Team Code IA404

4TH INTERNATIONAL BANKING AND INVESTMENT LAWMOOT COURT COMPETITION, 2015

ASK

IN THE AD-HOC ARBITRATION TRIBUNAL FORMED UNDER THE TREATY AT JAIPUR, SOUTHERIA

IN THE MATTER CONCERNING BILATERAL INVESTMENT TREATY BETWEEN:

CLAIMANT:Posiedon Petroleum and Natural Gas Limited (PPNGL) Southeria

-AND-

RESPONDENT: The Government of the Republic of Southeria

TABLE OF CONTENTS

ABBREVIATIONS5STAETEMENT OF FACTS7ISSUES RAISED10SUMMARY OF ARGUMANTS111.The Tribunal has jurisdiction over the claims submitted by the Claimant.141.1.Jurisdiction has to be determined solely based on criteria mentioned in the BIT.14A.The Tribunal has jurisdiction Rationae Materiae.14B.The Tribunal has jurisdiction Ratione Personae.15C.The Tribunal has jurisdiction Ratione Voluntatis.162.Respondent has breached its obligation to provide fair and equitable treatment162.1.The FET standard in Article 3 of the BIT is an autonomous standard172.2.The respondent has violated the said standard on certain grounds18A.Legitimate expectations and stable predictable legal framework for investment19B.Good faith21C.Arbitrary23D.Respondents measures were unreasonable243.Respondent has violated the Article 5 of the BIT by illegitimately expropriating the claimants property without providing compensation253.1.The actions of the Respondent constitute an indirect expropriation25A.By introducing retrospective tax laws25B.By attaching Eiropa PPNGLs shares in Southeria PPNGL and restricting any sale of share.273.2.Even if the taking is lawful, Respondent owes full and effective compensation as the BIT does not contain any exception to the payment of Compensation283.3.The Police power exception cannot be taken by the Respondents304.Respondent cannot invoke the BITs essential security clause to justify its actions314.1.Respondent is precluded from self -judging article 11(2)31A.Article 11(2) is not self-judging because it is not explicitly declared to be.31B.To interpret a BIT clause as being self-judging would violate international rules on treaty interpretation32C.Treaty provisions that allow international actors to act as judges in their own causes are invalid334.2.Articles on State Responsibility are applicable when determining whether necessity to take action for the protection of essential security interest existed344.3.The Respondent failed to fulfil the conditions set out in Article 25 of Articles on State Responsibility35A.There was no grave and immanent peril35B.The conduct of the Respondent cannot be accepted as the only way36Prayer38

INDEX OF AUTHORITIES

STATUTES, CONVENTIONS AND TREATIES:

Vienna Convention on the Law of treaties (entered into force 23 May 1969)15, 27, 32

Books Referred:

1. Alexandra Diehl, The Core Standard of International Investment Protection (2012)152. Andrew Newcombe and LlusParadell, Law and Practice of Investment Treaties: Standards of Treatment (2009)153. Brownlie, Ian, Public International Law, Oxford University Press, 6th Edition, 2003194. Jeswald W Salacuse, The Law of Investment Treaties (2015)165. Jeswald WSalacuse, The Law of Investment Treaties (2014)156. Kenneth-Vandevelde, United States Investment Treaties: Policy and Practice (Kluwer, 1992)29, 317. Mc Lachlan, Shore & Weigner, International Investment Arbitration: Substantive Principles, (2008)228. OConnor, J.F, Good Faith In English Law, Brookfield USA: Dartmouth Publishing Company,1990209. Rudolf-Dolzer-and-Christoph-Schreuer, Principles of International Investment Law-(Oxford-University Press,-2008)23,2610. Sornarajah Muthucumaraswamy, The International Law on Foreign Investment (3rd Ed 2010)11

Cases Cited:

1. AES Summit Generation Ltd v Republic of Hungary, ICSID Case no ARB/07/22, Award (September 23 2010)21, 342. Ata Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan, ICSID Case no ARB/08/2, Award (May 18, 2010)213. Azurix Corp v The Argentine Republic, ICSID Case no ARB/01/12, Award ( 14 July 2006)19,284. Bin-Cheng, General Principles of Law as Applied by International Tribunals (Cambridge, 2006)315. Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case no ARB/05/22, Award (24 July 2008)266. CMS Gas Transmission Company v The Argentine Republic , ICSID Case no ARB/01/8, Award (12 May 2005 )29,347. Compaa Del Desarrollo De Santa Elena, S A v TheRepublic of Costa Rica,ICSID Case no ARB/96/1, Final Award (17 February, 2000)288. Continental Casualty Co v Argentina Republic, ICSID Case no ARB/03/9, Award(5 Sept 2008)179. Enron-Corporation-and-Ponderosa-Assets, L P v-Argentine-Republic, ICSID-Case-no ARB/01/3 , Award(22- May-2007)30,3210. Genin, Eastern Credit Ltd Inc and A S Baltoil v Republic of Estonia, ICSID Case No ARB/99/2, Award (25 June 2001)12, 2311. Lauder (US) v Czech Republic, UNCITRAL, Final Award (September 3, 2002).1812. M C I Power Group L C and New Turbine, Inc v Republic of Ecuador, ICSID Case no ARB/03/6 Award, (31 July 2007)25, 3313. Metalpar S A and Buenos Aires S A v The Argentine Republic, ICSID Case no ARB/03/5, Decision So breJurisdiccionDictada (27 April 2006)1614. Middle East Cement Shipping and Handling Co S A v Arab Republic of Egypt, ICSID Case no ARB/99/6 Award (12 April 2002)2315. Middle East Cement Shipping and Handling Co S A v Arab Republic of Egypt, ICSID Case no ARB/99/6, Award (12 April, 2002)2516. Mondev Intl Ltd v United States, ICSID Case no ARB(AF)/99/2, Award (11 Oct 2002)15,2117. Parkerings - Compagniet A S v Republic of Lithuania, ICSID Case no ARB/05/8, at para1818. S D Myers, Inc v Government of Canada, Partial Award, NAFTA(13 November, 2000)2319. Sempra Energy International v. Argentine Republic, ICSID Case no ARB/02/16, Award (28 September, 2007)25,32,3420. Siemens A G v Argentina Republic, ICSID Case no ARB/02/8, Award(6 Feb 2007)16.2721. Tecnicas Medioambientales Tecmed S A v The United Mexican States, ICSID Case no ARB(AF)/00/2,Award (May 29 2003)2822. Telenor Mobile Communications AS v Hungary, ICSID Case no ARB/04/15 Decision on Jurisdiction (13 September 2006)23

Articles and Reports:

