FDI Moot, 2015 (International Rounds: Runners Up) - Respondent Memorandum

TEAM ALIAS: PETREN
___________________________________________________________________________
THE LONDON COURT OF

INTERNATIONAL ARBITRATION
___________________________________________________________________________
LCIA ARBITRATION NO. 00/2014
VASIUKI LLC
Claimant
v.
REPUBLIC OF BARANCASIA
Respondent
MEMORIAL FOR RESPONDENT
ii

TABLE OF CONTENTS
List of Authorities ........................................................................................................................... v
List of Legal Sources ...................................................................................................................... ix
List of Abbreviations ................................................................................................................. xiii
Statement of Facts .......................................................................................................................... 1
Summary of Arguments ................................................................................................................ 3
Arguments Advanced .................................................................................................................... 4
I. The Tribunal does not have Jurisdiction in the Present Matter .............................. 4
A. The Requirements under Article 59 of the VCLT have been Fulfilled ............................ 4
B. The Procedural Requirements of Termination have been Complied with ................ 10
II. Respondents Actions do not Constitute A Breach of its FET Obligations Under the
BIT ............................................................................................................................................. 11
A. The Denial of License to Alfa does not Violate the FET Clause ....................................... 12
B. The Reduction in Tariff does not Violate the FET Clause .................................................. 12
C. The Failure to Consult Claimant does not Violate the FET Clause ................................ 15
III. Respondents Actions are Excused by Virtue of its Obligations under the TFEU
.16
A. Respondents Obligations under the TFEU Must Prevail as per Customary Law16
B. Article 10 of the BIT is Inapplicable for Determining Hierarchy of Obligations ..... 19
IV. Respondents Actions are Precluded from Wrongfulness Under the BIT, and
Under Customary International Law ............................................................................. 20
A. Respondents Breach of Obligations is Exempt under the BIT ....................................... 20
B. Respondents Actions are Exempt Under the Customary Defence of Necessity ..... 22
V. Respondent Cannot be Ordered to Perform its Obligations Through an Award of
Specific Performance .......................................................................................................... 27
A. Compensation is the Primary Remedy in Investment Arbitration ............................... 27
B. In any Event, the Conditions Precluding Restitution Under Article 35 of the ILC
Articles have been met ................................................................................................................................. 28
VI. Claimants Assessment of Damages is Flawed .......................................................... 30
iii

A. Projected Cash Flows for Project Beta and the New Projects Should be Discounted at
the Rate of 12% ............................................................................................................................................... 30
B. Claimants Estimation of Damages for Alfa is Flawed ........................................................ 31
C. Claimants Estimation of Damages for the New Projects is too Speculative ............. 32
D. Claimant is not Entitled to Damages for the Follow-on Projects ................................... 33
E. The Rate of Interest on Damages need not be Equal to the Discount Rate ............... 33
Request for Relief ........................................................................................................................ 35

iv

LIST OF AUTHORITIES
BOOKS
ABBREVIATION
FULL CITATION
Dolzer
Rudolph Dolzer and Christoph Schreuer, PRINCIPLES

INTERNATIONAL INVESTMENT LAW (2nd edn., 2012).
OF
Ghouri
Ahmad Ghouri, INTERACTION AND CONFLICT

INVESTMENT ARBITRATION (2015).
IN
Linderfalk
Ulf Linderfalk, ON THE INTERPRETATION OF TREATIES: THE

MODERN INTERNATIONAL LAW AS EXPRESSED IN THE 1969
VIENNA CONVENTION ON THE LAW OF TREATIES (2007).
Marboe
Irmgard Marboe, CALCULATION OF COMPENSATION

DAMAGES IN INTERNATIONAL INVESTMENT LAW (2009).
McLachlan
Campbell McLachlan et al, INTERNATIONAL INVESTMENT

ARBITRATION: SUBSTANTIVE PRINCIPLES (2007).
McNair
Lord Arnold McNair, LAW OF TREATIES (1961).
Molinuevo
Martn Molinuevo, PROTECTING INVESTMENT IN SERVICES:

INVESTOR-STATE ARBITRATION VERSUS WTO DISPUTE
SETTLEMENT (Global Trade Law Series, Vol. 38, 2011).
Newcombe
Andrew Newcombe and Llus Paradell, LAW AND PRACTICE OF

INVESTMENT TREATIES: STANDARDS OF TREATMENT (2009).
Sornarajah
M. Sornarajah, THE INTERNATIONAL LAW

INVESTMENT (2010).
Villiger
Mark E. Villiger, COMMENTARY ON THE 1969 VIENNA

CONVENTION ON THE LAW OF TREATIES (2009).
OF
TREATIES
ON
AND
FOREIGN
ARTICLES
ABBREVIATION
FULL CITATION
Ago
Robert Ago, Eighth Report (Addendum) of the Special

Rapporteur in YEARBOOK OF THE INTERNATIONAL LAW
COMMISSION, VOL. II(1), Doc. No. A/CN.4/318/Add.5-7 (1980).
Burgstaller
Markus Burgstaller, European Law and Investment Treaties,

26(2) JOURNAL OF INTERNATIONAL ARBITRATION 181 (2006).
Burke-White
William W. Burke-White and Andreas von Staden, Investment

Protection in Extraordinary Times: The Interpretation and
Application of Non-Precluded Measures Provisions in Bilateral
Treaties, 48 VIRGINIA JOURNAL OF INTERNATIONAL LAW 307
(2008).
de Luca
Anna de Luca, Non-Pecuniary Remedies Under the Energy

Charter Treaty, Occasional Paper, Energy Charter Secretariat,
Knowledge Centre (2015).
Dorr
Oliver Dorr, Article 31: General Rule of Interpretation in

VIENNA CONVENTION ON THE LAW OF TREATIES: A
COMMENTARY (Oliver Dorr and Kirsten Schmalenbach eds.,
2012).
Dubuisson
Francois Dubuisson, Article 59: Suspension of the Operation of

a Mutlilateral Treaty by Agreement between Certain Parties of
the Parties Only in THE VIENNA CONVENTION ON THE LAW OF
TREATIES: A COMMENTARY, VOL. II, 1350 (Olivier Corten and
Pierre Klein eds., 2011).
Eilmansberger
Thomas Eilmansberger, Bilateral Investment Treaties and EU

Law, 46 COMMON MARKET LAW REVIEW 383 (2009).
Fitzmaurice
G.G. Fitzmaurice, Second Report of Special Rapporteur on the

Law of Treaties in YEARBOOK OF THE INTERNATIONAL LAW
COMMISSION, Vol. II, Doc. No. A/CN.4/107 (1957).
Foroohar
online)
(accessed Rana Forrohar, Why Greece Matters for Everyone, TIME (July
6, 2015).
Gray
Christine D. Gray, Is there an International Law of Judicial

Remedies?, 56 BRITISH YEARBOOK OF INTERNATIONAL LAW 25
(1985).
Hober
Kaj Hober, State Responsibility and Attribution, in The Oxford

HANDBOOK OF INTERNATIONAL INVESTMENT LAW, 134
(Muchlinski et al, eds., 2008).
Kent
Avidan Kent and Alexandra P. Harrington, The Plea of Necessity

under Customary International Law: A Critical Review in Light
of the Argentine Cases in EVOLUTION IN INVESTMENT TREATY
LAW AND ARBITRATION (Chester Brown and Kate Miles eds.,
2011).
vi

Kleinheisterkamp
Jan Kleinheisterkamp, The Next 10 Year ECT Investment

Arbitration: A Vision for the Future From a European Law
Perspective, LSE LAW, SOCIETY AND ECONOMY WORKING
PAPERS 7/2011 (June, 2011).
Lachman
Desmond Lachman, Economic Crisis: The Global Impact of a

Greek Default, AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC
POLICY RESEARCH (June 25, 2015).
MacGibbon
I. C. MacGibbon, The Scope of Acquiesance in International

Law, 31 BRITISH YEARBOOK OF INTERNATIONAL LAW 143
(1954).
Markert
Lars Markert, The Crucial Question of Future Investment

Treaties: Balancing Investors Rights and Regulatory Interests
of Host States in EUROPEAN YEARBOOK OF INTERNATIONAL
ECONOMIC LAW: INTERNATIONAL INVESTMENT LAW AND EU
LAW, 145 (Marc Bungenberg et al eds., 2011).
Mui (accessed online)
Ylan Q. Mui, What the Crisis in Greece Means for the U.S. and
Global Economies, THE WASHINGTON POST (June 29, 2015).
Orakhelashvili
Alexander Orakhelashvili, Article 30: Application of Successive

Treaties Relating to the Same Subject Matter in THE VIENNA
CONVENTION ON THE LAW OF TREATIES: A COMMENTARY, VOL.
II, 764 (Olivier Corten and Pierre Klein eds., 2011).
Ramanujan
Adarsh Ramanujan, Conflicts Over Conflict: Preventing

Fragmentation of International Law, 1(1) TRADE LAW AND
DEVELOPMENT 171 (2009).
Sharpston
Eleanor Sharpston, European Community Law and the Doctrine

of Legitimate Expectations: How Legitimate, and for Whom, 11
NORTH WESTERN JOURNAL OF INTERNATIONAL LAW AND
BUSINESS 87 (1990-91).
Simma
Prof. Dr. Wolfram Karl, Article 1: Purposes and Principles in

THE CHARTER OF THE UNITED NATIONS: A COMMENTARY, VOL. I
(Bruno Simma ed., 2002).
Tariff Deficit Report
Asa Johannesson Linden et al, Electricity Tariff Deficit:

Temporary or Permanent Problem in the EU, ECONOMIC
PAPERS 534 (October, 2014).
Walde/Sabahi
Thomas W Wlde and Borzu Sabahi, Compensation, Damages,

and Valuation, in The Oxford HANDBOOK OF INTERNATIONAL
vii
INVESTMENT LAW (Peter T Muchlinski et al, eds., 2008).

