ¶61. 88 Ibid. 89 Supervisión, ¶293; DOUGLAS, p. 86. 90 Supervisión, ¶295. 91 PO No. 2, p. 56, ¶3. 92 PO No. 3, p. 59, ¶2.

16

58. The tribunal in Waste Management held that treaty violation, may well constitute actions

proscribed by local legislation, thus contesting the same action before several courts or tribunals

would constitute a duplication of proceedings.93

59. In the present case, in both fora Claimant sought to undo the consequences of the Decree.94 This

constitutes a duplication of proceedings and runs contrary to the purpose of the FITR provision.

60. The conclusion Kronos invites the Tribunal to reach about duplication is particularly apt here,

where the filing in local courts by Claimant was wholly voluntary – nothing in the record shows

that the claim was a requirement of local law or had to be effected for administrative or

regulatory reasons. Likewise, the withdrawal of the claim initially filed in local courts was

entirely voluntary and suggestive of manipulation – i.e. a deliberate withdrawal to set the stage

for the assertion of a similar claim in another forum. The only reason why Claimant voluntarily

withdrew its state court claim was because of its own belief that the pendency of such claim

would conspire against the assertion of the same claim in arbitration.

61. Claimant may predictably argue that the risk of duplication of claims is not effectively present

since the local lawsuit was already withdrawn. Although the claim in the local forum was indeed

withdrawn, 95 the filing triggered the FITR. Claimant may not purge the choice by withdrawing

the case. Under the KT-BIT, withdrawal does not cure the issue.96 Indeed, as noted, the sensible

explanation for the voluntary withdrawal is Claimant’s attempt to undo the triggering of the

FITR caused by its own filing in local courts.

62. Claimant in both forums attacks the same measure – one seeks to nullify it, the other to undo

the measure’s financial consequences. Both claims share the same fundamental basis. The FITR

provision has been triggered precluding the Tribunal to resolve the present dispute.

93 Waste Management, ¶45. 94 PO No. 3, p. 59, ¶2. 95 SUF, p. 36, ¶26. 96 KT-BIT, Article 11, pp. 44/45.

17

III) RESPONDENT’S COUNTERCLAIM IS ADMISSIBLE

63. Alternatively, if the Tribunal finds that it has jurisdiction over Claimant’s claim, it also has

jurisdiction over Respondent’s counterclaim, 97 which seeks redress from Claimant for its

contamination of the Rhea River.98 The severe environmental damages inflicted by Claimant

are compensable and actionable as a breach of Article 9(2) of the KT-BIT:

“The Contracting Parties agree that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting investment or international trade”.99

64. There is no dispute that the Tribunal has jurisdiction – that is not an issue for debate in PO No.

1.100 The question is “[w]hether Respondent’s counterclaims are admissible before the tribunal”

[emphasis added].101

65. The counterclaims are in fact admissible because [A] it has a close connection with Claimant’s

claims and, [B] it is well-founded on Article 9(2) of the KT-BIT.

A. Respondent’s counterclaim has a close connection with Claimant’s claim

66. This counterclaim complies with the “close connection” requirement set forth in case law.102

Accordingly, the counterclaim has to be closely related with the principal claim in the case.

67. Common sense compels the conclusion that the present counterclaim has close legal and factual

connection with the primary claim. 103 The claim seeks to recover for Respondent’s regulatory

reaction to Claimant’s pollution; the counterclaim seeks to recover for the harm done by

Claimant by the very pollution that triggered the regulations against which Claimant complains.

One is the obverse of the other.

97 ARA, p. 16, ¶22; ARA, pp.16/17, ¶¶23/24. 98 Exhibit 4, p. 51. 99 KT-BIT, Article 9(2), p. 43. 100 PO No. 1, p. 30, ¶5. 101 Ibid. 102 Saluka Counterclaim, ¶61; Amco, ¶125. 103 Armed Activities Counterclaim, ¶38.

18

68. The most stringent test of “close connection” requires both claims to arise out of the same legal

instrument.104 The Klöckner tribunal, for example, required both claims to share a common

origin, identical sources and operational unity.105 The same line of thought was endorsed in

Saluka Counterclaim.106 Even that test is satisfied here because the counterclaim arises out of

the KT-BIT, particularly from the environment-related clause in Article 9(2)107 and Claimant’s

primary claim also stems from the KT-BIT.108

69. As to the factual connection, both claims share the “same factual complex” as described by the

ICJ jurisprudence.109 The facts alleged in both claims took place in the same territory during the

same period and they are of the “same nature”.110 Moreover, Respondent relies on overlapping

facts to refute the allegations of Claimant – or to support the regulatory action for which

Claimant seeks recompense – and to obtain judgment against it.111

70. It is not necessary for there to be simultaneously close factual connections and close legal ties.

One can substitute for the other in a sliding scale manner – more of one compensates for some

diminution in the other, as scholars have noted.112 In light of the policy considerations of

procedural economy and better administration of justice.113 This criterion was followed by the

ICJ114 and also by the Urbaser tribunal, which declared the host State’s counterclaim to be

admissible because “the factual link between the two claims [was] manifest”.115

71. In the present case, the exploitation of lindoro offers the central connection in the two claims.

The Site mined by Claimant generates contamination of the Rhea River’s waters that places it

104 Saluka Counterclaim, ¶¶70-79; Klöckner, ¶65. 105 Klöckner, ¶65. 106 Saluka Counterclaim, ¶¶70-79. 107 ARA, p.16, ¶22; Id., pp. 16/17, ¶¶23/24. 108 RA, p. 8, ¶21. 109 Armed Activities Counterclaim, ¶38; Application Bosnia-Yugoslavia, ¶34; Oil Platforms, ¶33. 110 Armed Activities Counterclaim, ¶38. 111 ARA, pp. 16/17, ¶¶22/24. 112 KJOS, p. 155; DOUGLAS II, p. 430. 113 KJOS, p. 147; SIMPSON & FOX, p. 280 (as cited in KJOS, p.147). 114 Oil Platforms, ¶102; Armed Activities, ¶326. 115 Urbaser, ¶1151.