Case Concerning Elettronica Sicula (ELSI), 20 July 1989, ICJ Rep (1989) 1521Case Concerning the Gabcikovo- Nagymaros Project (Hungary v Slovakia), Judgment, I.C.J. Reports 199733Felipe Mutis Tllez, Conditions and Criteria For The Protection of Legitimate Expectations Under International Investment Law, 27 ICSID Rev- 43217,18

LIST OF ABBREVIATIONS

ASRArticles on State Responsibility

ArtArticle

BITEiropa - Southeria Bilateral investment treaty

CILCustomary International Law

DTAADouble Taxation Avoidance agreement

FETFair and equitable treatment

HonbleHonorable

ICCInternational Chamber of Commerce

ICJInternational Court of Justice

ICSIDInternational Convention for settlement of Investment Disputes

ILCInternational Law commission

IMSInternational Minimum Standard

IPOInitial Public Offering

NAFTANorth American Free Trade Agreement

Para/ParasParagraph

PPNGLPoseidon Petroleum and Natural Gas Limited

UNUnited Nations

UNCITRALUnited Nation Commission on International Trade Law

vVersus

VCLTVienna Convention on law of treaties

STATEMENT OF FACTS

IPoseidon Petroleum and Natural Gas Limited (PPNGL) Southeria is one of the largest and arguably the most prominent independent oil and gas exploration and production companies in Southeria, operating in Southeria since 1996.The group has been operating in Southeria for about 15 years It has made extensive discoveries of oil and natural. PPNGL Southeria has also considerably increased its assets in the form of refineries and oil and natural gas transport rolling stock. In 2007, Eiropa PPNGL listed the Southerian part of its business, PPNGL Southeria Limited, on the National and Tongo Stock Exchanges of Southeria raising US$2 billion and retaining 62% holding.IIThe same year the Poseidon Holding company of which Eiropa PPNGL has been the principal subsidiary, decided to reorganize the structure of the group assets by permitting its Australian subsidiary, PPNGL (Aurora), to acquire controlling shareholding in the Eiropa PPNGL, with the result that the Eiropa PPNGLs stake in PPNGL Southeria was to be reduced to 10 percent after the transaction. In 2011 PPNGL (Aurora) sold 40% of PPNGL Southeria shares to Upanishad Resources Private Ltd, a global natural resources company, for approximately US$7.5 billion, retaining a 22% holding. In 2012, it further sold an aggregate 11.5% holding in PPNGL Southeria Limited for a net cash consideration of US$1.3bn, retaining 0.5% shareholding.IIIPPNGL Southeria filed a dispute notice against the Southerian Internal Revenue over a $1.6 billion tax claim for the fiscal year ended March 2007. The dispute notice was filed under the terms of a Eiropa-Southeria Investment Treaty, and the Southerian Government and PPNGL Southeria immediately started negotiations to find a resolution to the dispute. The tax claim related to transactions carried out to reorganise the companys structure in 2007 leading to British Petroleum (Aurora) acquiring controlling shareholding in the British PPNGL, with the result that the Eiropa PPNGLs stake in PPNGL Southeria was to be reduced to 10 percent after the transaction.IV The tax departments investigation, which started in January 2014, has meant that Eiropa PPNGL has not been able to proceed with the sale of its 10% stake in PPNGL Southeria, valued at about $700 million. Eiropa PPNGL was in fact generally restricted from any sale of its stock (valued at US$1.1bn as at 30 June 2014) to PPNGL (Aurora). As a result of the tax notice and embargo, Eiropa PPNGL shares were seen opening down 25% on the day that the news of the dispute went viral, traders in Rockville, Eiropa, said. This trend continued. So due to the arbitrary amendment in the Income Tax Act of Southeria, which imposed retrospective tax on PPNGL Southeria, huge losses were incurred by it.VEven after protracted negotiations, no agreement was reached on PPNGL Southerias claim that the retrospective tax was not legitimately expected under the investment agreement and the bilateral double taxation avoidance agreement, it was unusual in the history of taxation, it was tantamount to losses in assets/profits transfer, and therefore the company was entitled to claim restitution of losses resulting from the attachment of its stake in PPNGL Southeria since 2014. VIThe company pointed out that the restructuring was planned at the instance of The Poseidon Holding Lt, which was the principal company in the group, and it was to be achieved within the territorial jurisdiction of Eiropa, and had nothing to do with the tax jurisdiction of the Southerian tax authorities. Nor did it involve any sale of shares, only a transfer of shares within the group. It also claimed that decline in share value in the Rockville Stock Exchange was the direct result of the tax investigation, and that therefore it was entitled to claim compensation for the loss, as also for the loss of goodwill. VIICorrespondence received from the Income Tax Department indicated that the assessment stems from amendments introduced in the 2012 Finance Act which, by a removal of doubts Explanation, seek to tax transactions of previous years. The transactions subject to the assessment were those undertaken to effect the group reorganization that was required to enable the Initial Public Offering of PPNGL Southeria Limited in 2007. This was the frivolous argument given by the Income Tax Department to defend their cause, which they failed to do so, because they were in contravention with the provision of the BIT, which enumerated that the parties will not be allowed to impose retrospective tax on each other.VIIIThe company raised the matter with the Finance Ministry and advised the Ministry of its intention to invoke the Bilateral Investment Treaty for arbitration, which was denied by the ministry. Finally, finding the Ministry unhelpful, the company invoked Article 9(3)(b) of the Treaty and demanded that the issue be settled through arbitration.

ISSUES RAISED

The following questions have been raised before this Honble Tribunal to consider:

1. Whether the Tribunal has jurisdiction over the claims submitted by the Claimant?

2. Whether the respondent has breached its obligation to provide fair and equitable treatment?

3. Whether the respondent has violated the Article 5 of the BIT by illegitimately expropriating the claimants property without providing compensation?

4. Whether the respondent can invoke the BITs essential security clause to justify its actions?

SUMMARY OF ARGUMANTS

1. Whether the Tribunal has jurisdiction over the claims submitted by the Claimant?

The claimant submits that the tribunal has jurisdiction over the claims submitted because the dispute satisfies all the requirements for invoking dispute resolution clause of BIT and the claimant is an investor and has made investment in the Territory of Southeria. The futility exception is applicable for claimants non exhaustion of local judicial remedies because if the claimant had pursued local judicial remedies, it would ultimately result in futility which is an exception to exhaustion of local remedies. 2. Whether the respondent has breached its obligation to provide fair and equitable treatment.The FET standard Incorporated in the FET clause of BIT is an autonomous standard because of no specific mention of CIL or IMS and should be interpreted in accordance with the preamble. The autonomous standard provides lower threshold for violation of FET clause. Furthermore, whatever standard of FET, the tribunal may interpret; the Respondent has violated the said standard by hampering claimants legitimate expectations by failing to provide stable and predictable legal environment, acting in bad faith, taking arbitrary measures and without any reasonable justification.