MISCELLANEOUS
ABBREVIATION
FULL CITATION
Commentary to the VCLT
International Law Commission's Draft Articles on the Law of

Treaties with Commentaries, in YEARBOOK OF INTERNATIONAL
LAW, Vol. II, 187 (1966).
EAG 2008
Community Guidelines on State Aid for Environmental

Protection, [2008] OJ C82/1 (April 1, 2008).
EAG 2014
COMMUNICATION FROM THE COMMISSION Guidelines on State

Aid for Environmental Protection and Energy 2014-2020,
[2014] OJ C200/1 (June 28, 2014).
EC 2010 Communciation
COMMUNICATION FROM THE COMMISSION to The European

Parliament, The Council, The European Central Bank, The
European Economic And Social Committee, The Committee Of
The Regions And The European Investment Bank, COM (2010)
343.
Electricity Directive
DIRECTIVE 2003/54/EC OF THE EUROPEAN PARLIAMENT AND OF

THE COUNCIL concerning Common Rules On Or The Internal
Market In Electricity And Repealing Directive 96/92/EC, [2003]
OJ L176/37 (June 26, 2003).
Fiscal Crisis Report
Congressional Budget Office, Federal debt and the Risk of a

Fiscal Crisis, ECONOMIC AND BUDGET ISSUE BRIEF (July 27,
2010).
Renewable Energy
Directive
DIRECTIVE 2009/28/EC OF THE EUROPEAN PARLIAMENT AND

OF THE COUNCIL on the Promotion of the Use of Energy from
Renewable Sources and Amending and Subsequently Repealing
Directives 2001/77/EC and 2003/30/ECOJ [2009] OJ L140/16
(April 23, 2009).
SGP 1997
COUNCIL REGULATION (EC) NO. 1466/97 OF 7 JULY 1997 on the

Strengthening of the Surveillance of Budgetary Positions and
the Surveillance and Coordination of Economic Policies [1997]
OJ L209 (July 7, 1997).

viii

LIST OF LEGAL SOURCES

CASES
ABBREVIATION
FULL CITATION
Aegean Sea Continental Aegean Sea Continental Shelf Case (Greece v. Turkey)
Shelf (Jurisdiction)
(Jurisdiction) 1978 ICJ Rep. 3 (December 19, 1978).
AES Summit v. Hungary
AES Summit Generation Limited v. The Republic of Hungary,

ICSID Case No. ARB/07/22 (September 23, 2010).
AES Summit v. Hungary
AES Summit Generation Limited v. Republic of Hungary,

ICSID Case No. ARB/07/22, (September 23, 2010).
ATA v. Jordan
ATA Construction, Industrial and Trading Company v. The

Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2
(May 18, 2010).
Autopista Concesionada v. Autopista Concesionada de Venezuela CA v. Venezuela, 10

Venezuela
ICSID Rep. 314 (September 23, 2003).
BP v. Libya
British Petroleum Company (Libya) Ltd., v. The Government

of the Libyan Arab Republic, Ad-Hoc Arbitration, , 5 YBCA
143 (1980) (October 10, 1973).
CME v. Czech Republic
CME v. Czech Republic, UNCITRAL Arbitration (March 14,

2003).
CMS v. Argentina
CMS v. Argentina, ICSID Case No. ARB/01/8 (May 12, 2005).
Commission v. Austria
Commission of the European Communities v. Republic of

Austria, European Court of Justice (Grand Chamber), C-205/06
(March 3, 2009).
Commission v. Finland

Finland, European Court of Justice (Second Chamber), C118/07 (February 20, 2007).
Commission v. Italy
Commission of the European Economic Community v. Italian

Republic, European Court of Justice, C-10/61 (February 27,
1962).
Commission v. Sweden

Sweden, European Court of Justice (Grand Chamber), C249/06 (March 3, 2009).
ix

Continental Casualty v. Continental Casualty Company v. The Argentine Republic,

Argentina
ICSID Case No. ARB/03/9 (September 5, 2008).
Eastern Sugar v. Czech Eastern Sugar BV v. Czech Republic, Partial Award, SCC Case
Republic (Partial Award)
No 088/2004 (March 27, 2007).
Eco Swiss v. Benetton
Electrabel v.
(Jurisdiction)
Eco
Swiss
China
Time
Ltd
Benetton International, [1999] ECR I-3055 (June 1, 1999).
Hungary Electrabel S.A. v. Republic of Hungary, ICSID Case No.

ARB/07/19 (November 30, 2012).
Elimination of Racial Application of the International Convention on the Elimination

Discrimination
of All Forms of Racial Discrimination (Georgia v. Russian
(Preliminary Objections)
Federation) (Preliminary Objections) 2011 ICJ Rep. 70 (April
1, 2011).
Enron v. Argentina
Enron Corporation and Ponderosa Assets v. Argentine

Republic, ICSID Case No. ARB/01/3 (May 22, 2007).
Eureko v. Poland (Partial Eureko B.V. v. Republic of Poland, UNCITRAL Arbitration,

Award)
Partial Award (August 19, 2005).
Eureko
v.
(Jurisdiction)
Slovakia Eureko BV v. Slovakia, Award on Jurisdiction, PCA Case No

2008-13 (October 26, 2010).
Franck Charles Arif v.

Moldova
Franck Charles Arif v. Republic of Moldova, ICSID Case No.

ARB/11/23 (April 8, 2013).
Francovich v. Italy
Andrea Francovich v. Italian Republic, [1995] ECR I-03843

(November 19, 1991).
Gabcikovo-Nagymaros
Case Concerning the Gabcikovo-Nagymaros Project (Hungary

v. Slovakia) (Merits) ICJ 7 (September 25, 1997).
Goetz v. Burundi
Antoine Goetz v. Rpublique du Burundi, ICSID Case No.

ARB/95/3 (February 10, 1999).
Himpurna v. PLN
Himpurna California Energy Ltd. v PT. (Persero) Perusahaan

Listruik Negara, UNCITRAL Arbitration (May 4, 1999).
Levitt v. Iran
William J. Levitt v. The Government of the Islamic Republic of

Iran, Iran-United States Claims Tribunal, 14 IranUS CTR
(1987) 191 (April 22, 1987).
LG&E
v.
Argentina LG&E Energy Corp. v. Argentine Republic, Decision on
(Decision on Liability)
Liability, ICSID Case No. ARB/02/1 (October 3, 2006).
LIAMCO v. Libya
Libyan American Oil Company (LIAMCO) v. The Libyan

x
Arab Republic, Ad Hoc Arbitration (April 12, 1977).
Matteucci v. Belgium
Annunziata Matteucci v. Communaut franaise of Belgium,

[1988] ECR 5589 (September 27, 1988).
Micula v. Romania
Ion Micula v. Romania, ICSID Case No. ARB/05/20

(December 11, 2013).
Micula v. Romania (State Commission Decision (EU) 2015/1470 on State aid SA.38517
Aid Decision)
(2014/C) (ex 2014/NN) implemented by Romania Arbitral
award Micula v. Romania of 11 December 2013, C(2015) 2112
(March 30, 2015).
MTD v. Chile
MTD Equity and MTD Chile v. Republic of Chile, ICSID Case

No. ARB/01/7 (May 25, 2004).
Noble Ventures v.
Romania
Noble Ventures Inc. v. Romania, ICSID Case No. ARB/01/11

(October 12, 2005).
Occidental v. Ecuador
(Provisional Measures)
Occidental Petroleum Corporation v. The Republic of Ecuador,

ICSID Case No. ARB/06/11 (August 17, 2007).
Oil Platforms (Preliminary Case Concerning Oil Platforms (Iran v. United States)
Objection)
(Preliminary Objection) 1996 ICJ Rep. 803 (December 12,
1996).
PSEG v. Turkey
PSEG Global Inc. v. Republic of Turkey, ICSID Case No.

ARB/02/5 (January 19, 2007).
Pulau Ligitan
Sovereignity over Pulau Ligitan and

(Indonesia/Malaysia), ) 2001 ICJ Rep. 575.
Reynolds Tobacco v. Iran
RJ Reynolds Tobacco Company v. The Government of the

Islamic Republic of Iran, Iran-United States Claims Tribunal, 8
Iran-US CTR 55 (March 1, 1985).
Sempra v. Argentina
Sempra Energy International v. Argentine Republic, ICSID

Case No. ARB/02/16 (September 28, 2007).
Pulau
Sipadan
Shufeldt Claim (United Shufeldt Claim (Claim of the United States of America on
States v. Guatemala)
behalf of P. W. Shufeldt v. The Republic of Guatemala), 2
RIAA 1079 (November 2, 1929).
Tecmed v. Mexico
Tcnicas Medioambientales Tecmed v. United Mexican States,

ICSID Case No. ARB(AF)/00/2 (May 29, 2003).
The Wimbledon Case
The S.S. Wimbledon, (United Kingdom and Ors. v.