19

among the top three most polluted rivers of the word. 116 Also, since Claimant started its

exploitation of lindoro there has been a 45% increase in CVD in the population of the areas

surrounding the Site and a shocking 88% explosion of microcephaly – that was virtually non-

existent before Claimant arrived at the Site – in newborns of such surrounding areas.117

72. In September 2016, Respondent issued the Decree prohibiting the exploitation and revoking

every license to protect its environment and its population.118

73. Claimant seeks to recover for the prohibition to exploit lindoro in the Site119 and claims

expropriation on its investment.120 The Decree, in Respondent’s view, was a legitimate exercise

of its police powers 121 to protect the environment and its population’s health and life. 122

Respondent, in turn, seeks to recover from Claimant, by way of counterclaim, the harm done by

the pollution caused by Claimant’s activities, which very activities triggered the Decree of

which Claimant complains in the main claim.

74. In short, Respondent’s counterclaim shares a strong factual connection with Claimant’s claim.

On this ground alone, the counterclaim meets the factual connection requirement as well.

B. The counterclaim is well-founded on Article 9(2) of the KT-BIT

75. There is no merit in Claimant’s possible argument that the KT-BIT imposes no actionable duty

on Claimant. Article 9(2) of the KT-BIT imposes an actionable obligation on Claimant.

76. The question whether the KT-BIT imposes an actionable obligation on Claimant need only be

determined on a “prima facie” 123 basis at this procedural stage. The facts as alleged by

116 Exhibit 4, pp. 50/51. 117 Ibid. 118 ARA, p. 16, ¶18 119 RA, p. 7, ¶17. 120 Id., p. 8, ¶21. 121 ARA, p. 16, ¶19. 122 Id., p.16, ¶18. 123 Impregilo, ¶254; Siemens, ¶180; Pan American, ¶¶43/51-131; Saipem, ¶91; Telenor, ¶79; SCHREUER, p. 107; Amco, ¶38; Wena Hotels, ¶86; Enron, ¶99; SGS, ¶¶26/159/161-162; Joy Mining, ¶¶29/30; Salini, ¶151; Plama, ¶¶118/119, 132; Duke Energy, ¶87; Continental Casualty Jurisdiction, ¶¶59-63; El Paso, ¶¶40-45/109; Jan de Nul, ¶¶ 69-71; LESI & Astaldi, ¶84iv; Helnan, ¶¶73/81/91/94; Siag, ¶¶139–141; Kardassopoulos, ¶¶103/104; MCI, ¶¶162/163; Noble Energy, ¶¶143-165; Micula, ¶¶66/67.

20

Respondent must be taken at face value and the issue is whether they can constitute treaty

violations, if established after a hearing. 124

77. The “prima facie” test only rules out cases where claims are manifestly lacking in legal merit or

are “frivolous or abusive”125, “incredible, frivolous or vexatious”126, “improbable, frivolous or

reckless”127, “plainly without any foundation”128, or “entirely baseless at first sight”.129 Stated

differently, the “prima facie” test excludes only claims that have no possible merit even on the

basis of the facts and legal theories alleged by Claimant.

78. The environmental counterclaim here amply meets the “prima facie” test. Respondent’s

counterclaim is well-founded. The facts Respondent alleges about Claimant’s pollution are not

subject to debate at this stage, and Article 9(2) imposes a substantive obligation on Claimant

within the scope of the KT-BIT, as established in Article 2 of the KT-BIT:

“1. This Treaty shall apply to measures adopted or maintained by a Party relating to an investor of the other Contracting Party or a covered investment. 2. The obligations in Articles 4 to 9 apply to a person of a Contracting Party when it exercises a regulatory, administrative or other governmental authority delegated to it by that Contracting Party”.130

79. Article 9(2) and Article 2 of the KT-BIT should be interpreted in accordance with Article 31 of

the VCLT, i.e., in “the ordinary meaning to be given to the terms of the treaty in their context

and in the light of its object and purpose”.131

80. In this case, the preamble of the KT-BIT highlights that investments shall lead to “the promotion

of sustainable development”. 132 The KT-BIT does not invite investments that are

environmentally harmful. Indeed, Article 9(2) obligates investors to adhere to the sustainability

124 Bayindir, ¶197; Impregilo, ¶254; Siemens, ¶180. 125 El Paso, ¶45. 126 Methanex Jurisdiction, ¶112. 127 Murphy, ¶10. 128 Duke Energy, ¶118. 129 SGS, ¶61. 130 KT-BIT, Article 2, p. 40. 131 VCLT, Article 31. 132 KT-BIT, Preamble, p. 38.

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purpose of the treaty. Claimant should not be allowed to claim the benefits of the KT-BIT but

disclaim its obligations.