3. Whether the respondent has violated the Article 5 of the BIT by illegitimately expropriating the claimants property without providing compensationRespondent has taken steps equivalent to expropriation by introducing retrospective tax and restricting the claimant from selling its stake in PPNGL southeria and these measures hindered claimants enjoyment of its investment. Even if the tribunal finds that the expropriation is lawful, the claimant is entitled to get compensation as the BIT does not contain any exception to the payment of compensation and the claimant cannot take the police power exception of not giving the compensation 4. Whether the respondent can invoke the BITs essential security clause to justify its actions?The article 11(2) of BIT is not self-judging because it is not specifically declared in the BIT and interpreting it as self-judging would violate rules on treaty interpretation. The tribunal should apply Articles of State Responsibility to determine whether necessity to take action for protection of essential security interest existed. By that interpretation, the conduct of the Respondent cannot be accepted as the only way and there was no grave or immanent peril. So, the respondent failed to fulfill the conditions set out in Article 25 of Articles of State Responsibility.

ARGUMENTS ADVANCED

1. The Tribunal has jurisdiction over the claims submitted by the Claimant.1.1. Jurisdiction has to be determined solely based on criteria mentioned in the BIT.

The Eiropa-Southeria Bilateral Investment Treaty (BIT) constitutes the governing law for the present proceedings that have been instituted for the alleged violation of various treaty provisions. Consent of the parties forms the basis of every arbitral proceeding. In a contract-based arbitration, the consent is specific to the disputes that arise from that contract. A treaty-based arbitration is a unique category of contract based arbitration where the Contracting States consent to claims by all the present and potential investors subject to the satisfaction of the nationality requirement along with the fulfillment of requirements for a valid investment.[footnoteRef:1] [1: Sornarajah Muthucumaraswamy, The International Law on Foreign Investment (3rd edn 2010) 306.]

A. The Tribunal has jurisdiction Rationae Materiae.

The BIT defines investment in broad, illustrative and non-exhaustive terms by using the phrase in particular, though not exclusively, includes The broad wording of the term every kind of asset combined with the non-exhaustive nature of the definition has led tribunals to adopt an expansive interpretation.[footnoteRef:2]This definition of investment covers investments in any other form that may not have been mentioned in the definition clause. Also, article 1(c) of the BIT says that investment includes every kind of asset established including changes in such form of investment [2: Genin, Eastern Credit Ltd Inc and A S Baltoil v Republic of Estonia, ICSID Case No ARB/99/2, Award (25 June 2001).]

The requirements for an investment as per Article 1(c) (i) of the BIT have been fulfilled as PPNGL Southerias assets are immovable property of PPNGL Eiropa.

By the facts, it is also clear that in 2007, Eiropa PPNGL, listed Southerian part of its business, PPNGL Southeria raising US$ 2 billion and retaining 62% of holding. The shares of PPNGL Eiropa in PPNGL Southeria also constitute investment by virtue of Article 1(c) (ii).

The Claimant is a member of the PPNGL Groupand has been instrumental in transforming the PPNGL Southeria into a successful business venture. Facts also state that Eiropa PPNGL has been an investor for almost twenty years in Southeria and has created a legacy asset for the country. The fact that all these events took place before the Claimant acquired the shares shows that the Claimant has been making bona fide investments in Southeria since 15 years. Therefore, the tribunal has jurisdiction rationae materiaeover the claims filed by the Claimant.

However, it is indisputable that the investment is made in the territory of Southeria as PPNGL southeria is incorporated Southeria under the laws of Southeria and has performed and established various types of assets in the territory of southeria. Thus the territorial requirement under article 1(g) of BIT is also satisfied.B. The Tribunal has jurisdiction Ratione Personae.

The place of incorporation or the nationality of an entity is the sole requirement for it to qualify as an investor under the BIT. Though the factsheet is silent on this essential issue that whether the claimant is a incorporated company under the laws of Eiropa or not, and there or no means of finding it other than the fact that the claimant is a registered company in Rockville stock exchange of EIropa , thus it can be inferred from the factsheet to some extent that the claimant, is a duly incorporated company under the laws of the Eiropa.C. The Tribunal has jurisdiction Ratione Voluntatis.

The States consented to submit to the jurisdiction of the tribunal constituted as per the provisions of Article 9(3) (b) of the BIT. Art. 9 use certain terms like as far as possible of settlement of dispute amicably, which might suggest the non-enforceable nature of these pre-arbitral conditions.

After the tax notice, Southerian Government and PPNGL Southeria immediately started negotiations to find a resolution to the dispute. Even after protracted negotiations, no agreement was reached on PPNGL Southerias claim that the retrospective tax was not legitimately expected under the investment agreement. Here, the term protracted, according to oxford dictionary means Lastingfor a long time or longer than expected or usual. With such meaning, the claimants contend that it should be interpreted that the negotiations lasted for more than 6 months because 6 months may be the usual time of negotiations and it is not a long time amicable negotiations.

Since, all the requirements for admissibility are met; the claimants submit that the tribunal has jurisdiction over the present dispute.

1.2. The futility exception is applicable for claimants non exhaustion of local judicial remedies

It was agreed in Apotex Inc.[footnoteRef:3] that the question whether the failure to obtain judicial finality may be excused for obvious futility turns on the unavailabilityof relief by a higher judicial authority, not on measuring the likelihood that the higher judicial authority would have granted the desired relief. [3: Apotex Inc v The government of the United States Of America, UNCITRAL, Award on Jurisdiction and Admissibility (14 June 2013), para 276.]

Furthermore, in Ambiente Ufficio v. Argentina[footnoteRef:4], a split tribunal held that it could consider a futility exception to avoid compliance with the ArgentinaItaly BITs local court requirement, as a customary international law principle applicable by analogy from exhaustion of local remedies rules, that was relevant under Article 31(3)(c) of the Vienna Convention. [4: Ambiente Ufficio S P A and Ors v The Argentine Republic, ICSID Case No ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013), para 603.]

The claimant in the present case, submit that the futility exception for not exhausting local remedies is applicable here and the claimant should be excused from pursuing any local judicial remedy because that would result in obvious futility because lower courts of Southeria lack authority in the matter where the concern is national law and the claims under BIT cannot be challenged under Higher Courts also. It is well settled fact that pendency of cases is the worst problem of Southeria judicial system. Hence, the claimant submits that pursuing local judicial remedies of southeria is futile and is wastage of time and money for a matter so serious like this.