Germany) PCIJ, Ser. A, No. 1 (August 17, 2003).
xi
WHO-Egypt Case
Interpretation of the Agreement on 25 March, 1951 Between

WHO and Egypt (Advisory Opinion) ICJ 96 (1980).
STATUTES AND TREATIES

ABBREVIATION
FULL CITATION
ILC Articles/
Commentary to the ILC
Articles
Report of the International Law Commission, 53rd Session,

April 23-June 1, July 2-August 10 2001, U.N. Doc. A/56/10
Supplement No. 10 (2001).
NAFTA
North American Free Trade Agreement, 32 ILM 289 (1993) (

January 1, 1994).
TFEU
Treaty on the Functioning of the European Union, 2008 O.J. C

115/47 (December 1, 2009).
VCLT
Vienna Convention on the Law of Treaties, 1155 UNTS 331

(May 23, 1969).
xii

LIST OF ABBREVIATIONS
ABBREVIATION
/
FULL CITATION
Paragraph(s)
US Dollars
Art(s).
Article(s)
BIT
Bilateral Investment Treaty
Doc(s).
Document(s)
EAG
Environmental Aid Guidelines
EC Treaty
Treaty Establishing the European Economic Community
EC/Commission
European Commission
ECJ
European Court of Justice
Ed(s).
Editor(s)
Edn.
Edition
EU
European Union
/EUR
Euro
FDI
Foreign Direct Investment
FET
Fair and Equitable Treatment
GDP
Gross Domestic Product
ICJ
International Court of Justice
ILC
International Law Commission
ILC Articles
Draft Articles on State Responsibility
LCIA
London Court of International Arbitration
No(s).
Number(s)
p. / pp.
Page(s)
Prof.
Professor
Rep(s).
Report(s)
xiii
SCC
Stockholm Chamber of Commerce
SGP
Stability and Growth Pact
TFEU
Treaty on the Functioning of the European Union
UN
United Nations
U.N. Charter
Charter of the United Nations
UNCITRAL
United Nations Commission on International Trade Law
v.
Versus
VCLT
Vienna Convention on the Law of Treaties
Vol(s).
Volume(s)
xiv

STATEMENT OF FACTS
THE SUCCESSIVE TREATIES
The Republic of Barancasia [Respondent] and the Federal Republic of Cogitatia entered into a
BIT on December 31, 1998, which came into force on August 2, 2002. Both countries acceded to
the EU on May 1, 2004, thereby acceding to the TFEU, signed on December 13, 2007. In light of
the accession, Respondent concluded that the BIT had become obsolete and notified Cogitatia of
its intention to terminate the BIT on June 29, 2007. The notification stated that the BIT would be
terminated with effect from June 30, 2008. Respondent also made several informal attempts to
inform Cogitatia about the termination. Finally, on May 5, 2012, the Prime Minister of
Barancasia declared that intra-EU BITs had been successfully terminated. Cogitatia never raised
any objections to the notification or declaration.
CLAIMANT
Vasiuki LLC [Claimant] is a Cogitatian company, which was engaged in the small-scale fossil
fuel and wind turbine generation sector. It expanded its renewable energy operations to take
advantage of green subsidies offered by States. Subsequently, it started an experimental solar
project called Alfa [Alfa] in Barancasia in 2009. However, Alfa operated at heavy losses due
to defects in the installation, delays and huge budget overruns. It sought to rely on governmentbacked green subsidies as a hope for survival.
THE TARIFF REGIME
On May 1, 2010, Respondent enacted the Law on Renewable Energy [LRE] to encourage
production of renewable energy by offering State support, till the total share of such energy
amounted to no less than 20% of the countrys gross energy consumption. To this end, eligible
photovoltaic producers were to be granted licenses by the Barancasian Energy Authority
[BEA], the energy regulator in Barancasia for the development of solar projects. According to
Article 4 of the LRE, licensees would receive a feed-in tariff for a period of 12 years, calculated
on the basis of the Photovoltaic Support Regulation [LRE Regulation]. However, nothing in
the LRE indicated that the feed-in tariffs would not be changed during these 12 years.
On July 1, 2010 the BEA announced a feed-in tariff of 0.44 EUR/kWh for 12 years, which would
guarantee an assured return of 8% to producers. Under this regime, Claimant was denied a
license for Alfa as the feed-in tariff was not meant for existing projects. Respondent had denied
all license applications by existing producers uniformly. Subsequently, Claimant decided to start
a second project called Beta, which was granted a license by the BEA.
THE REDUCTION IN TARIFFS
During 2011, a ground-breaking technology was developed which reduced the costs of
production of photovoltaic energy significantly by making solar panels cheaper to manufacture.
Since the profitability of investments that used the latest technology and received the 0.44
EUR/kWh increased dramatically, the BEA received 7000 applications for a license under the
LRE. The officials of Barancasia admitted that the feed-in tariff regime had created a solar
bubble and had become unsustainable. It estimated that if it were to grant licenses to all 7000
applicants, it would have to divert 15% of its state revenues to the photovoltaic sector. Further,
Respondent could not have borrowed the requisite amount to meet this additional expenditure as
it risked exceeding the borrowing limits mandated under EU law. In June, 2012, widespread
protests broke out among Barancasian teachers, because the projected expenditure on tariffs for
7000 applicants was more than the expenditure on education. In light of these factors,
Respondent decided to review its legislation. Amidst the fiscal and political turmoil in
Respondent state, the BEA granted Claimant licenses to operate 12 new projects under the
Barancasia Solar Installation Project [New Projects].
On January 3, 2013, following private consultations with certain stakeholders and industry
representatives, Respondent passed an amendment to the LRE [Amendment], which provided
for an annual review of the feed-in tariff to take into account the costs of the best available
technology. This Amendment came into effect on January 5, 2013. Subsequently, the BEA
reduced the tariff to 0.15 EUR/kWh, to ensure that producers who were using the best available
technology could still earn a return of 8% on investment. Aggrieved by the actions of
Respondent, Claimant has approached this tribunal [Tribunal] under Article 8 of the BIT.
SUMMARY OF ARGUMENTS
1. The Tribunal does not have jurisdiction in the instant case because the BIT was implicitly
terminated by the conclusion of the TFEU on December 1, 2009, as per Article 59 of the VCLT.
The BIT and the TFEU fulfill the requirements of same subject matter, common intention and
incompatibility under Article 59 of the VCLT. Further, the procedure for termination has been
complied with.
2. The actions of Respondent do not violate the FET clause under Article 2 of the BIT. The
denial of license to Alfa does not violate the transparency obligation under the FET clause. The
reduction in tariff does not violate the legitimate expectations of Claimant, as Respondents
actions could not have given rise to any such expectation. In any event, Respondents actions
were a legitimate exercise of its regulatory powers, and hence, are justified. Finally, the refusal
to consult Claimant before termination does not violate the due process requirement because the
Amendment constituted a quasi-legislative action.
3. Respondents actions are precluded from wrongfulness as they were undertaken in pursuance
of its obligations under the TFEU. Respondents obligations under the TFEU had superseded its
obligations under the BIT by virtue of the operation of Article 30(3) of the VCLT, and the nonapplicability of Article 10 of the BIT. In any case, Respondents breach of obligations is
exempted under Article 11 of the BIT, and under the customary defence of necessity.
4. Restitution cannot be granted to Claimant for a breach of obligations under the BIT because
compensation, and not restitution, is the primary remedy in investor-State arbitration. In any
case, the remedy of restitution is precluded under Article 35 of the ILC Articles.
5. Compensation worth 2.1 million cannot be granted to Claimant. Claimants calculation in
this regard does not comply with established accounting and legal standards for calculation of
damages.

ARGUMENTS ADVANCED
I.
THE TRIBUNAL DOES NOT HAVE JURISDICTION IN THE PRESENT MATTER

1.
The jurisdiction of an arbitral tribunal is derived from the consent of parties. In the BIT,
this takes the form of an arbitration clause under Article 8 of the BIT. In the present case
however, the BIT has been validly terminated with the coming into force of the TFEU on
December 1, 2009. This is because first, the requirements under Article 59 of the VCLT have
been fulfilled (Section A) and second, the procedural requirements for termination have been
complied with (Section B). Thus, the Tribunal does not have jurisdiction.
A. The Requirements under Article 59 of the VCLT have been Fulfilled
Article 59 provides for the implicit termination of a treaty by successive treaties.1 In
2.
order to invoke termination under this Article, it must first be shown that both treaties relate to
the same subject matter (Section 1). Thereafter, it must be shown that either there was common
intention to have the later treaty govern the matter (Section 2), or the provisions of treaties are so
far incompatible that they cannot be applied at the same time (Section 3). All three requirements
have been met in the instant case.
1.
3.
The Treaties Relate to the Same Subject Matter

Article 59 of the VCLT uses the expression relating to the same subject matter, not
exactly covering the same subject matter. This indicates that the same subject matter test must be
broadly construed, in that it does not require a precise correspondence between the provisions of
the two treaties.2 In order to satisfy this test, first, the object of the two treaties must be identical
and second, the provisions of the two treaties must be comparable, not identical.3
4.
The object of a treaty can be ascertained from its preamble,4 as well as the scheme of the
treaty.5 The TFEU, inter alia, seeks to achieve the same objects as the BIT. The object of the
BIT is to develop economic cooperation to the mutual benefit of both Contracting Parties and

1
Art. 59, VCLT.

Dubuisson, p. 1336.
3
Dubuisson, p. 1336.
4
Villiger, p. 428.
5
Pulau Ligitan, 51; Villiger, p. 428.
2
create and maintain favourable conditions for investments.6 Similarly, the EU, being a union of
States, seeks to strengthen the unity of their economies and to ensure their harmonious
development.7 In pursuance of this objective, it seeks to progressively abolish restrictions on
foreign direct investment through its Common Commercial Policy [CCP].8 Thus, the
objects of the BIT and the TFEU are identical.
5.
Further, the provisions of the two treaties are also comparable. The guarantee of FET9
under the BIT corresponds with provisions on equal treatment and non-discrimination under the
TFEU,10 as well as general principles of EU law such as protection of legitimate expectations,
proportionality and procedural fairness.11 The provisions regarding full protection and security12
and indirect expropriation under the BIT13 correspond with the right of establishment under
Article 49 of the TFEU, which states restrictions on the freedom of establishment of nationals
of a Member State in the territory of another Member State shall be prohibited.14
6.
Further, the BIT guarantee of national and minimum standard of treatment15 corresponds
with Article 49(2) of the TFEU, which states that the right of establishment is to be exercised in
accordance with the conditions laid down for its own nationals by the law of the country where
such establishment is affected.16 Finally, the two treaties also offer comparable systems of
remedies. Under Article 8 of the BIT, an aggrieved investor can approach national courts or
arbitral tribunals to claim damages for violations of the BIT.17Similarly, under EU law, an
aggrieved investor can approach national courts to claim damages for violation of EU law.18
7.
Admittedly, the degree of protection offered by the BIT and TFEU is different. However,
the test of same subject matter does not depend on the degree of precision of the enunciated