81. When construing the meaning of the provisions of the KT-BIT, the Tribunal should contemplate

the fact that the treaty provides the possibility of asserting counterclaims. Indeed, Article 11 of

the KT-BIT contemplates the assertion of counterclaims133 – unless for certain purposes not at

issue here:

“5. In any proceeding involving an investment dispute, a Contracting Party shall not assert, as a defense, counterclaim, right of set-off or otherwise, that the national or company concerned has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of its alleged damage”. 134

82. Moreover, the SCCR to which the KT-BIT refers, also allows filing counterclaims in its Article

9(1):

“The Answer shall include: […] (iii) a preliminary statement of any counterclaims or setoffs, including an estimate of the monetary value thereof”.135

83. Article 9(2) of the KT-BIT imposes a “polluter pays” obligation. If Article 9(2) were interpreted

to negate its enforceable character and Article 2 were interpreted restrictively to exclude any

obligation upon investors under the KT-BIT, then any possibility of counterclaims under the

treaty would be negated, depriving the dispute settlement provision of the KT-BIT of its effet

utile.136 Article 31 of the VCLT does not permit such interpretation.

84. In short, Article 9(2) creates an actionable obligation upon investors within the scope of the KT-

BIT, which therefore can be vindicated by way of a counterclaim in these proceedings.

133 BEN HAMIDA, p. 270. 134 KT-BIT, Article 11(5), p. 45. 135 SCCR, Article 9(1)(iii). 136 Tenaris, ¶151; Georgia v. Russian Federation, ¶133; SCHREUER-VIVENDI, p. 30; Eureko, ¶248.

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MERITS

85. Respondent hereby submits that Claimant’s expropriation claim lacks both factual and legal

basis.

86. Claimant contends that the Decree constitutes an indirect expropriation, thus violating Article 7

of the KT-BIT.137 However, Respondent submits that its actions to protect the environment and

health of its people do not constitute an indirect expropriation, and, consequently, do not give

rise to an obligation to compensate. On these grounds, Respondent presents its defense on the

merits and respectfully requests this Tribunal to conclude that [I] Respondent acted in

accordance with its legitimate police powers and that in any event, [II] its actions fall under the

General Exceptions clause.

I) RESPONDENT ACTED IN ACCORDANCE WITH ITS LEGITIMATE POLICE POWERS

87. This is a case about protection of public health and the environment, not interference with

foreign investment or of expropriation. The Decree is a valid exercise of Kronos’ police powers

and therefore Respondent has not violated its international obligations under the KT-BIT and is

consequently not liable for compensation.

88. Article 7 of the KT-BIT provides that:

“Neither Contracting Party shall nationalize or expropriate a covered investment either directly or indirectly through measures having an effect equivalent to nationalization or expropriation except for a public purpose, in accordance with due process of law, in a nondiscriminatory manner and on payment of due compensation…”.138

89. Respondent submits that, following the Philip Morris tribunal’s approach,139 the Article above

should be interpreted in accordance with Article 31(3)(c) of the VCLT.140 This article requires

treaty provisions to be interpreted in light of “[a]ny relevant rules of international law

137 RA, p. 8, ¶19. 138 Ibid. 139 Philip Morris, ¶290. 140 VCLT, Article 31(3)(c).

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applicable to the relations between the parties”.141 In this regard, the ICJ in Nicaragua v. United

States held that customary international law does not require to be incorporated into a treaty in

order to be applicable.142

90. The State police powers doctrine has been defined as the legal right exceptionally allowing a

State to regulate in derogation of international commitments “without incurring a duty to

compensate”.143

91. There is a whole trend of caselaw endorsing the police powers doctrine as a fundamental rule of

customary international law.144 In particular, the Philip Morris tribunal held that “protecting

public health has since long been recognized as an essential manifestation of the State’s police

power”.145

92. Respondent does not suggest that the police powers of a State are absolute. To the contrary,

international law establishes that to be lawful, a regulatory measure must: serve the State’s

public purpose; respect the due process of law; lack any discriminatory incentives and adhere

to the principle of proportionality. 146 All of those requirements can be predicated of the

measures at stake in these proceedings.

93. In the present case, Respondent issued the Decree solely to protect its people from both health

and environmental hazards, which were direct consequences of the exploitation of lindoro in its

territory.147 When enacting the Decree, Respondent complied with applicable international law

standards. The Decree: [A] served Kronos’ public purpose, [B] was issued with due process of

law, [C] lacked any discrimination and [D] adhered to the principle of proportionality.

Therefore, [E] no compensation should be granted to Claimant.

141 VCLT, Article 31. 142 Nicaragua v. United States, ¶177. 143 TITI, p. 33; SORNARAJAH, p. 283; OECD, p. 5; Saluka, ¶255; Chemtura, ¶266. 144 Saluka, ¶262; Methanex, ¶410; Greater Modesto, ¶26; S.D. Myers, ¶281; Lauder, ¶198; TECMED, ¶119; Philip Morris, ¶290. 145 Philip Morris, ¶291. 146 Philip Morris, ¶294; Methanex, Part IV (D) ¶7; NEWCOMBE, p. 23; Saluka, ¶255. 147 SUF, p. 35, ¶22.

24

A. The Decree served Kronos public purpose

94. Respondent’s Decree fully complies with the public purpose requirement.

95. The starting point for assessing under investment treaties the legality of public purpose is to

attribute a “margin of appreciation” to be accorded to the States when articulating their own

public purpose.148

96. Thus, defining what constitutes a public purpose and the best policy to achieve it are matters in

which States enjoy a rather broad freedom.149 The tribunal in the TECMED case started its

analysis by emphasizing the importance of the “due deference” owed towards States when

“defining the issues that affect its public policy or the interests of society as a whole” as well as

implementing the measures to protect such interests.150 In light of this, the party alleging a lack

of public purpose in a challenged measure has the burden of proving such allegations.151

97. In this regard, Claimant has not met this burden. The best Claimant can do is to rely on gossip

published in a magazine152 and unfounded conspiracy theories of the opposing party,153 offering

rumors that Respondent was planning to renew the exploitation of lindoro for its own benefit,

thus giving credence to the fiction that the Decree was not a legitimate regulation but a taking

of Claimant’s business. Such rumors – which is all the record shows to prove lack of legitimate

public purpose – is not a basis to infer misconduct. There is no evidence of schemed plans,

negotiations, or of any contract related to the alleged “joint venture” Claimant has conjured.