2. Respondent has breached its obligation to provide fair and equitable treatment

Although the meaning of FET is still a matter of academic discussion, Claimant argues that Respondent has acted contrary to the fundamental requirements of establishing FET under Article 3(2) of the Eiropa-Southeria BIT. In interpreting the provisions of the Eiropa-Southeria BIT, regard must be given to the purposes of the Treaty, one of which (as outlined in the Preamble) is the encouragement of investment.

Article 3(2) of the BIT expressly provides that investors shall at all times be accorded FET. In the following submission, the Claimant will demonstrate that: (1) The FET standard in Article 3 of the BIT is an autonomous standard and that (2) Respondent violated said standard. 2.1. The FET standard in Article 3 of the BIT is an autonomous standard

Since the Eiropa-Southeria BIT does not refer to an established international standard that could be applied, the terms fair and equitable "are to be understood and applied independently and autonomously."[footnoteRef:5] Hence the inclusion of the terms fair and equitable in Article 3(2) of the Eiropa-Southeria BIT refer to the autonomous standard. [5: FA Mann, British Treaties for the Promotion and Protection of Investments (1981) 52 Brit YB Intl L. 244.]

The Tribunal must also follow the general rule of interpretation of Article 31(1) of the VCLT to interpret the Eiropa-Southeria BIT. This rule provides that: A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.[footnoteRef:6] [Emphasis added] [6: Vienna Convention on the Law of treaties (entered into force 23 May 1969)(VCLT) art 31(1).]

This means that the term fair and equitable will have to be interpreted and given its ordinary meaning in the context of the Eiropa-Southeria BIT.[footnoteRef:7] The BIT does not qualify the term fair and equitable, or refer to customary international law or any other international standard, thus the autonomous FET standard must be applied. [7: Andrew Newcombe and LlusParadell, Law and Practice of Investment Treaties: Standards of Treatment (2009) 264. ]

2.2. The respondent has violated the said standard on certain grounds

The determination of an FET breach is fact dependent and case specific.[footnoteRef:8] Tribunals can therefore be guided by previous FET interpretations to establish the content of the standard, as an ordinary meaning approach based on a dictionary definition is not sufficient.[footnoteRef:9] Although the autonomous FET standard does not have one definite interpretation, "tribunals have developed specific criteria, norms, and principles to determine whether host states have given fair and equitable treatment to investors."[footnoteRef:10] [8: Mondev Intl Ltd v United States, ICSID Case No ARB(AF)/99/2, Award (11 Oct 2002) para 118.] [9: Alexandra Diehl, The Core Standard of International Investment Protection (2012) 312.] [10: Jeswald WSalacuse, The Law of Investment Treaties (2014) 230.]

There are agreed upon elements, by Tribunals and authors alike that form the autonomous FET standard.[footnoteRef:11] These elements are not cumulative and the violation of one is sufficient to conclude that a breach occurred. [11: Siemens A G v Argentina Republic, ICSID Case No ARB/02/8, Award (6 Feb 2007) paras 291-300. ]

They include, the need for the State to (1) act in good faith, (2) act in a non-discriminatory manner, (3) act transparently, (4) not act arbitrarily, (5) not deny access to justice to investors (i.e. provide due process), (6) freedom from coercion and unreasonableness (7) to protect investors legitimate expectations. The respondent violated four elements of BIT A. Legitimate expectations and stable predictable legal framework for investment

It is widely accepted in the recent jurisprudence that securing a stable and predictable legal environment and protecting the investors legitimate expectations represent an important part of FET.[footnoteRef:12] Thus, frustration of legal expectations can at the same time amount to expropriation, and a breach of FET. Legitimate expectations are a central element of the autonomous FET standard.[footnoteRef:13] Respecting these legitimate expectations is part of being fair towards investors.[footnoteRef:14] [12: Metalpar S A and Buenos Aires S A v The Argentine Republic, ICSID Case No ARB/03/5, Decision So bre Jurisdiccion Dictada (27 April 2006) para 183.] [13: Michele Potest, Legitimate Expectations in Investment Treaty Law: Understanding the Roots and the Limits of a Controversial Concept 28 ICSID Rev 88, 98-99.] [14: Jeswald W Salacuse, The Law of Investment Treaties (2015) 231.]

There are three key elements to determine what can qualify as legitimate expectations. Firstly, expectations must be legitimate; legitimacy being determined by three main conditions: reliance on the law, its objective and subjective reasonableness and the beneficial effect for the investor of the law or governmental conduct said to give rise to such expectations.[footnoteRef:15] Secondly, the expectations must have enticed the investor. Thirdly, the host state must have made representations or warranties, which it then repudiated.[footnoteRef:16] [15: Felipe Mutis Tllez, Conditions and Criteria for the Protection of Legitimate Expectations under International Investment Law 27 ICSID Rev 432, 441.] [16: Continental Casualty Co v Argentina Republic, ICSID Case No ARB/03/9, Award (5 Sept 2008) para 261.]

Here, the claimants contend that its expectations regarding retrospective tax were legitimate and reasonable as the DTAA between Eiropa and Republic of Southeria clearly stated that neither Contracting State undertakes to collect any tax levied retrospectively over transactions made during any preceding year (other than the previous year between 1st April and 31st March, for which assessment is made in the ordinary course of nature during the immediately following year.) thus restricting the application of any retrospective tax by the contracting parties.

Article 3(3) of the BIT clearly says that Each Contracting Party shall observe any obligation it may have entered into with regard to investments of investors of the other Contracting Party and considering article 2(3) of the DTAA, it can easily be inferred that it was the obligation of the respondent not to introduce retrospective tax and it was the legitimate expectation of the investors under the BIT and DTAA that the tax laws will not be applied retrospectively and the investors shall not be deprived from the right of enjoyment of investment.

Legitimate expectations can be created in many ways. An agreed upon expectation, for example, is that "the host State will not alter the legal and business environment and/or administrative practices upon which the investment has been made."[footnoteRef:17] In this vein, Schreuer notes, "legitimate expectations are based on the host states legal framework and on any undertakings and representations made explicitly or implicitly by the host state."[footnoteRef:18] In a similar situation, the tribunal in Occidental concluded a violation of the FET standard as [t]he tax law was changed without providing any clarity about its meaning and extent, and the practice and regulations were also inconsistent with such changes.[footnoteRef:19] [17: Felipe Mutis Tllez, Conditions and Criteria for the Protection of Legitimate Expectations under International Investment Law 27 ICSID Rev 432, 438.] [18: Rudolph Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, 2012) 145.] [19: Lauder (US) v Czech Republic, UNCITRAL, Final Award (3 September 2002).]