6
Preamble, BIT.
Preamble, TFEU.
8
Art. 206, TFEU.
9
Art. 2, BIT.
10
Art. 18, TFEU.
11
Eureko v. Poland, 250; Sharpston, p. 88.
12
Art. 2, BIT.
13
Art. 5, BIT.
14
Art. 49, TFEU.
15
Art. 3, BIT
16
Art. 49(2), TFEU.
17
Art. 8, BIT
18
Francovich, p. 35.
7
rules.19 The test is satisfied if the treaties govern the same object at the same time, either by
way of general rules or more specific ones.20 Therefore, both the BIT and the TFEU govern the
conditions in which foreign investment takes place, albeit with rules that differ in their degree of
precision.
8.
It is erroneous to argue that the TFEU is merely concerned with the entry phase of
investments, while the BIT provides protections at the post-entry phase. The TFEU does, in
fact, contain several provisions that govern the treatment of investments after they have been
made. The provision on non-discrimination, for instance, is not limited to the mere admission of
investments; it also prohibits any subsequent discrimination on grounds of nationality.21 Further,
the freedom of establishment under Article 49 of the TFEU covers both the right to set up and
manage undertakings.
22
Finally, EU law principles like legitimate expectations and
proportionality govern the actions of Member States in all transactions with foreign investors,
even after investments have been made.23 Therefore, the TFEU governs conditions of investment
both before and after the investment has been made.
2.
9.
The Requirement of Common Intention is Met

There was common intention between the Parties to have the later treaty govern the
matter. Such intention may either be apparent from the text of the later treaty or otherwise
established.24 In the present case, the presence of common intention is apparent from Article
351 of the TFEU. Article 351 is in the nature of a survival clause, which states that agreements
between EU Member States and Non-EU States shall not be affected by the provisions of the
Treaties.25 This provision must be interpreted in accordance with the rule of per argumentum a
contrario, which states that when a treaty provision refers to a smaller part of a generically
defined class, it excludes all other parts of that class.26 Such exclusion would extend to all intraEU BITs. The tribunal in Electrabel concluded that Article 351 of the TFEU, as a survival

19
Dubuisson, p. 1336.
Dubuisson, p. 1336.
21
Art. 18, TFEU.
22
Art. 49, TFEU.
23
Sharpston, p. 90.
24
Art. 59, VCLT; Dubuisson, p. 1339.
25
Art. 351, TFEU.
26
The Wimbledon Case, p. 23; Linderfalk, p. 302; McNair, p. 400-401.
20
clause, does not apply to the agreements between the two EU Member States.27 Thus, by
acceding to the EU the Parties in the instant case intended for the BIT to be abrogated in
accordance with this provision.
10.
Further, common intention of the Parties can also be otherwise established. 28 In
Eureko and Eastern Sugars, the tribunals looked at past statements and conduct of both parties to
ascertain whether there was common intention.29 Respondent clearly announced its intention to
terminate the treaty on November 15, 2006,30 and notified Cogitatia of such intention on June 29,
2007.31 Further, it contacted the Government of Cogitatia informally several times to confirm
termination of the BIT.32 However, at no point did Cogitatia raise any objections to such
termination. Silence can be construed against a party, when it is under an obligation to respond.33
Under Article 65(3) of the VCLT, the State that disagrees with termination is expected to raise
objections to the same, within three months of receiving such notification.34 In light of its
actions, it may be presumed that Cogitatia intended to terminate the treaty. Thus, common
intention is established.
11.
Although in Eureko and Eastern Sugars the presence of common intention was not
found, the facts of the present case are materially different. In both the aforementioned cases,
parties had continued to list the BIT as a treaty in force on their official websites.35 Further, in
the Eastern Sugars case, the Czech Republic had failed to raise the issue of termination prior to
the case.36 In the instant case, however, Respondent had removed the BIT from its website on
November 28, 2008, almost a year before the termination.37 Moreover, it had raised the issue of
termination as early as November 15, 2006, and continued making such efforts subsequently.38
Therefore, both Respondent and Cogitatia had common intention to terminate the BIT.

27
Electrabel v. Hungary, 4.180.

Art. 59, VCLT.
29
Eureko v. Slovakia, 105; Eastern Sugar v. Czech Republic, 155.
30
Uncontested Facts, 6.
31
32
Uncontested Facts, 24, 31.
33
MPEPIL, p. 7; MacGibbon, p. 144.
34
Art. 65(3), VCLT.
35
Eureko v. Slovakia, 99; Eastern Sugar v. Czech Republic, 155.
36
Eastern Sugar v. Czech Republic, 122.
37
38
Uncontested Facts, 6, 9, 24, 31.
28
3.
The Provisions of the Treaties are so Incompatible that they Cannot be Applied at the
Same Time
12.
Treaties are considered incompatible if compliance with one prevents the fulfillment of
obligations under the other treaty, or undermines the object and purpose of the other treaty.39 The
BIT and the TFEU are incompatible for three reasons: first, the BIT prevents the fulfillment of
Article 207 of the TFEU; second, the BIT undermines the object of equal treatment under Article
18 of the TFEU, and third, the BIT undermines the object of uniform application of EU law.
13.
Article 207 of the TFEU read with Article 3 of the TFEU grants exclusive competence to
the EU to legislate in the area of FDI, which forms part of the CCP.40 This implies that only the
Union may legislate and adopt legally binding acts with respect to FDI. 41 Although the
exclusive competence granted under Article 207 of the TFEU is yet to be exercised by the EU,
the mere conferring of such competence makes intra-EU BITs incompatible with the TFEU. In
Commission v. Austria and Commission v. Sweden, the ECJ had to decide whether the
competence of the Commission to impose restrictions on capital transfers under Articles 57 and
59 of the EC Treaty was incompatible with the free transfer of capital provisions in BITs with
non-EU countries.42 Although the Commission had not exercised such competence, the ECJ held
that the fact that it had the power to unilaterally adopt restrictive measures in this regard was
sufficient to establish an incompatibility with the prior agreement.43 Similarly, the exclusive
competence of the EU to legislate on the matter of FDI, which is also covered by the BIT,
reveals an incompatibility with the BIT.
14.
Further, the BIT violates Article 18 of the TFEU, which prohibits any discrimination on
grounds of nationality.44 In Matteuci v. Belgium, Belgium had offered scholarships to only

German nationals by virtue of a bilateral treaty between the two States.45 This was held to breach
the guarantee of equal treatment under Article 18.46 In the present case, since the degree of

39
Dubuisson, p. 1336; Ramanujan, p. 179.

Art. 207 and Art. 3, TFEU; Eilmansberger, p. 394.
41
Art. 2, TFEU.
42
Commission v. Austria, 37; Commission v. Sweden, 36.
43
44
Art. 18, TFEU.
45
Matteucci v. Belgium, 23.
46
Matteucci v. Belgium, 23.
40
protections provided under the BIT is greater than that provided under the TFEU,47 an investor
from Cogitatia would enjoy greater rights than an investor from any other EU State with which
Respondent does not have a BIT. Such unequal treatment of investors on the basis of nationality
constitutes a breach of Article 18.
15.
Admittedly, the tribunals in Eureko and Eastern Sugars refused to find an incompatibility
between the BIT and EU law on the basis of Article 18 of the TFEU, stating that such
incompatibility could be resolved by extending BIT protection to all EU Member States.48
However, the test under Article 59 of the VCLT requires that the incompatibility exist at the time
of coming into force of the later treaty. The mere fact that incompatibility can be removed does
not change the fact that the incompatibility existed at the relevant time.49 Therefore, the BIT
guarantees are incompatible with Article 18 of the TFEU.
16.
Finally, the provision of investor-state arbitration under Article 8 of the BIT undermines
the object of uniform application of EU law. Under Article 344 of the TFEU, Member States
undertake not to submit a dispute concerning the interpretation or application of the Treaties to
any method of settlement other than those provided for therein.50 It is only the national courts of
Member States that can make a preliminary reference to the ECJ in such matters. 51 This
limitation of the competence to interpret and apply EU law protects the object of uniform
application. It follows that arbitral tribunals cannot interpret or apply EU law, or make a
preliminary reference to the ECJ for the same.52
17.
In the present case however, the Tribunal will be required to interpret certain provisions
of the TFEU in order to ascertain the rights of the parties under the BIT. Further, the investor can
engage in the practice of forum shopping, which would lead to a situation where the ECJ could
be by-passed in a matter which is (also) governed by EU law.53 Therefore, Article 8 of the BIT
undermines the object of uniform application of EU law.