98. On the contrary, it is easy to conclude that the Decree is aimed with a public purpose. The Study

conducted in May 2016 by the University concluded that “the contamination of the Rhea River

148 S.D. Myers, ¶263; Philip Morris, ¶398; MOLOO & JACINTO, p. 2. 149 PALOMBINO, pp. 137/138; BENVENISTI, p. 843; FEINGOLD, p. 90; HUTCHINSON, p. 638; SAUL, p. 745; S.D. Myers, ¶263. 150 TECMED, ¶122. 151 UNCTAD, p. 95. 152 Exhibit 7, p. 54. 153 SUF, p. 35, ¶17.

25

is undoubtedly a direct consequence of the exploitation of lindoro”.154 Furthermore, Claimant’s

activity placed the Rhea River among the top three most polluted rivers in the world.155

99. Moreover, the Study acknowledges the presence of graspel, a toxic component released during

the exploitation of lindoro, in the Rhea River waters. Graspel has been said to be connected to

an increase of cardiovascular diseases in the population of the surrounding areas.156 This is

precisely what happened in Kronos. The Study indicates the increase of virtually non-existent

diseases prior to Claimants negligent activities in the population of Kronos.157 Specifically,

cardiovascular diseases have risen by 45% since 2011 and 88% of the newborns examined have

shown early symptoms of microcephaly.158 That the Study was funded by the government is

irrelevant – often studies at the Federal University are funded by the State. The point in question

is the scientific weight of the study; as to that, Claimant has offered nothing to impugn its results.

100. The Decree terminated the exploitation of lindoro expressly because of these hazards. 159

Moreover, the KT-BIT also shows that environmental protection and health-related issues were

vitally important for the Contracting States. 160 Hence, Respondent’s actions were clearly

motivated by a public purpose: the protection of both public health and the environment.

Nothing in the record is to the contrary.

B. The Decree was issued in accordance with due process of law

101. The Decree was issued in accordance with all due process requirements, even considering that

the environmental crisis in Kronos required immediate response.

154 SUF, p. 35, ¶22. 155 Exhibit 4, pp. 50/51. 156 SUF, pp. 35/36, ¶22. 157 Ibid. 158 Exhibit 4, pp. 50/51. 159 Exhibit 5, p. 52. 160 KT-BIT, Article 9, p. 43; Id., Article 10, pp. 43/44.

26

102. The due process principle is twofold. 161 First, it requires that the measure comply with

procedures established in domestic legislation, as the AIG case recognized.162 Second, due

process requires that, when appropriate, the affected investor must have an opportunity, if it

objects to the measure, to present its case before an independent and impartial body, as the ADC

case noted.163

103. In the case at hand, the Decree was issued in accordance with the KEA, which is the applicable

legislation for environmental matters. The KEA granted Respondent’s President ample powers

to intervene in the conduct of environmentally sensitive business.164

104. The KEA was sanctioned according to the procedure established by the Constitution. Even

though the enactment of this law required first a public hearing, it is established that the Speaker

may waive it by virtue of Article 59 of the Constitution whenever a draft bill “may directly affect

the national industry of Kronos, as defined by the Speaker of the Kronian House of

Representatives”.165 This waiver constitutes a sovereign faculty of Respondent granted by the

Constitution.166 Consequently, the first prong of due process was plainly met in the enactment

of the Decree.

105. As to the second, – the opportunity to present the objector’s case – before an independent body,

the record shows that Claimant made full use of its right to challenge the Decree before the

Kronos Federal Court,167 – a challenge Claimant later chose to withdraw.168

106. Claimant may suggest that it had no opportunity to object or contradict the Study that underlays

the Decree. But to this date, all we have in the record are objections by Claimant to the funding

of the Study and grousing by Claimant about the Study’s supposed lack of absolute and

161 AIG, ¶10.5.1; JENNINGS & WATTS, pp. 919/920; UNCTAD, p. 51; ADC, ¶435. 162 AIG, ¶10.5.1; JENNINGS & WATTS, pp. 919/920. 163 ADC, ¶435. 164 RA, p. 6, ¶11. 165 SUF, p. 35, ¶17. 166 Ibid. 167 SUF, p. 36, ¶25. 168 SUF, p. 36, ¶26.

27

conclusive evidence. There is no study that may not be criticized to some extent, particularly by

those who are financially interested in the matter, such as Claimant. But the record is barren of

any competing study that shows that the conclusions in the Study were unfounded or

implausible. Surely Claimant had ample time to do more than simply complain about the Study

and generate credible evidence to challenge it. It has done none of it. If it could have done so, it

would have done so. It could not.

C. The Decree was a non-discriminatory regulatory measure

107. Claimant may allege that Respondent’s measures were taken in a discriminatory manner.169

108. Different treatment provided to specific sectors cannot be deemed discriminatory when security

policies are at stake.170 To this regard, the tribunal in the Gami case followed this line of thought

and held that the host State did not act in a discriminatory manner since the measure served a

“legitimate goal”. 171 Recent jurisprudence, such as El Paso and Metalpar have also upheld this

approach, stating that in light of their inherent characteristics, different treatment may be

provided to certain sectors.172

109. A measure that affects a foreign investor is not discriminatory per se; to qualify as such, the

measure must be based on, linked to or taken for reasons of, the investor’s nationality, and

similarly-situated domestic entities must therefore be spared. 173 Discrimination requires

differential treatment of a particular investor from other similar investors in like

circumstances.174 Nothing like discrimination exists here.