In Parkerings, the Tribunal concluded that the failure to maintain a stable and predictable legal framework could frustrate an investors legitimate expectations. The Tribunal warned that a mere evolution in law is not sufficient to conclude a State failed to maintain a stable legal framework. However, it is prohibited "for a state to act unfairly, unreasonable or inequitable in the exercise of its legislative power."[footnoteRef:20] [20: Parkerings - Compagniet A S v Republic of Lithuania, ICSID Case No ARB/05/8 paras 332-337.]

The insertion of explanations by Finance Act 2012, in sections 2 and 9 of income tax act of Southeria entirely changed the scope of these sections. These changes have drastically broadened ambit of meaning of transfer of capital asset and Income deemed to accrue or arise in India. Not only that, but these revisions are, as already stated, retrospectively enforced. As an outcome of all of these changes, the Respondent imposed a $1.6 billion tax claim for the fiscal year ended March 2007. This does not constitute a predictable and stable environment and blatantly breaches FET standard.

The claimant submits that retrospective modifications in the provisions of income tax act were applied retrospectively which produced devastating damage to Claimant and rendered its investment virtually useless, and it breached the obligation of the host state to maintain stable and legal environment. Therefore, it is clear that violation of claimants legitimate expectations breached both the prohibition of expropriation and FET.

B. Good faith

As confirmed by arbitral tribunals, principle of good faith represents one of the foundations of international law in general and international investment law in particular.[footnoteRef:21] It is also an inseparable part of FET. Although the existence of bad faith is not necessary for the violation of FET,[footnoteRef:22] its presence unquestionably demonstrates that the breach occurred. [21: Ian Brownlie, Public International Law (6th edn, OUP 2003) 19.] [22: Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Award (14 July 2006) para 372.]

The Respondent acted in bad faith by breaching BITs provisions even though the parties, as it was shown, had the intention to specifically emphasize this prohibition. Respondent acted in mala fide when he betrayed Claimants legitimate expectations. Southeria guarantied explicit refrainment from collecting retrospectively in the DTAA between Eiropa and Southeria. Afterwards the Claimant was completely deprived of the granted rights and the legal framework was drastically altered in an unlawful, arbitrary and discriminatory manner. The existence of bad faith is more that obvious.

The bad intention of the respondent was evident from the acts of respondent which included amending those provisions which will only affect those transactions done by the Posiedon the ultimate parent company in order to organise the structure if group assets. Here, at the time of restructuring, the claimant must have taken into account all the Southerian laws affecting the whole transaction and must have accorded with the same, thus there is no mala fide on part of claimants, it is rather on claimants who, in order to collect huge amount of tax maliciously, passed retrospective laws relating to the subject matter of the transaction and taxing transaction taking place outside Southeria.

In all of the actions presented, absence of conscience, well-meaning, reasonableness, honesty, fairness, fundamental parts of the bona fide principle is clear.[footnoteRef:23]On the contrary, there is an obvious presence of bad faith, perfidy and discrimination. Thus, these conducts undoubtedly represent a violation of good faith. [23: J F OConnor, Good Faith in English Law (Brookfield USA 1990) 102.]

C. Arbitrary

The fact that these amendments were enforced retrospectively clearly indicates that the host state acted maliciously. The principle of legality dictates that only in exceptional cases provisions can be enforced retrospectively and even then if such application would not offend some fundamental and peremptory principle of justice.[footnoteRef:24] Likewise, the state cannot introduce a new tax or increase the ambit of a tax provision and apply it retrospectively as the effected individuals had some legitimate expectations that the transaction they are going to do is not taxable. Thus, the retroactive enforcement of law with a purpose to target only one type of individual and produce damage to its property is neither lawful nor beneficial for Claimant. The mere fact that earlier conduct has gone un-remedied, does not justify retrospective application to that conduct of a norm retrospectively, which was adopted afterwards.[footnoteRef:25] Therefore, the retroactive exercise of amended tax provisions is discriminatory. [24: Ata Construction, Industrial and Trading Company v The Hashemite Kingdom of Jordan, ICSID Case No ARB/08/2, Award (18 May 2010) para 98.] [25: Mondev Int'l Ltd v United States, ICSID Case No ARB(AF)/99/2, Award ( 11 October 2002) para 98. ]

Furthermore, after retrospective exercise of discriminatory amendments of Income tax act, the claimant was sent the notice for payment of Income tax for the group reorganisation steps it had taken earlier which contained a huge amount of interest for several years. Therefore, all these actions are not just discriminatory, but also arbitrary. They are not just unlawful and inequitable, but as stated in ELSI, they oppose the rule of law and shock the sense of judicial propriety.[footnoteRef:26] [26: Case Concerning Elettronica Sicula (ELSI), 20 July 1989, ICJ Rep (1989) 15,76.]

D. Respondents measures were unreasonable

The introduction of retrospective tax by Respondent was unreasonable and thus violated claimants right to FET. To determine the unreasonableness of a measure, the Tribunal must analyses the (1) "existence of a rational policy" and (2) "the reasonableness of the act of the state in relation to the policy."[footnoteRef:27] In analyzing the first element, the Tribunal in AES determined that "a rational policy is taken by a state following a logical (good sense) explanation and with the aim of addressing a public interest matter." [27: AES Summit Generation Ltd v Republic of Hungary, ICSID Case No ARB/07/22, Award (September 23 2010) para 10.]

However, because this two-prong test is cumulative establishing a rational policy is not sufficient. A relevant correlation must also exist "between the states public policy objective and the measure adopted to achieve it."[footnoteRef:28] This second criterion must be evaluated in light of the "nature of the measure" and by the "way it is implemented."[footnoteRef:29] [28: AES Summit Generation Ltd v Republic of Hungary, ICSID Case No ARB/07/22, Award (September 23 2010) para 10.] [29: AES Summit Generation Ltd v Republic of Hungary, ICSID Case No ARB/07/22, Award (September 23, 2010) para 10.]

In the present case, there was no reason for bringing a transaction that had taken place earlier, in the ambit of tax by amendment and taxing that transaction retrospectively, which was not taxable at the time when the transaction took place. If the respondent were of the opinion that it was necessary to increase the ambit of tax provision to protect its essential security interests, they should have only amended the relevant provisions without giving them retrospective effect. Retrospective tax here is something which is unreasonable here and lacks any logical sense and is against Southerias rational policy.

3. Respondent has violated the Article 5 of the BIT by illegitimately expropriating the claimants property without providing compensation

The breadth afforded by the language in most investment treaties has led to several arbitral decisions detailing the scope of an expropriation in international law. The formulation in Article 5 of the Southeria- Eiropa BIT is similar to Article 1110 of the NAFTA, and other treaties.[footnoteRef:30]The expropriation provisions of many BITs and other international investment treaties reference measures equivalent to expropriation, like the BIT in question herein. [30: US-Ukraine BIT; US-Argentina BIT; UK-Philippines; Mc Lachlan, Shore & Weigner, International Investment Arbitration: Substantive Principles (2008) para 8.28-58. ]

3.1. The actions of the Respondent constitute an indirect expropriation

Expropriation may be defined as the taking or deprivation of the property of the foreign investor by a host state.[footnoteRef:31]The respondent would now submit that respondent took two measures which constituted Indirect Expropriation individually. [31: S D Myers, Inc v Government of Canada, NAFTA, Partial Award (13 November 2000) para 281, 283.]