47
Eastern Sugar v. Czech Republic, 117; Eureko v. Slovakia, 153; EC 2010 Communication, p. 9.
Eastern Sugar v. Czech Republic, 117; Eureko v. Slovakia, 153.
49
50
Art. 344, TFEU.
51
Art. 267, TFEU.
52
Eco Swiss v. Benetton, 34; Electrabel v. Hungary, 4.152.
53
Eilmansberger, p. 405; Eureko v. Slovakia, 185.
48
B. The Procedural Requirements of Termination have been Complied with

18.
The procedure for termination under Article 59 of the VCLT is neither governed by
Article 13 of the BIT (Section 1), nor by Article 65 of the VCLT (Section 2). Instead, such
procedure is derived from customary international law, and has been complied with (Section 3).
1.
19.
The Procedure for Termination is not Governed by Article 13 of the BIT

Article 13 of the BIT lays down the procedure for termination at the volition of either
party. The operation of this provision is governed by Article 54(a) of the VCLT, which deals
with termination in conformity with the provisions of the treaty.54 In contrast, Article 59 of the
VCLT is an example of termination by law.55 Therefore, the procedure provided under Article 13
of the BIT is not applicable for determining procedure for termination under Article 59 of the
VCLT.
20.
Further, Article 13 of the BIT cannot be considered to provide the sole procedure for
termination of the BIT. Under this provision, no termination can take place during the initial ten
years after the coming into force of the BIT.56 If Article 13 governed all instances of termination,
it would lead to an absurd situation wherein a party would be unable to terminate the BIT even in
case of a fundamental change in circumstances between the two parties.57 Thus, there was no
requirement to terminate the BIT in accordance with Article 13.
2.
21.
The Procedure for Termination is not Governed by Article 65 of the VCLT

Article 65 of the VCLT provides the procedure for termination of a treaty when a party
invokes a ground [] for terminating it.58 On the other hand, Article 59 of the VCLT does not
require the invocation of a ground for termination; it results in implicit termination of the
treaty.59 This is evinced by the use of the phrase termination [] of a treaty implied by
conclusion of a later treaty under the title to Article 59. This is opposed to the language
employed in Articles 60, 61 and 62 of the VCLT which require the existence of a material

54
Art. 54(a), VCLT.

Art. 59, VCLT.
56
Art. 13(2), BIT.
57
Art. 62, VCLT.
58
Art. 65, VCLT.
59
Art. 59, VCLT.
55
10

breach, supervening impossibility or fundamental change in circumstances to invoke termination

of a treaty.60 Therefore, Article 65, VCLT does not govern the procedure for termination under
Article 59, VCLT.
3.
The Procedure for Termination under Customary International Law has been
Complied with
22.
The VCLT provides that rules of customary international law will continue to govern
questions not regulated by the provisions of the present Convention. 61 In GabcikovoNagymaros, the ICJ noted that the procedural principles under customary law are based on the
obligation of States to act in good faith.62 This obligation of acting in good faith would require
Parties to notify the other party about the termination of a treaty, and negotiate in case of
objections.63 No specified period or mode of termination, however, has been prescribed in this
respect.
23.
Respondent fulfilled its notification obligations by giving notice of the termination on
June 29, 2006.64 Since Cogitatia never raised any objections to such termination, there was no
obligation upon Respondent to negotiate.65 G. Fitzmaurice, the Special Rapporteur of the ILC on
the Law of Treaties, recognized in his Second Report that automatic expiry of treaties may
result from the operation of a rule of law independently of the treaty.66 Therefore, the BIT was
automatically terminated by the coming into force of the TFEU on December 1, 2009.
II.
RESPONDENTS ACTIONS DO NOT CONSTITUTE A BREACH OF ITS FET OBLIGATIONS UNDER

THE BIT
24.
Respondent did not breach its FET obligations under Article 2 of the BIT by the denial of
license to Alfa (Section A), the reduction in feed-in tariff (Section B) or by its failure to consult
Claimant before reducing the tariff (Section C).

60
Arts. 60-62, VCLT.

Preamble, VCLT.
62
Gabcikovo-Nagymaros, 109.
63
Gabcikovo-Nagymaros, 109; WHO-Egypt Case, 49.
64
65
66
Fitzmaurice, p. 23.
61
11

A. The Denial of License to Alfa does not Violate the FET Clause
25.
The denial of a license to Alfa under the LRE did not violate Respondents transparency
obligation under the FET clause. The transparency obligation is considered discharged when the
authorities upon becoming aware of any scope for misunderstanding or confusion [] ensure
that the correct position is promptly determined and clearly stated so that investors can proceed
with all appropriate expedition.67 Accordingly, in Champion v. Egypt, no violation of the
transparency obligation was found because the relevant information was made public, available,
or [was] published or produced by the [respondent] upon the request of the [claimants].68 In
the instant case, upon receiving Claimants application for a license for Alfa, the BEA promptly
responded by informing Claimant of its policy to not grant licenses to existing producers.69
Further, the license was denied to all existing producers uniformly.70 Therefore, Respondent has
discharged its transparency obligations.
26.
Further, such denial of license was not in contravention of the LRE. Admittedly, Article 4
of the LRE allows for the grant of licenses to existing producers. However, it is limited to
existing producers who seek to develop their capacity.71 Claimant did not indicate any such
inclination towards developing Alfas pre-existing capacity. In any case, the feed-in tariff under
the LRE was only meant for projects operating at a capacity not exceeding 30 kWh.72 Since Alfa
was already operating at the capacity of 30 kWh,73 it could not have developed its capacity
without becoming ineligible for the feed-in tariff. Therefore, the denial of license to Alfa was not
contrary to the parent statute.
B. The Reduction in Tariff does not Violate the FET Clause
27.
Respondent reduced the feed-in tariff from 0.44 EUR/kWh to 0.15 EUR/kWh on January
3, 2013.74 This did not violate Claimants legitimate expectations under the FET clause because
the expectation of continued payment of the pre-Amendment tariff for 12 years was not

67
Metalclad v. Mexico, 76.

Champion v. Egypt, 164
69
70
Procedural Order No. 2, 14.
71
Art. 5, LRE.
72
Art. 1, LRE Regulation.
73
Project Alfa Problems, Vasiuki LLC Dataset.
74
68
12

legitimate (Section 1). In any event, the reduction in tariff is justified as a legitimate regulatory
measure (Section 2).
1.
Expectation of Continued Payment of the Pre-Amendment Rate of Tariff was not

Legitimate
28.
The power of States to create, amend and repeal laws is an important attribute of their
sovereignty and has been recognized by several tribunals.75 It has also been recognized that the
FET clause cannot be treated as a kind of insurance policy against the risk of any changes in the
host States legal and economic framework.76 The only circumstance in which an investor can
expect that the law will not change is in the presence of a stabilization clause.77 For instance, in
LG&E v. Argentina, investors were offered certain tariff guarantees under an Argentine decree.78
The removal of such tariff guarantees was considered to violate the legitimate expectations of the
investor, only because the Argentine decree contained a stabilization clause stating that the
licensees tariff system will not be subject to freezing, administration and/or price control.79 In
the absence of such a stabilization clause in the present case, Claimants expectation of receiving
the pre-Amendment rate of tariff for 12 years was not legitimate.
29.
Further, no such expectation could have been legitimate in light of the prevailing
circumstances in Barancasia. In order to be considered legitimate, an expectation must be

reasonable in light of the political, socio-economic, cultural and historical conditions prevailing
in the host state.80 In National Grid v. Argentina, the tribunal held that the economic crisis in
Argentina must be taken into account for determining whether the investors expectations were
legitimate.81 Similarly, in Pope and Talbot v. Canada, the tribunal held that when there had been
a substantial change in economic factors surrounding the investment, a State could not be
expected to restrict the grant of quotas according to historically agreed patterns.82

75
Parkerings v. Lithuania, 333; EDF v. Romania, 217; Klager, p. 154.

EDF v. Romania, 217.
77
Parkerings v. Lituania, 332; Klager, p. 174.
78
LG&E v. Argentina, 41.
79
LG&E v. Argentina, 41 and 131.
80
Duke v. Ecuador, 365-366; Bayindir v. Pakistan. 193; Vandevelde, p. 67.
81
National Grid v. Argentina, 180.
82
Pope and Talbot v. Canada, 121-123.
76
13

30.
In the instant case, the unsustainability of the tariff regime had been highlighted in the
local media, and by Barancasian officials, as early as the beginning of 2012.83 There were
widespread strikes by Barancasian teachers, and public opinion was overwhelmingly opposed to
the tariff regime.84 In June, 2012, Respondent promised to review its legislation.85 In countries
such as Spain and Czechoslovakia, which had similar tariff regimes and were facing a similar
crisis, the Governments had reduced the amount of feed-in tariffs offered to producers.86 In light
of these circumstances, Claimants expectation that the tariff would not be changed was neither
reasonable nor legitimate. Hence, there has been no violation of Claimants legitimate
expectations.
2.
31.
The Reduction in Tariff was a Legitimate Regulatory Measure

Tribunals have recognized that the protection of legitimate expectation must be balanced
with the regulatory powers of the State.87 An action is not considered a violation of legitimate
expectation if it constitutes a legitimate exercise of regulatory powers.88 Accordingly, in Genin v.
Estonia, the revocation of the license of a foreign bank was held to not have violated its
legitimate expectations because the Estonian Government had legitimate regulatory concerns
about financial impropriety at the bank.89 In order to be a legitimate regulatory action, a measure
must be for a public purpose and must be reasonable.90
32.
The reduction in tariff by Respondent was for a public purpose. Tribunals have
recognized that States must be given a wide margin of appreciation in determining what
constitutes public purpose.91 The feed-in tariff regime had created an unsustainable solar bubble,
as a consequence of which Respondent received 7000 applications for licenses.92 If it were to
accept all applications, it would have to spend 15% of its state revenues on feed-in tariff