110. The prohibition contained in the Decree referred to an entire activity without mentioning any

particular company.175 If lindoro’s extraction was poisonous and environmentally noxious, it

had to be barred. It is not surprising that only Claimant would be affected by a decision to bar

169 RA, p. 6, ¶9. 170 REINISCH, p. 284; Rusoro, ¶563. 171 Gami, ¶114. 172 El Paso, ¶315; Metalpar, ¶161. 173 UNCTAD, p. 49. 174 ADC, ¶442; Gami, ¶115; Eureko, ¶242. 175 Exhibit 5, p. 52.

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the extraction of lindoro because only Claimant extracted lindoro.176 That is hardly a basis to

complain about discrimination – the Decree was not aimed at Claimant, it was aimed at the

extraction and mining of a poison which only Claimant performed in Kronos. If Claimant could

point to other companies producing lindoro in Kronos which were spared of the effect of the

Decree, there may be for a charge of discrimination. There is nothing like that in the record.

111. The Decree did not concern any nationality-based differentiation. Indeed, nothing on the Decree

prevents Claimant to engage in other mining activities as a foreign investor. Claimant has failed

to demonstrate that the measures it challenges resulted from or had any connection with its

nationality.

D. Respondent’s actions were proportionate

112. Respondent submits that the measures directed to protect both the health of Kronian citizens as

well as its environment were not excessive, especially in the light of their purpose. Simply put,

there was no plausible or sensible measure available other than to prohibit outright the

continuous poisoning of the environment. Allow a little bit of poison – which is what Claimant

argues under the rubric of proportionality – is simply not acceptable. Proportionality – by way

of fines or warnings – cannot be a recipe to allow a slower poisoning of the population.

113. The tribunal in LG&E held that “there must be a balance in the analysis of both the causes and

the effects”177 of a measure. A measure cannot be expropriatory, if it is, as was the Decree here,

necessary to achieve a State’s regulatory purpose.178 States have the responsibility to ensure that

activities within their jurisdiction “do not cause damage to the environment”,179 and to protect

and ensure a healthy and productive life to its citizens. In this regard, when facing environmental

risks, the precautionary principle, urges States to “take preventive actions in the face of

uncertainty”.180 This is exactly what Respondent did. Moreover, this case is not merely about

the environment, it is also about the immediate amelioration of a public health crisis.

176 SUF, p. 33, ¶11. 177 LG&E, ¶194. 178 HENCKELS, pp. 252/253. 179 RIO DECLARATION, Principle 2. 180 KRIEBEL, p. 1.

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114. Respondent submits that due to the margin of appreciation owed to States,181 it is not necessary

for the Tribunal to evaluate whether a measure is proportionate with respect to its goal, it is

sufficient that the host State considers that it is so.182

115. The award issued in July 2016 in the well-known Philip Morris case involving regulation of the

cigarette industry is a recent and clear instance of the trend in jurisprudence to give particular

weight to States’ reasons, particularly in matters of health. 183 Also, the tribunal in Noble

Ventures held that account should be taken of whether the measures adopted by the State were

a short-term solution to avoid collapse and whether they were reasonable and well founded.184

A given measure is reasonable if it is compatible with its own aim.185

116. No balance can be struck between immediate health concerns on the one hand, and property

rights on the other. Claimant started its exploitation of lindoro in August 2008.186 Since 2011,187

Respondent conducted inspections to Claimant’s facilities in accordance with the provisions in

the Agreement.188 Inspectors were limited to collecting information over the years, and were

prevented from imposing sanctions on Claimant due to the absence of a statute conferring them

the needed authority. 189 In October 2015, the MEM released data indicating that the

concentration of toxic waste found in the Rhea River, which supplies water for the “vast majority

of the country”190 had sharply increased.191

181 MOLOO & JACINTO, p. 2; PALOMBINO, pp. 137/138; BENVENISTI, p. 843; FEINGOLD, p. 90; HUTCHINSON, p. 638; SAUL, p. 745; S.D. Myers, ¶263; Philip Morris, ¶398. 182 Philip Morris, ¶409. 183 ZARRA, p. 98. 184 Noble Ventures, ¶177. 185 CHOUDHURY, p. 826. 186 SUF, p. 33, ¶8. 187 Id., p. 35, ¶20. 188 Exhibit 2, p. 47, Article 2. 189 ARA, p. 15, ¶15. 190 Id., p. 16, ¶17. 191 SUF, p. 35, ¶20.

30

117. It would be misleading to call this case only to be about an environmental concern. This was

also about an immediate public health concern that could be addressed only by prohibiting the

mining and extraction of lindoro.

118. Claimant may argue that the connection between graspel and the increase of cardiovascular

diseases in the population of the surrounding areas is not unanimously accepted. However, at

least 10 different studies conducted by top-tier universities and independent researchers across

the globe over the last 5 years have demonstrated such connection.192 In the end, Claimant’s

objections on this score are simply complaints about one or another study, with no affirmative

evidence to challenge the main thrust of any or all these studies.

119. Given the unchallenged evidence, there was no reason to await the first provable death from

microcephaly and cardiovascular disease in Kronos to shut down the mining of lindoro.

Respondent’s actions were the first step in trying to reverse the ongoing contamination being

caused continuously by Claimant’s activities on the health of the people of Kronos.

Decontamination measures take time before they are visible. Moreover, in light of the margin

of deference referred to above, all the Tribunal should determine is whether the Decree was a

good faith attempt to address a real public health concern, not engage in a miniscule parsing of

whether specific goals or targets were achieved, as noted by the Philip Morris tribunal.193

120. In consequence, Respondent measure was proportionate, as it aimed to tackle a severe threat to

Kronos’ environment and public health.194 Respondent had no other choice but to stop the

contamination right away, and to stop it completely. 195 Claimant’s alternative suggestions

simply endorse slower poisoning of the local population. Nothing in the proportionality

principle justifies such result.