A. By introducing retrospective tax laws

The Tribunal in Tecmed explained that an expropriation takes place where the act radically deprives the investor of the economic use and enjoyment of the investment.[footnoteRef:32]In fact, it has been held that incidental interference in the use and benefit of the Investment alone is sufficient to establish the existence of expropriation.[footnoteRef:33] Therefore, expropriation may be ascertained even if control vests with the investor.[footnoteRef:34] [32: Telenor Mobile Communications AS v Hungary, ICSID Case No ARB/04/15, Decision on Jurisdiction (13 September 2006) para 67.] [33: Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd edn, OUP 2012) 108.] [34: Middle East Cement Shipping and Handling Co S A v Arab Republic of Egypt, ICSID Case No ARB/99/6, Award (12 April 2002) para 107.]

The arbitral tribunal in Quasar de Valores et al v The Russian Federation,[footnoteRef:35] has handed down its decision on the merits of a claim by Spanish investors into the Russian oil giant Yukos against the Russian Federation for expropriation under the Spain-Russia bilateral investment treaty. After Mr Khodorkovsky's arrest, the Russian tax authorities re-examined Yukos' tax payments for 2000-2001 and found that Yukos had allegedly unlawfully underreported income by streaming it through Russian tax havens. [35: Quasar de Valores SICAV SA and ors v Russia, Arbitration Institute of the Stockholm Chamber of Commerce, Award (20 July 2012) para 48.]

The Russian tax authorities claimed that these were unlawful tax avoidance schemes and that Yukos had to pay some 99.4 billion Roubles (ca US$3.5 billion) in tax arrears. The Spanish investors alleged that the Russian tax authorities' measures amounted to an indirect expropriation which was accepted by the tribunal and the tribunal awarded some US$2 million in compensation to the Spanish investors.There are several awards which highlight the issue when tax measures can have the effect of expropriation. For instance, in Link Trading[footnoteRef:36], the Tribunal recognized that fiscal measures turn expropriatory when they are found to be an abusive taking. The Yukos tribunal also ascertained that a taxation measure may amount to expropriation if the ostensible collection of taxes is determined to be part of a set of measures designed to effect a dispossession outside the normative constraints and practices of the taxing authorities. [36: Link trading v Moldova, UNCITRAL, Ad Hoc Arbitration, Award on Jurisdiction (16 February 2001).]

Similarly, in the present case , the retrospective tax imposed a huge liability on the claimants is a measure having equivalent to expropriation as the claimants transactions which were a part of legitimate tax avoidance planning have been taxed with a retrospective affect and the respondent radically deprived the claimant from economic use and enjoyment of its investment. Thus the indirect expropriation is prima facie established by this measure of respondent.B. By attaching Eiropa PPNGLs shares in Southeria PPNGL and restricting any sale of share.

Indirect expropriation occurs when control or the economic value of any property has been rendered essentially useless.[footnoteRef:37] Another determining factor to establish expropriation is the presence of substantial deprivation, which has been identified through an effects based doctrine developed in various instances.[footnoteRef:38] [37: Foremost Tehran, Inc et al v Islamic Republic of Tehran, Award no 10-7174, 10 Iran-United States Claims Tribunal Reports, para 280-282.] [38: M C I Power Group L C and New Turbine, Inc v Republic of Ecuador, ICSID Case No ARB/03/6, Award (31 July 2007) para 300.]

The Sole Effects doctrine is regarded as the dominant doctrine in international investment law, which looks at the effects of the governmental measure on the investor, instead of the purpose behind it.[footnoteRef:39] This includes a substantial deprivation of the rights of the Investor.[footnoteRef:40] The Doctrine has been applied successfully in the various decisions of arbitral tribunals, all of whom have held in some degree that the intention behind adopting any measure is not material in identifying an expropriatory conduct.[footnoteRef:41] [39: Middle East Cement Shipping and Handling Co S A v Arab Republic of Egypt, ICSID Case No ARB/99/6, Award (12 April 2002) para 107.] [40: Sempra Energy International v Argentine Republic, ICSID Case No ARB/02/16, Award (28 September 2007) para 284.] [41: Compaia De Aguas Del Aconquija S A and Vivendi Universal v Argentine Republic, ICSID Case No ARB/97/3, Award (21 November 2000).]

The claimant hereby contends that Respondents substantial interference with the shares of Claimant in PPNGL southeria amounted to indirect expropriation, because this attachment of shares is capable of being termed as substantial deprivation of the rights of claimant to sell its shares to whomsoever it may like at the time when the market value of shares was high.

The test of expropriation need not always correspond to an economic one and that suffering of substantive economic loss is not pre condition for finding of expropriation. It may even correspond to a loss of rights.[footnoteRef:42] So, the infringement of right to sell the shares of claimant amounted to indirect expropriation on the part of Respondent. [42: Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No ARB/05/22, Award (24 July 2008) para 464.]

3.2. Even if the taking is lawful, Respondent owes full and effective compensation as the BIT does not contain any exception to the payment of Compensation

Even if this Tribunal deems the taking lawful, compensation is owed.[footnoteRef:43] If the taking is unlawful, damages must restore Claimant to the position that would have prevailed but-for the illegal act.[footnoteRef:44] If the taking is lawful, Respondent has agreed to pay immediate full and effective compensation. The presence of a legitimate public purpose and the absence of intent to expropriate do-not excuse-the effect of an expropriation-nor-obviate-the-legal-requirement of compensation.[footnoteRef:45] [43: Rudolf-Dolzer-and-Christoph-Schreuer, Principles of International Investment Law-(OUP 2008) 92.] [44: Case Concerning-the-Factory-at-Chorzow (Claim-for-Indemnity), (Jurisdiction), PCIJ (1927) 47.] [45: Saluka Investments-BV (The-Netherlands) v-The-Czech-Republic, UNICTRAL, Partial Award (17-March-2006) para 255.]

Thus a lawful expropriation necessarily requires payment adequate compensation. Failure to pay compensation would render the expropriation unlawful and give the Claimant a claim for compensation and damages.[footnoteRef:46] [46: Siemens A G v The Argentine Republic, ICSID Case No ARB/02/8, Award (6 February 2007) para 259, 273.]