83
Uncontested Facts, 28-29.

85
86
The Economist Report.
87
Genin v. Estonia, 365; Thunderbird v. Mexico (Walde Separate Opinion), 109-110; Vandevelde, p. 55; Klager,
p. 153.
88
Genin v. Estonia, 365; Vandevelde, p. 55; Klager, p. 153.
89
Genin v. Estonia, 367.
90
MCI v. Ecuador, 154; Vandevelde, p. 55.
91
LIAMCO v. Libya, 192; Newcombe, p. 369.
92
84
14

payments.93 Further, Respondent could not have funded these tariff payments through loans due
to EU-mandated borrowing restrictions.94 This situation posed a serious threat to Respondents
fiscal health. A similar solar bubble had caused the Government of Spain to incur a tariff deficit
of $26 billion, which ultimately prompted it to reduce the tariffs.95 Therefore, the reduction in
tariffs was for a public purpose.
33.
Further, the reduction in tariff was a reasonable measure. In LG&E v. Argentina, the
tribunal recognized that economic hardships and political and social realities could have
justified the Argentine governments actions. However, Argentinas actions were held to have
violated the FET requirement because the government went too far by completely dismantling
the very legal framework constructed to attract investors.96 In the instant case, Respondent
merely reduced the tariff in a manner that ensured that producers using the latest available
technology could continue earning the promised 8% return on investment.97 Thus, Respondents
actions were reasonable in the circumstances.
34.
Therefore, the reduction of tariff by Respondent can be justified as a legitimate regulatory
measure.
C. The Failure to Consult Claimant does not Violate the FET Clause
35.
The fact that Respondent did not consult Claimant before amending the LRE does not
violate the due process requirement under the FET clause, as there was no obligation upon
Respondent to do so.
36.
Under administrative law, the obligation of consultation arises only when the
administrative body is discharging a quasi-judicial function,98 not a quasi-legislative function.99

A conclusive test for determining whether a particular action is quasi-judicial or quasi-legislative
is that of specificity. If an administrative action affects a particular entity individually or

93

95
The Economist Report.
96
LG&E v. Argentina, 139.
97
98
Wade, p. 435; Craig, p. 332.
99
Wade, p. 435; Craig, p. 333; Genin v. Estonia, 367.
94
15

specifically, it is quasi-judicial in character. On the other hand, if it is of general application, it is

quasi-legislative in nature.100
37.
In ADC v. Hungary, Hungarys decision to take over airport operations of the investor,
without having given it an opportunity to be heard, was held to have violated the FET clause.101
Similarly, in Metalclad v. Mexico, the non-renewal of license of a land-fill operator without
giving it an opportunity to be heard was criticized.102 All the aforementioned cases involve
administrative action which affects the rights of a particular investor individually.
38.
In the instant case, the reduction of tariff under the Amendment was of general
application, as it applied to all investors who were receiving the tariff under the LRE. As this
constituted a quasi-legislative action, there was no obligation upon Respondent to give Claimant
an opportunity to be heard. Thus, the due process obligation under the FET clause has not been
violated.
III.
RESPONDENTS ACTIONS ARE EXCUSED BY VIRTUE OF ITS OBLIGATIONS UNDER THE TFEU
39.
Respondents obligations under the BIT conflicted with its obligations under the TFEU.
In light of such conflict, Respondents obligations under the TFEU must prevail by virtue of the
operation of Article 30(3) of the VCLT (Section A), and the non-applicability of Article 10 of
the BIT (Section B).
A. Respondents Obligations under the TFEU Must Prevail as per Customary Law
40.
As per Article 30(3) of the VCLT, priority of conflicting treaty obligations must be
determined in accordance with the customary norm of lex posterior derogate legi priori.103 This
requires that direct and irreconcilable conflicts between treaty obligations be decided in favour of
the later treaty.104 Where the TFEU constitutes lex posterior, an incompatibility between the
TFEU and a Member States obligations under a pre-existing intra-EU BIT must be decided in

100
Wade, p. 438; Craig, p. 336.

ADC v. Hungary, 290.
102
103
Villiger, pp. 402 and 406.
104
Ghouri, pp. 163-164; Orakhelashvili, p. 789.
101
16

favour of the former. 105 Thus, Respondents obligations under the TFEU superseded its
obligations under the BIT.
41.
The lex posterior rule under Article 30(3) of the VCLT is applicable here as
Respondents obligations under the BIT were in direct conflict with its obligations under Article
107 of the TFEU (Section 1), and Article 126 of the TFEU (Section 2). This allows for the
prevalence of its obligations under the TFEU, thereby precluding its measures from
wrongfulness.
1.
Respondents Obligations under the BIT Conflicted with its Obligations under Article
107 of the TFEU
42.
The inherent conflict between Member States obligations under Article 107 of the
TFEU, and their BIT obligations which require a continued payment of unjustified State Aid, is
well recognized.106 Such conflict existed in the present instance, as the pre-Amendment rate of
tariff required to be paid by Respondent, under the BIT, threatened to distort competition.
43.
Under the EAG 2008, which were the applicable Guidelines on State Aid at the time of
the Amendment,107 aid for increasing the share of renewable energy in total energy production is
subject to strict conditions: first, the aid must create an incentive effect, and second, the aid
must be proportional. Aid is considered to create an incentive effect if it encourages
investment that is not economically attractive in [its] own right. 108 Enterprises that are
sufficiently profitable without such aid do not meet this condition.109 Further, State Aid for
renewable energy is considered proportional if the aid amount is just sufficient to cover the
difference between its cost price and market price. 110 The aid is not meant to maintain
inefficient firms afloat.111

105
Kleinheisterkamp, p. 10; Elimansberger, pp. 425-426.

Kleinheisterkamp, p. 317; Burgstaller, pp. 194-195.
107
EAG 2014, 248.
108
EAG 2008, 26-28.
109
EAG 2008, 146.
110
EAG 2008, 30-32 and 107.
111
EAG 2008, 36.
106
17

44.
The pre-Amendment rate of tariff did not meet these requirements. It resulted in windfall
profits to photovoltaic producers,112 and was required to support inefficient projects, such as
Beta, which had not adapted to the new technology.113 Thus, the pre-Amendment rate of tariff
was incompatible with the internal market,114 and Respondents obligation under the BIT to
continue its payment conflicted with its State Aid obligations under the TFEU.
45.
In this respect, it is immaterial that the Commission had not initiated any action against
Respondent for a breach of its State Aid obligations. The TFEU itself clarifies that the
Commission is not the sole competent authority for regulating State Aid, and mandates cooperation between Member States and the Commission in this respect.115 Thus, a conflict with
regard to Respondents State Aid obligations can be found to exist even in the absence of any
action by the Commission. In the past, the ECJ has:
[] favoured an ex-ante action and held that waiting for an actual conflict
between Community legislation and international obligations, when such conflict
can be reasonably anticipated, would deprive the Community legislation of its
effect116
46.
The Commission has opined that such conflicts between a BIT and State Aid obligations
under the TFEU must be decided in favour of the latter, in accordance with Article 30(3) of the
VCLT. 117 Thus, in the instant case, Respondents measures were precluded from wrongfulness.
2.
Respondents Obligations under the BIT were Incompatible with its Obligations under
Article 126 of the TFEU
47.
Article 126 of the TFEU requires Member States to maintain a certain ratio of debt to
GDP.118 Further, Protocol 12 to the TFEU and SGP 1997 require Member States to take
corrective measures if they expect to breach this ratio.119 Respondent faced an unquestionable
risk of breaching its mandatory borrowing limits if it continued the payment of the pre
112
Uncontested Facts, 25 and 28-29.

114
AES Summit v. Hungary (Award), 10.3.19.
115
Art. 108(1), TFEU; Micula v. Romania, 801-805.
116
Ghouri, p.154; Commission v. Finland, 16 and 29-33; Commission v. Austria, 17-19; Commission v.
Sweden 17-23 and 45.
117
Micula v. Romania, 317 and 336.
118
Art. 126(2), TFEU; Art 1, Protocol (No. 12) on the Excessive Deficit Procedure, TFEU.
119
Art. 10, SGP 1997; Art 3, Protocol (No. 12) on the Excessive Deficit Procedure, TFEU.
113
18

Amendment rate of tariff to photovoltaic investors.120 It was required to prevent such breach
under EU Law. Thus, Respondents obligation of complying with this requirement meant it
could not continue paying the pre-Amendment tariff.
48.
In light of this conflict between Respondents obligations under the BIT and TFEU, and
the primacy of its TFEU obligations, Respondent is exempt from responsibility for breach of its
BIT obligations.
B. Article 10 of the BIT is Inapplicable for Determining Hierarchy of Obligations
49.
Article 10 of the BIT is extremely limited in scope, in that it does not give Claimant
unqualified discretion in taking advantage of whichever Rules are more favourable to his
case.121 It explicitly states:
When a matter is governed simultaneously both by this Agreement and by
another international agreement to which both Contracting Parties are parties,
nothing in this Agreement shall prevent [] investors [] from taking advantage
of whichever rules are more favourable to his case.
[emphasis supplied]
50.
The purpose of such Preservation of Rights clauses is to allow an investor to invoke the
more favourable terms contained in another treaty entered into between the States. 122 The
underlying aim is to allow parties to enter into treaties inter se that derogate from the provisions
of the BIT, provided the subsequent treaty is more favourable to the interest of the investor.123
The use of the qualification nothing in this agreement shall prevent under Article 11 does not
however allow the investor discretion in taking advantage of more the more favourable terms
under this BIT when the subsequent or other agreement contains more restrictive obligations
than the BIT. Such interpretation finds approval under Article 30(2) of the VCLT, which only
recognizes the validity of conflict clauses that grant priority to another treaty.124
51.
In any case, the ECJ has expressly held that Member States obligations under EU
Treaties, such as the TFEU, must take precedence over obligations arising under any prior

120

Art. 10, BIT.
122
Newcombe, pp. 477-478; Dolzer, pp. 190-191.
123
Commentary to the VCLT, p. 216.
124
Villiger, pp. 404-405; Orakhelashvili, p. 789.
121
19

treaty. 125 Such inherent supremacy of obligations arising under the TFEU has also been
emphasized by commentators and tribunals.126 In light of this norm, Article 10 cannot be allowed
to dictate a precedence of Respondents obligations under the BIT.
IV.
RESPONDENTS ACTIONS ARE PRECLUDED FROM WRONGFULNESS UNDER THE BIT, AND
UNDER CUSTOMARY INTERNATIONAL LAW
52.
Respondents breach of obligations is exempt under the BIT, and under customary
international law. The fiscal crisis faced by Respondent constituted a threat to peace and security,
as required under Article 11 of the BIT (Section A). In any case, the prevailing situation
constituted necessity, as understood under customary international law (Section B).
A. Respondents Breach of Obligations is Exempt under the BIT
53.
Respondents actions are exempt under Article 11 of the BIT, which excludes the
operation of the substantive provisions of the treaty.127As per this provision, any measure taken
by Respondent for the maintenance of international peace or security is exempt from
wrongfulness,128 in that there is no breach of treaty obligations, and no liability arises.129
54.
The provision was intended to allow a party to derogate from its treaty obligations when
its national security interests were at risk. The economic crisis undoubtedly threatened
Respondents national security interests, triggering Article 11 (Section 1). In any case, Article 11
is applicable as the fiscal crisis could have posed a threat to international peace, through its
spillover effects (Section 2).
1.
55.
Article 11 Exempts Measures Adopted for Maintenance of National Security

Article 11 of the BIT precludes from wrongfulness any measure taken by Respondent for
the maintenance of international peace or security.