E. Claimant has no right to be compensated

121. Since Respondent complied with international law standards regarding fair regulation, its

actions do not amount to expropriation and therefore owes no compensation to Claimant. As we

192 Id., pp. 35/36, ¶22. 193 Philip Morris, ¶409. 194 Exhibit 5, p. 52. 195 Ibid.

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discussed above [§I(A), (B), (C) & (D), supra], such regulation was a sensible reaction to an

unexpected and severe harm to the environment and public health. The issuance was triggered

by newfound evidence that lindoro’s exploitation turned out to be hazardous196 – a business risk

entirely to be borne by Claimant and for which the law of expropriation offers no cover.

122. Claimant, Fenoscadia Limited – a long-time player in the field of rare metals197 – took a business

risk: namely, that it could exploit lindoro in an environmentally sound manner. It lost that bet –

but it was Fenoscadia’s bet to make. Claimant was no more entitled to exploit lindoro by

polluting and spreading disease than it could have been entitled to exploit lindoro with slave

labor and then claim expropriation when authorities barred it from using slaves.

123. International expropriation law is not intended to insulate a business from an ordinary risk in its

line of activity. Claimant could not possibly contemplate that by invoking expropriation, it

would be protected from the ordinary business risk that it took under the Agreement. As stated

in Maffezini: BITs “are not insurance policies against bad business judgements”.198

124. It is an accepted principle of customary international law that where economic injury results

from a non-discriminatory, good faith regulation within the police powers of the State

“compensation is not required”.199 States can regulate in the interest of public well-being200

without being held responsible for every inconvenience created for private entities.201 What is

more, States’ right to regulate is recognized by investment case law,202 which shows that this

196 SUF, pp. 35/36, ¶22. 197 Id., pp. 32/33, ¶6. 198 Maffezini, ¶69. 199 OECD, p. 5. 200 DOLZER & SCHREUER, p. 120. 201 MONTT, p. 7; AMERICAN LAW INSTITUTE, p. 201; NIKIÈMA, p. 3. 202 UNCTAD, p. 78; Sedco, ¶275; Feldman, ¶103; Saluka, ¶¶255/306; Suez, ¶147; Chemtura, ¶266; LG&E, ¶195; TECMED, ¶115; ALDRICH, p. 609.

32

right is also to be considered in the investment treaty context.203 When this right is utilized, it

will not require any compensation to be paid to persons whose property is affected.204

125. In the TECMED case, for example, although the tribunal found an expropriation had occurred,

it held that the principle that the State’s exercise of its sovereign power within the framework

of its police powers may cause economic damage without entitling to any compensation “is

undisputable”.205

126. The tribunal in Philip Morris stated that where economic injury results from a regulation within

the police powers of the State, compensation is not required.206 Likewise, the Chemtura case

considered the challenge by a manufacturer of a lindane-based pesticide to the ban on lindane

introduced by Canada. The tribunal found the measure was taken within a State’s mandate, in a

non-discriminatory manner, was motivated by “the increasing awareness of the dangers

presented by lindane for human health and the environment”, was a valid exercise of the State’s

police powers and, as a result, “does not constitute an expropriation”.207

127. In conclusion, Claimant is wrong in alleging that Respondent’s actions expropriated its

investment. Ample precedent, doctrine, and learned commentary confirm the right of States to

engage in regulatory activity208 which, even if harmful to a business, does not constitute

compensable expropriation. This is particularly so here, where the Decree interdicted the

ongoing poisoning foisted on the local population by Claimant’s extraction of lindoro. The

Tribunal should conclude that the Decree is a valid exercise by Kronos of its police powers for

the protection of public health and the environment. Therefore, the harm caused to Claimant’s

investment does not constitute an expropriation for which compensation is due.

203 MOSTAFA, p. 269. 204 MOSTAFA, p. 269; WAGNER, pp. 465/468; SOLOWAY, pp. 92/102; HARVARD DRAFT, Article 10(5); AMERICAN LAW INSTITUTE, p. 201; Saluka, ¶262; Methanex, Part IV (D) ¶7; Chemtura, ¶266; Greater Modesto, ¶26; Philip Morris, ¶287. 205 TECMED, ¶119. 206 Philip Morris, ¶287. 207 Chemtura, ¶266. 208 UNCTAD, p. 78; Sedco, ¶275; Feldman, ¶103; Saluka, ¶¶255/306; Suez, ¶147; Chemtura, ¶266; LG&E, ¶195; TECMED, ¶115.

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II) RESPONDENT’S ACTIONS FALL WITHIN THE GENERAL EXCEPTIONS CLAUSE

128. In any event, Respondent submits that the enactment of the Decree falls well within the General

Exceptions Clause of KT-BIT which provides that:

“1. [...] each of the Contracting Parties may adopt or enforce a measure necessary: (a) to protect human, animal or plant life or health; [...] (c) for the conservation of living or non-living exhaustible natural resources. 2. However, the measures undertaken pursuant to the proceedings paragraph must not be: (a) applied in a manner that constitutes arbitrary or unjustifiable discrimination between investments or between investors; or (b) a disguised restriction on international trade or investment”.209

129. Little more needs to be said given the previous discussion [§I, supra] other than to point out that

section (a) and (c) – encompassing measures to protect life and the environment – expressly

excludes the Decree from BIT coverage and liability. More generally, exceptions clauses from

treaty liability for good faith measures taken to pursue public welfare objectives, excluding them

from the scope of the treaty.210 The committee in CMS Annulment held that exception clauses

work as a “threshold requirement” that derogate from the substantial obligations under the BIT

when its conditions are satisfied.211 These exclusions provide a safety valve for environmental

or health protection in the context of investment and trade liberalization agreements.212

130. Respondent submits that it’s actions [A] fall under Article 10(1)(a) and (c) of the KT-BIT and

[B] comply with the requirements set forth in Article 10(2) of the KT-BIT. Therefore, the Decree

does not trigger liability under the KT-BIT because its consequences are excluded from BIT

protection.