The Eiropa-Southeria BIT does not contain any provision which gives any exception to the payment of compensation unlike other BITs where regulatory measures for the public purpose are excluded from the scope of payment of compensation.[footnoteRef:47] Following the literal interpretation standard of the VCLT,[footnoteRef:48] since there is no exception for non-payment of compensation, the Respondent is liable to pay the Claimants damages for breach of the BIT. [47: US-Rwanda BIT, Annex B 4(b), Canada- Peru BIT Annex B13 (1) (c).] [48: VCLT, Art 31(1).]

Article 5(1) of the BIT-provides-that-in-the-event-of-a-lawful-expropriation,-fair and equitable compensation must be paid. Fair and Equitable compensation is the fair market value of the investment prior to-the-announcement-of-the-taking. Thus, the Respondent is liable to compensate the claimant for the loss it suffered as a result of measures equivalent to expropriation which included collection of tax retrospectively lowering the market value of shares held by claimants by up to 25% and restricting sale of shares of the claimants.

3.3. The Police power exception cannot be taken by the Respondents

The Police powers exception gives the State a right to regulate in public interests without that measure being rendered expropriatory and liable for compensation.[footnoteRef:49] However, this doctrine has been severely criticised since the conditions for the application of the doctrine are identical to those of a lawful expropriation except the obligation to pay compensation.[footnoteRef:50] [49: Saluka Investments B V v The Czech Republic, Partial Award, UNCITRAL Arbitration Proceedings (17 March 2006) para 262.] [50: Azurix Corp v The Argentine Republic, ICSID Case No ARB/01/12, Award (14 July 2006) para 311.]

Tribunals have held that the obligation to pay compensation is not extinguished merely because the nature or purpose of regulation is in public interest, particularly if the actions have a severe impact in diminishing the value of the investments.[footnoteRef:51] [51: Compaa Del Desarrollo De Santa Elena, S A v TheRepublic of Costa Rica, ICSID Case No ARB/96/1, Final Award (17 February 2000) para 71. ]

Moreover, the scope of the police powers exception was read in a limited sense by the tribunal in Tecmed, to cover bona fide general taxation and measures necessary for the maintenance of public order, provided it is not discriminatory.[footnoteRef:52] In the present case, the measures of respondent were neither bona fide, for maintenance of public order nor the retrospective taxation can be considered as general taxation. [52: Tecnicas Medioambientales Tecmed S A v The United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May 2003) para 115.]

Thus, in the absence of any specific clause exempting the Respondents from paying compensation and the limited scope of the police powers doctrine, the Respondent has breached Art 5 of the Eiropa-Southeria BIT.4. Respondent cannot invoke the BITs essential security clause to justify its actions

Article 11(2) of the BIT states that the Parties are not precluded from taking action for the protection of its essential security interests or in circumstances of extreme emergency in accordance with its laws normally and reasonably applied on a non-discriminatory basis.

4.1. Respondent is precluded from self -judging article 11(2)

Article 11(2) excuses actions that would otherwise violate the BIT if they are taken for protecting essential security interest. Respondent has apparently unilaterally determined that the step it has taken has been to protect its essential security interests.

This is impermissible for the following three reasons: first, the provision is not self-judging (1). Second, to uphold a self-judging BIT provision would be contrary to the object and purpose of BITs to protect foreign investors (2). Finally, more generally, a provision that frees a party from an international obligation is per se legally invalid if it hinges on a self-judgment (3).A. Article 11(2) is not self-judging because it is not explicitly declared to be.

The application of self-judging clause establishes a discretionary right of a state to decide which non-compliance with its obligation from a treaty is allowed and legitimate when the protection of its essential interests is concerned.[footnoteRef:53] [53: CMS Gas Transmission Company v The Argentine Republic, ICSID Case No ARB/01/8, Award (12 May 2005) para 370.]

Some essential security clauses are considered to be self-judging; one example is that of the US-Russia BIT of 1992, which is identical to that in this BIT[footnoteRef:54] This implementation could easily create an escape routefrom the obligations a party had undertaken by virtue of the treaty.[footnoteRef:55] However, the US-Russia BIT contains a separate explicit explanation that its essential security clause is meant to be self-judging, and that this was the intent of both parties.[footnoteRef:56] There is no such explicit declaration in this BIT. An essential security clause in an investment treaty without an explicit statement that it is intended to be self-judging has never been determined to be self-judging by an arbitral tribunal.[footnoteRef:57] Therefore, as stated by Vandevelde, in absence of such an explicit determination it will be doubtful whether a BIT contains a self-judging clause.[footnoteRef:58] Thus, in the absence of explicit establishment of Article 9 as self-judging, it cannot be considered as such. [54: Kenneth-Vandevelde, United States Investment Treaties: Policy and Practice (Kluwer 1992) 78.] [55: Enron-Corporation-and-Ponderosa-Assets, L P v-Argentine-Republic, ICSID-Case-No ARB/01/3, Award (22- May-2007) para 321.] [56: US-Russia-BIT, Protocol. para 8.] [57: Military-and-Paramilitary-Activities-in-and-against-Nicaragua (Nicaragua-v-United-States-of-America), ICJ-Reports-1986, 14.] [58: Kenneth-Vandevelde, Of politics and markets: the shifting Ideology of the BIT (1993) 11 IntI Tax & Bus Law 174, 175.]

Furthermore, Nothing in Article 9 suggests that Article 11 lies outside its purview so that disputes regarding Article 11 can be settled unilaterally by one Party. Rather, the chosen Article 9 dispute resolution forum is to decide all disputes under the BIT. If an arbitral forum is selected, it precludes the possibility of a state excluding the tribunal from deciding a dispute as to the BITs provisions.

B. To interpret a BIT clause as being self-judging would violate international rules on treaty interpretation

Because of the lack of clarity of Article 11(2), the Tribunal is required to apply Article 31 of the Vienna Convention to interpret it. Article 31 requires that interpretations of treaty provisions take into account their object and purpose.

The object and purpose of BITs in general is to provide protection to foreign investors. The preamble of the BIT goes even further, declaring its objective to be to create conditions favorable for fostering greater investment by investors of one Contracting party in the territory of the other Contracting party; Interpretation allowing one party to ignore its obligations whenever it so chooses would deprive a BIT of the meaning intended by preamble.[footnoteRef:59] [59: Kenneth-Vandevelde, United States Investment Treaties: Policy and Practice (Kluwer 1992) 176.]

The principle that investment law provisions should not be read to run counter to the Objective of protecting investors is well-established. The investor protection objective of the international investment law regime would be frustrated by any other interpretation. In similar fashion, to recognize Article 11(2) as self-judging would also frustrate the objective of providing protection to foreign investors.