56.
According to the principles established in the VCLT, the phrase international peace or

125
Commission v. Italy, pp. 7-8 and 10.

Micula v. Romania, 317; Eilsmanberger, pp. 421-422.
127
Markert, p. 164.
128
Art. 11, BIT.
129
Sornarajah, p. 463; Markert, p. 164.
126
20

security must interpreted contextually, and in accordance with its ordinary meaning.130 This
requires grammatical interpretation, with due consideration to the use of syntax.131 To this end,
due weightage must be given to the usage of the conjunction or, instead of and, conjoining
the terms international peace and security in Article 11.132 The use of such syntax indicates
that the Parties intended for the term international to only qualify the term peace, and not
security.
57.
This is evident from a comparison of the international peace or security clause
incorporated under Article 11 of the BIT, with the international peace and security clause
found under the U.N. Charter.133 It is well established that the use of similar but distinct terms in
treaties indicates the intention of parties to incorporate and affect dissimilar meanings. 134
Accordingly, the international peace or security phrase in Article 11 of the BIT must be given a
disjunctive interpretation. Thus, the term security employed therein is not limited to
international security. National security interests also fall within the ambit of Article 11.
58.
This interpretation is affirmed by a contextual interpretation of this phrase,135 and an
application of the rule of non-redundancy.136 As per this rule, no part of a treaty should be
rendered a mere surplassage or pleonasm during the course of interpretation.137 The entire
text of the treaty must be taken into account while deriving the meaning of a clause or phrase,
including the title of that clause.138 The title to Article 11 indicates that the purpose of the
clause is to preclude responsibility for measures taken for the protection of essential security
interests. This would ordinarily include national security interests of the Parties.
59.
Respondents economic crisis qualifies as a threat to security under Article 11 of the
BIT. The test is the severity of crisis, not its nature. 139 Tribunals and commentators have
recognized that consequences of an economic crisis can be as grave as that of a military invasion,

130
Art. 31(1), VCLT.

Linderfalk, p. 62; Elimination of Racial Discrimination (Preliminary Objections), 135; Aegean Sea Continental
Shelf (Jurisdiction), 53.
132
Art. 11, BIT.
133
Art. 1, U.N. Charter; Burke-White, pp. 332 and 355.
134
Linderfalk, p. 108; Dorr, p. 545.
135
Art. 31(1), VCLT.
136
Linderfalk, p. 110.
137
Linderfalk, p. 108.
138
Dorr, p. 543; Oil Platforms (Preliminary Objection), 47.
139
Sempra v. Argentina, 374; Sornarajah pp. 463-464.
131
21

in terms of the impact such crises have upon living conditions of people.140 Economic crises
may, therefore, pose a threat to security of the State.141
60.
In the present instance, Respondents crisis constituted a grave fiscal emergency, which
threatened its security. A diversion of revenue by Respondent from other sectors of the economy,
towards funding of the pre-Amendment rate of tariff,142 would have slowed down other essential
sectors of the economy, posing risk of recession and an overall degradation in the standard of
living of citizens. 143 Alternately, supporting the tariff through borrowed funds would have
resulted in Respondent breaching its EU-mandated borrowing results, 144 posing threat of
economic sanctions. Hence, Respondents actions are justified under Article 11 of the BIT.
2.
In any Case, Respondents Measures were Aimed at Maintenance of International

Peace and Security
61.
Assuming the international peace or security clause under Article 11 of the BIT bears
the same meaning as the international peace and security clause incorporated under the U.N.
Charter,145Respondents measures were aimed at preventing an international crisis. Extremely
severe economic crises may constitute threats to international peace and security, particularly
where the crises have had cross-border implications and effects.146 Economic crises in Argentina
and the U.S. have had such global repercussions in the past.
62.
The fiscal emergency faced by Respondent certainly threatened the EU economy, in light
of the existence of a common currency in the Union. This is particularly demonstrated by the
Greek fiscal crisis of 2010.147 Hence, Respondents actions are exempt under Article 11 of the
BIT.
B. Respondents Actions are Exempt Under the Customary Defence of Necessity
63.
Even if Respondents actions are not justified under Article 11 of the BIT, they are

140
Sornarajah, p. 459; LG&E v. Argentina (Decision on Liability), 238.

CMS v. Argentina, 352, 360 and 362.
142
143
Fiscal Crisis Report, p. 4.
144
145
Burke-White, p. 355.
146
Simma, pp. 40-42.
147
Lachman, pp. 6-9; Mui (accessed online); Foroohar (accessed online).
141
22

precluded from wrongfulness under the defence of necessity under customary international law.
Article 25 of the ILC Articles which are widely accepted as reflective of customary international
law,148 enlist the following requirements for the plea of necessity to be applicable: first, the act in
question must have been the only way for the State to safeguard an essential interest against a
grave and imminent peril; second, the act in question should not have seriously impaired an
essential interest of the State towards which the obligation exists, and third, the State concerned
should not have contributed to the situation of necessity.149
64.
Admittedly, the defence of necessity is restricted in scope.150 However, it must not
eliminate a States right to self-determination and its sovereign power to protect itself during
times of emergency. To this end, a State may subjectively determine whether the requisite
conditions under Article 25 of the ILC Articles have been met, provided the subjectivity is not
too broad.151
65.
Respondents actions are exempt under the defence of necessity as the impending fiscal
crisis posed a grave and imminent peril (Section 1) to its essential economic interests
(Section 2), and the Amendment was the only way to tackle the prevailing situation (Section
3). There was no contribution by Respondent towards creation of the situation of necessity
(Section 4), and Cogitatias essential interests were not impaired (Section 5). Lastly, the BIT did
not preclude the possibility of invoking the defence of necessity (Section 6).
1.
66.
Respondent Faced a Grave and Imminent Peril

Respondents fiscal and infrastructural emergency posed a grave and imminent peril.
Ordinarily, the seriousness and imminence of a threat is left to the subjective appreciation of
the responsible State.152 However, even objectively, serious budgetary and monetary situations
have been recognized as constituting a grave peril.153 Holding that such crises do not meet the
requisite threshold of gravity under Article 25 of the ILC Articles would constitute an erroneous
application of the law that [favours] foreign investment to the detriment of a State undergoing a

148
Art. 25, ILC Articles.
150
Art. 25, ILC Commentary, 2 & 14; CMS v. Argentina, 317.
151
LG&E v. Argentina (Decision on Liability), 248.
152
153
Art. 25, ILC Commentary, 8.
149
23

crisis.154
67.
Further, the emergency faced by Respondent was imminent and proximate.155 The
requirement of imminence does not limit the defence of necessity to pre-existing perils, nor does
it require the occurrence of future perils to be established with absolute certitude. 156 A
measure of uncertainty is acceptable,157 as long as the peril was considered inevitable at the
time when the impugned measure was taken.158
68.
Under EU law, Respondent had an obligation to provide guaranteed and non-
discriminatory grid access to producers of photovoltaic energy. 159 However, it lacked the
infrastructure to provide such access to all 7000 applicants,160 making the crisis inevitable.
Further, the unsustainable public expenditure that Respondent would need to incur for supporting
the feed-in tariff would result in a grave fiscal emergency,161 which Respondent was entitled to
prevent.
2.
69.
Respondents Essential Interests were Seriously Impaired

The essential interests of a State are those interests that are of exceptional importance to
the State seeking to assert it.162 As to which interests meet this threshold cannot be prejudged;163 ordinarily, it depends on the conditions of each specific case.164 However, tribunals
and commentators have expressly acknowledged that economic interests and the continued
functioning of [] essential services constitute essential State interests. 165 The prevailing
situation in Barancasia not only impaired the economic interests of Respondent, but the
widespread strikes and protests also prevented the functioning of essential services, such as

154
Sornarajah, p. 456.
156
Kent, p. 250; Gabcikovo-Nagymaros, 20.
157
Kent, p. 250.
158
Gabcikovo-Nagymaros, 54; Art. 25, ILC Commentary, 15.
159
Art. 6, Electricity Directive; Art. 16(2)(b), Renewable Energy Directive.
160
161
162
Ago, p. 19; Kent, p. 249.
163
164
165
Ago, p. 14; Kent, pp. 249-250; LG&E v. Argentina (Decision on Liability), 251.
155
24

education.166 Thus, the requirement of impairment of essential interests is met.