209 KT-BIT, Article 10, pp. 43/44. 210 UNCTAD, p. 89. 211 CMS Annulment, ¶129. 212 UNCTAD II, p. 25.

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A. Respondent’s actions were within the scope of Article 10(1)(a) and (c) of the KT-BIT

131. Respondent submits that its action was within Article 10(1)(a) and (c) of the KT-BIT. The

Decree was a measure necessary to protect the health of Kronians and to preserve the Rhea

River.

132. Claimant may invoke a vague analogy between Article 10 of the KT-BIT and Article 25 of the

ILC’s Articles on State Responsibility to submit Respondent to the higher threshold of

international customary law when determining the state of necessity.213 Equivalences between

general exceptions clauses and the customary international law defense of necessity have been

rejected by arbitral jurisprudence.214

133. Following the lead of the CMS Annulment committee presided by Judge James Crawford, the

arbitrators in Continental decided that the customary international law defense of necessity’s

stricter standards, was inapplicable to interpret the reach of the word necessity in the exceptions

clause, particularly its requirement that the challenged measure should be the only means to

address a peril. 215

134. Instead, GAAT-WTO jurisprudence relating to the GATT’s article XX exceptions216, which has

similar wording to Article 10 of the KT-BIT, was found “more appropriate” as a precedent for

cases such as this one than was the customary law defense of necessity.217

135. The reach of the word necessary “is not limited to that which is indispensable or of absolute

necessity or inevitable”.218 The term necessary refers to a range of degrees of necessity. The

necessity of a measure should be determined through “a process of weighing and balancing

213 XU, WU & JIA, p. 252. 214 CMS Annulment, ¶129; Continental Casualty Merits, ¶168; LG&E, ¶206; Sempra Annulment, ¶¶165-169/219; Enron Annulment, ¶¶355/395. 215 Continental Casualty Merits, ¶192. 216 GATT, Article XX. 217 Ibid. 218 Korea-Beef, ¶161; Nicaragua v. United States, ¶282.

35

factors”.219 Moreover, the concept of reasonable availability of alternatives within WTO cases

allows a State’s “relative capacities” to be taken into consideration.220

136. As Respondent has elaborated above [¶99, supra], the contamination of the Rhea River has

caused the appearance of previously virtually nonexistent diseases in the Kronos population,221

making it indispensable for Respondent to take necessary measures to protect the local

population from further harm.

137. Rhea River supplies water to the vast majority of the country222 and it is therefore a vital natural

resource to the people of Kronos. The contamination of the Rhea River is a direct consequence

of the exploitation of lindoro.223 Exercising its sovereignty over Kronos natural resources,

Respondent took an active stand to safeguard the integrity of the Rhea River, and thus protect

its population from the noxious health consequences of its contamination.

138. It is unnecessary for this Tribunal to determine if the Decree was the best one available given

the public interest involved. All it needs to assess, with the degree of deference referred to above,

is whether the record shows the Decree to have had a public interest motivation.224 So viewed,

the Decree and its consequences thus lies beyond BIT protection by the express terms of the

KT-BIT.

B. Respondent’s actions comply with the requirements set forth in Article 10(2) of the

KT-BIT

139. The Tribunal is invited to find that Respondent’s measure did not fall within the provisions set

forth in Article 10(2) of the KT-BIT – the exceptions to the exceptions in Article 10.225 Stated

differently, measures for the protection of health and/or the environment are excluded from BIT

219 EC-Tyres, ¶7.104; Korea-Beef, ¶164; EC-Asbestos, ¶172; US-Gambling, ¶306; Dominican Republic-Cigarettes, ¶323. 220 ALVAREZ & BRINK, p. 334. 221 SUF, pp. 35/36, ¶22. 222 ARA, p. 16, ¶17. 223 SUF, p. 35, ¶22. 224 Teinver, ¶979. 225 KT-BIT, Article 10(2), pp. 43/44.

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coverage as discussed above [§II(A), supra] except if, under 10(2), they are applied [i] in a

manner that constitutes arbitrary or unjustifiable discrimination between investments or between

investors or [ii] a disguised restriction on international trade or investment. These two

exceptions are of no moment here.

140. The appellate body in the EC-Hormones case stated that in order to decide whether a measure

amounted to a discrimination or a disguised restriction, the answer must be sought in the

“circumstances of each individual case”.226

i. The Decree did neither arbitrarily nor unjustifiably discriminate between investors

141. As discussed above [§I(C), supra], the Decree was not discriminatory. There is nothing in the

record here concerning discrimination. The mining of lindoro was ended, and Claimant was the

only company in that business. No other company, foreign or domestic, was less harshly treated

by the Decree. It applied to Claimant only simply because it was the only one mining and

processing lindoro in Kronos. That should be the end of any argument about discrimination.