C. Treaty provisions that allow international actors to act as judges in their own causes are invalid

That parties may not act as judges in their own causes (nemo iudex in causa sua) is a fundamental principle of law[footnoteRef:60]. Without this principle, the operation of law as an unbiased system of rules is impossible. This principle=was=affirmed=in=international=law=as early as 1873 in The Virginius Incident, in which=a=party=to=the=conflict=itself(in=this=case, Britain) stated the principle in declining to=arbitrate=for=settlement=of=a military incident upon the high seas.[footnoteRef:61] It=was=reaffirmed=in=1925=by=the Permanent Court of International Justice and in 1959 by multiple ICJ judges.[footnoteRef:62] To interpret Article 11(2)of the=BIT=as=self-judging=would be to make republic of Southeria the judge in its own case, and thus fly in the face of one of the most basic principles of law. [60: Bin-Cheng, General Principles of Law as Applied by International Tribunals (Cambridge 2006) 279.] [61: Bin-Cheng, General Principles of Law as Applied by International Tribunals (Cambridge 2006) 279.] [62: Interhandel (Preliminary-Objections) (Switzerland-v-USA), ICJ-Reports 1959, 97.]

In conclusion, for the preceding reasons, Respondent is not permitted to self-judge Article 11(2). Instead, that task must fall to the tribunal.

4.2. Articles on State Responsibility are applicable when determining whether necessity to take action for the protection of essential security interest existed

Article 11(2) of the BIT does not provide the requirements that need to be fulfilled in order for the operation of a state of necessity to be invoked. As noted in Enron, when the BIT does not provide the definition and terms for the application of the conditions in which the state is not precluded to neglect the treaty obligations, they must be found elsewhere.[footnoteRef:63] The VCLT provides that relevant rules of international law applicable in the relations between the parties shall be taken into account along with the context.[footnoteRef:64] Hence, in the absence of concretization of the relevant provisions, rules of treaty interpretation require that CIL be read into the treaty.[footnoteRef:65] Therefore, necessary requirements for the determination of whether Respondent wrongful actions can be precluded by necessity must be constituted relying on CIL, embodied in ASR.[footnoteRef:66] [63: Enron Corporation-and-Ponderosa-Assets L P v Argentine-Republic, ICSID-Case-no ARB/01/3, Award (22- May-2007) para 333.] [64: VCLT, Article 31(3).] [65: Sempra Energy International v The Argentine Republic, ICSID Case no ARB/02/16, Award (28 September 2007) para 52.] [66: Sempra Energy International v The Argentine Republic, ICSID Case no ARB/02/16, Award (28 September 2007) para 375.]

Article 25 of ASR sets out strict cumulative conditions.[footnoteRef:67] The act must be the (i) only way for the state to safeguard an (ii) essential interest against a (iii) grave and imminent peril.[footnoteRef:68] Non- compliance with one of them would prevent the state from justifying an unlawful act on the ground of necessity.[footnoteRef:69] These cumulative conditions are not satisfied. [67: Case Concerning the Gabcikovo- Nagymaros Project (Hungary v Slovakia), Judgment, ICJ Reports 1997, 4041.] [68: Draft articles on Responsibility of States for Internationally Wrongful Acts, art 25, para 1,] [69: Draft articles on Responsibility of States for Internationally Wrongful Acts with commentaries 2 (Yearbook on International law Commission 2001) < http://legal.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf> assessed on 18 September 2015.]

4.3. The Respondent failed to fulfill the conditions set out in Article 25 of Articles on State Responsibility

A. There was no grave and immanent peril

The assessment whether grave peril exists cannot be dependent on a States subjective view. It has to be objectively established.[footnoteRef:70] Moreover, as determined in Gabkovo, the peril has to be imminent, in sense of immediacy or proximity.[footnoteRef:71] It cannot be just merely apprehended, but it has to be grounded on facts that go far beyond possibility. [70: ibid.] [71: Case Concerning the Gabcikovo- Nagymaros Project (Hungary v Slovakia), Judgment, ICJ Reports 1997, 42.]

There was no proof of grave imminent danger at the time when the respondent introduced the amended the tax provisions. There was no immediate threat to the respondents essential security interests as the tax avoidance by legitimate tax planning and if tribunal finds that there was a threat to the essential security interests of respondent, the same is of very less gravity and giving retrospective effect to the amended provisions is grossly unjustified.Therefore, there is no evidence to support the notion that a grave and imminent peril existed at the time of Respondents unlawful actions. B. The conduct of the Respondent cannot be accepted as the only way

Even if the Tribunal adopts the view that an essential interest of the Respondent was endangered by a grave and imminent peril, Claimant submits that Respondent had other means by which it could have disposed of the threat. As confirmed in CMS and Sempra, in order for the wrongful State measure to be precluded by necessity, the measure applied must the only way to end the state of necessity.[footnoteRef:72] This condition is not fulfilled. [72: CMS Gas Transmission Company v The Argentine Republic, ICSID Case No ARB/01/8, Award (12 May 2005) paras 323-4; Sempra Energy International v The Argentine Republic, ICSID Case No ARB/02/16, Award (28 September 2007) paras 350-1.]

The Respondent had many different options for responding to the threat of tax avoidance by colourable means which is permissible in the local laws, which would not have imposed such an unnecessary and excessive burden upon the Claimant. If the respondent wanted to protect its essential security interests in the form of tax, the respondent could have amended the tax provisions without giving them retrospective effect. This could have helped them increasing the ambit of tax provisions which would have ultimately lead to reduced tax avoidance. Rather than exploring simple proactive steps, it took the most drastic route available which harmed the claimant in a harsh way who in good faith thought that the group restructuring outside Southeria will not be taxable.

Hence, the measures applied by Respondent were not the only measures available and they placed an excessive burden on the Claimant, which means that the conditions under Article 25 have not been fulfilled. Thus, the claimants submit that Respondents actions are not justifiable under actions for protection of Essential Security interests.

Prayer

In light of all previously argued, the Claimant respectfully requests that the Tribunal adjudge and declare that;

1. The tribunal has jurisdiction over the present dispute. 2. Respondent breached FET thus violating both Article 3 of the BIT and CIL;3. Respondent unlawfully expropriated Claimants property;4. Respondent may not rely on Article 9 of the BIT as a defence;5. Respondent must compensate Claimant for violations of its obligations;6. Respondent must compensate for the loss of claimants goodwill; 7. Respondent must provide restitution for losses resulting from attachment of its stake. And pass such other order or orders as the Honble Tribunal may deem fit in the interest of justice, equity and good conscience.All of which is humbly prayed.Sd/-Counsel for Claimant

-MEMORIAL ON BEHALF OF THE CLAIMANT-Page 29