142. The first condition in Article 10(2) prohibits measures that constitute arbitrary or unjustifiable

discrimination between investors.227 To that regard, the appellate body affirmed in the U.S.-

Shrimp case that the standard set by the chapeau of Article XX of the GATT referred to the

prohibition of the sanction of measures which are arbitrary and unjustifiable, and no to other

standards such a national treatment.228 Dr. BARTELS explains that the chapeau does not prohibit

all discriminatory measures, only those that discriminate arbitrarily and unjustifiably.229

143. As Respondent has already stated [¶¶109, 110 & 111, supra], the Decree was a measure of

general nature, aimed at mitigating the disastrous effects of Claimant’s negligent and polluting

activities.

144. Therefore, since the factual elements in the record demonstrate that there was a substantial

damage done to the environment and the health of the Kronian people by the conduct of

226 EC-Hormones, ¶240. 227 KT-BIT, Article 10(2), pp. 43/44. 228 US-Shrimp, ¶150. 229 BARTELS, p. 110.

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Claimant and the sole purpose of the Decree was to mitigate it, it cannot be deemed to be have

been applied in a discriminatory manner.

ii. The Decree is not a disguised restriction on international investment

145. Lindoro was never imported or otherwise produced locally by another company.230 Nothing in

the Decree favored other domestic businesses producing lindoro – there were none – or foreign

companies importing lindoro into Kronos – there were likewise none. Discrimination between

local and international investment is simply not an issue in this case. The Decree barred the

exploitation of lindoro in Kronos by companies local, foreign, international, transnational, or

even incorporated in Mars or Venus. Nobody was given preferences or was disproportionately

discriminated by reason of its location.

146. The panel in the EC-Asbestos case stated that a restriction issued by a State amounts to a disguise

when its aim is to conceal a trade-restrictive objective.231 In the mentioned case, the panel had

to analyze whether a decree issued by Canada was necessary to achieve a public health objective.

Said decree favored certain imports of products and limited the import of products that contained

asbestos.232

147. First, the panel inspected if the wording of the measure contained any kind of discrimination

towards the manufacturers but found no indication of it. 233 Second, it studied the design,

structure and architecture of the decree, and once again, found no sign of any protectionist

objective.234 Therefore, the panel concluded that Canada had complied with the requirement

established in the chapeau of Article XX GATT235 – which is the same as Article 10(2)(b).236

230 SUF, p. 33, ¶11. 231 EC-Asbestos, ¶8.236. 232 Id., ¶8.237. 233 Ibid. 234 Id., ¶8.238. 235 Id., ¶8.240. 236 KT-BIT, Article 10(2)(b), pp. 43/44.

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148. In the case at hand, the Decree does not contain any sign of discrimination in its wording nor

would it be possible for Claimant to argue discrimination. Claimant was the sole company in

Kronos which exploited lindoro.237

149. Furthermore, Claimant may argue that Respondent may be pursuing a different goal which

involves a plan to take its business and replace it with a domestic company, and that this was

addressed both by a magazine238 and by the Liberal Party.239 On one hand, Respondent has

already stated above the reasons why the mentioned publication is deprived of any factual or

legal basis [¶97, supra].

150. On the other hand, the Liberal Party was known for having a close relationship with Claimant.

Traces of this affair can be found through the Presidential Annual Speeches, where the former

President stated that “Fenoscadia has our full support to increase the efficiency of its activities

...”240 and that “[w]e are glad to have Fenoscadia as one of the pillars of Kronos’ growing

economy”.241 It would not be ill-conceived to assume that the accusations made by the Liberal

Party would only have the intention to cover their political failure to protect the people of

Kronos.

151. Moreover, further evidence of this contact is found in the record. First, the previous

administration had the data collected by the MAFL since the first inspection dated 2011,242

which recognized the increase of the concentration of toxic waste in the Rhea River.243 Second,

the toxicity of graspel had been gaining international notoriety since 2011.244 However, no

measures were taken in order to safeguard the wellbeing of the Kronian people.

152. Even more, the previous president, in the Presidential Annual Speech of 2 January 2013 stated

that “the local communities surrounding Fenoscadia’s activities have also experienced

237 SUF, p. 33, ¶11. 238 Exhibit 7, p. 54. 239 Id., p. 35, ¶17. 240 Exhibit 3, p. 49. 241 Ibid. 242 SUF, p. 35, ¶20. 243 Ibid. 244 Id., pp. 35/36, ¶22.

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transformations changing the quality of life ...” [emphasis added].245 The contamination of the

Rhea River had been sharply increasing since 2010. 246 Indeed, the quality of life of the

surrounding communities was radically diminished throughout the period in which the previous

administration celebrated the supposed contributions of Claimant to the wellbeing of Kronos

and its population. And, as discussed above [¶97, supra], the gossip given credence in the press

about the revival of lindoro mining by a government company has no concrete corroborating

evidence in this record.

153. Therefore, the Decree was a necessary measure intended to protect the health and environment

of the Kronian people and did not run afoul of the conditions – i.e., the exceptions to the

exceptions – set forth in Article 10(2) of the KT-BIT. Hence, Respondent does not owe Claimant

any compensation for the alleged damage because the measure and its consequences – i.e., the

Decree – are not within the scope of protections offered by the KT-BIT.

245 Exhibit 3, p. 49. 246 SUF, p. 35, ¶20.

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PRAYER FOR RELIEF

154. For the ongoing reasons, Respondent respectfully request this Tribunal to find that:

a) It does not have jurisdiction since Claimant is not a protected investor under the KT-BIT;

b) In any event, that Claimant’s claims are inadmissible since it activated the FITR provision

set forth in the KT-BIT;

c) Respondent’s counterclaim is admissible;

d) Claimant’s claim should be entirely rejected;

e) Alternatively, Respondent’s Decree falls within the scope of the General Exception clause

of the KT-BIT.

Respectfully submitted on September 24, 2018

by

Team Fortier

On behalf of the Republic of Kronos