3.
70.
The Amendment was the Only Way for Respondent to Address its Fiscal Crisis
For the only way requirement under Article 25 of the ILC Article to be satisfied, it is
sufficient to establish that measures adopted by the responsible State were the only reasonable
means available.167 To this end, the responsible State must be given a margin of appreciation in
determining its course of actions when faced with a crisis,168 as long as the measures taken are
necessary and legitimate.169 The mere existence of alternatives, however unreasonable, does not
preclude the defence of necessity,170 as:
[there] will often be issues of scientific uncertainty and different views may be
taken by informed experts on whether there is a peril, how grave or imminent it is
and whether the means proposed are the only ones available in the
circumstances. 171
[emphasis supplied]
71.
In light of the inherent biases in evaluating a States decision with the benefit of
hindsight,172 the mere existence of expert opinions offering alternate solutions to the prevailing
situation does not preclude the customary defence of necessity.173 In any case, Claimant has not
produced any expert evidence indicating existence of alternatives. Further, a world
comparative174 with States facing a similar situation of windfall gains resulting from feed-in
tariffs indicates that the reduction in feed-in tariffs was a legitimate measure.175
4.
72.
The Amendment did not Impair Cogitatias Essential Interests

Respondents actions did not seriously impair the essential interests of any State or the
international community. The proportionality requirement under Article 25 of the ILC Articles
only prohibits a State from protecting its own interests at the cost of essential interests of other

166
Uncontested Facts, 29-30 and 32.

Kent, pp. 254-255.
168
Sornarajah, p. 463; Continental Casualty v. Argentina (Decision on Liability), 181.
169
Continental Casualty v. Argentina, 227-230; LG&E v. Argentina (Decision on Liability), 239.
170
Kent, p. 255.
171
172
Sornarajah, p. 463; LG&E v. Argentina (Decision on Liability), 257.
173
Kent, pp. 253-255; Enron v. Argentina, 308.
174
Enron v. Argentina, 308; Sempra v. Argentina, 350.
175
Tariff Deficit Report, pp. 33-34.
167
25

States.176 This obligation is limited to inter-State relations, and does not arise in context of an
individual or a corporation operating within a state.177 The mere fact that investors are the
ultimate beneficiaries under BITs does not allow for their individual interests to substitute the
interests of their State.178
73.
Since the Amendment was uniformly applicable to both domestic and foreign investors,
there is no evidence that Cogitatia suffered in any way. Respondent was the only party whose
essential interests were at risk.
5.
74.
Respondent did not Contribute Substantially to the Situation of Necessity

For a preclusion of the customary defence of necessity, the contribution of responsible
State towards the situation of necessity should have been sufficiently substantial.179 Since the
retrospective examination of a States action is inherently biased,180 the States contribution must
be evaluated on the basis of reasonableness of its measures in light of the knowledge available to
it at the relevant point in time.181 A policy that has been regarded as reasonable beforehand
cannot, subsequently, be considered contribution.182
75.
In the present instance, the pre-Amendment rate of tariff constituted reasonable policy
prior to the technological changes that occurred in 2011.183 It was the windfall profits resulting
from the ground-breaking technological changes that prompted more applications than
Respondents infrastructure or budget could sustain. 184 Since Respondent could not have
foreseen such change in circumstances, it cannot be held responsible for having contributed to
the situation of necessity.
6.
76.
The BIT did not Preclude the Possibility of Invoking the Defence of Necessity
The BIT did not, inherently, exclude the operation of the defence of necessity. The
objective underlying BITs is the balancing of interests of States and investors, not merely the

176
Kent, p. 255; Ago, p. 20; LG&E v. Argentina (Decision on Liability), 254.

Sornarajah, p. 464.
178
Sornarajah, p. 464; CMS v. Argentina, 358.
179
180
Sornarajah, p. 463; Continental Casualty v. Argentina, 235-236.
181
Kent, p. 259; Gabcikovo-Nagymaros, 57.
182
Continental Casualty v. Argentina, 235.
183
184
177
26

protection of investments from State interference. 185 Thus, an exclusion of the defence of
necessity would ignore the State Partys essential interests, and would be inconsistent with the
objective of the BIT. 186 Further, such exclusion would defeat the very purpose of the defence
itself, which is meant to exonerate a State for wrongfulness of action taken under extreme
circumstances.187
77.
In the present instance, Article 11 of the BIT clearly indicates that both parties intended
to retain the possibility of derogating from their treaty obligation in situations of emergency.188
Thus, in the absence of any express exclusion of this defence,189 Respondent is not precluded
from invoking the defence necessity to justify its actions.
V.
RESPONDENT CANNOT BE ORDERED TO PERFORM ITS OBLIGATIONS THROUGH AN AWARD OF

SPECIFIC PERFORMANCE
78.
In the event that this Tribunal were to hold Respondent responsible for a breach of its
obligations under the BIT, the remedy for such a breach should be compensation, and not
restitution. This is because compensation is the primary remedy in investment arbitration
(Section A). In any case, restitution cannot be granted as the conditions precluding restitution
under Article 35 of the ILC Articles have been met (Section B).
A. Compensation is the Primary Remedy in Investment Arbitration
79.
In practice, tribunals in investor-State arbitration have almost always granted
compensation instead of restitution as the remedy for a breach of obligations under a BIT.190 This
is because restitution has been held to be against the respect due for the sovereignty of the
responsible State.191 This was explicitly recognised by the tribunal in Occidental v. Ecuador,
where it was held that:

185
Markert, p. 146.
Markert, p. 146; Kent, pp. 256-257.
187
CMS v. Argentina, 353-354.
188
Art. 11, BIT.
189
Art. 25, ILC Commentary, p. 84.
190
BP v. Libya, p. 155; Occidental v. Ecuador (Provisional Measures), 84; Molinuevo, p. 226.
191
LIAMCO v. Libya, pp. 124-125.
186
27

It is well established that where a State has, in the exercise of its sovereign
powers, put an end to a contract or a license, or any other foreign investors
entitlement, specific performance must be deemed legally impossible.192
80.
This is further evinced by the fact that even where tribunals have granted restitution as a
remedy, it has been with the consent of the responsible State.193 Alternatively, the responsible
State has been granted discretion to choose between restitution and monetary damages.194 The
decision to opt for an award of restitution, in these cases, is seen to be within the competence of
the sovereign decision of the responsible State, and thus permissible.195
81.
Compensation is also seen as less intrusive into State sovereignty from a legal point of
view.196 It allows for the protection of the rights of foreign investors without impinging upon
the sovereignty of States. This rationale accounts for the primacy of compensation over
restitution in arbitration cases involving investment disputes.197
82.
If restitution were to be granted in the present case, Respondent would be compelled to
either repeal a legislation duly passed by its Parliament, or to pay the pre-Amendment rate of
tariff to only Claimant, in clear contradiction of its internal policies.198 An award of monetary
damages, on the other hand, will restore Claimant to the financial position it would have been in
had the Amendment not been enacted,199 without breaching Respondents internal sovereignty.
Therefore, compensation must be the primary remedy in the instant case.
B. In any Event, the Conditions Precluding Restitution Under Article 35 of the ILC Articles
have been met
83.
This Tribunal cannot grant restitution to Claimant. It can neither direct Respondent to
repeal the Amendment to the LRE, nor require it to continue paying the pre-Amendment rate of
tariff to Claimant.200
84.
Article 35 of the ILC Articles lays down two conditions under which restitution should

192
Occidental v. Ecuador (Provisional Measures), 79.

ATA v. Jordan, 131; Franck Charles Arif v. Moldova, 633.
194
Goetz v. Burundi, 135; Art. 1135(1), NAFTA.
195
Goetz v. Burundi, 136; McLachlan, 9.120.
196
de Luca, 17.
197
Gray, pp. 179-180.
198
199
Claimants Experts Report, 7.
200
193
28

not be granted: first, when such an award is materially impossible (Section 1), and second, when
it imposes a disproportionate burden upon the responsible State as compared to an award of
compensation (Section 2). These conditions are disjunctive, and the fulfillment of either
condition would preclude the remedy of restitution. In the present case, both these conditions
have been met.
1.
85.
Restitution is Materially Impossible

Article 35(a) of the ILC Articles provides that restitution must not be granted where
compliance with such an award would be materially impossible.201 Both possible forms of
restitution meet this condition in the present case.
86.
The abnormally high profits resulting from the pre-Amendment tariff led to a massive
increase in investment in Barancasias photovoltaic sector, with 7000 applications being filed for
a license under the LRE.202 Reinstating the pre-Amendment rate of tariff would only attract an
even greater number of applications which Respondent would be bound to approve.203 However,
it will be physically impossible for Respondent to accommodate all these users within its
national grid.204 Therefore, repealing the Amendment to the LRE is materially impossible.
87.
Further, a retroactive reinstatement of the pre-Amendment rate of tariff for Claimant
would constitute new State Aid under Article 107 of the TFEU.205 Granting such aid only to
Claimant would violate the State Aid provisions, since it is liable to improve the competitive
position of the recipient compared to other undertakings with which it competes.206 It follows
that it is legally impossible for Respondent to comply with the second form of restitution
requested by Claimant. The ILC Articles only prohibit the responsible State from relying on its
internal laws for precluding a remedy of restitution.207 In the present case, however, the remedy
is precluded due to Respondents obligations under EU law, which has been established to be
international law.208 Thus, the second form of restitution requested by Claimant would require

201
Art. 35(a), ILC Articles.

203
See Part IV(B)(1) of this Memorandum.
204
205
Micula v. Romania (State Aid Decision), 61.
206
Micula v. Romania (State Aid Decision), 46.
207
208
Electrabel v. Hungary (Jurisdiction), 4.119.
202
29

Respondent to breach its international obligations, and is materially impossible.

2.
88.
In any case, Restitution will Impose a Disproportionate Burden upon Respondent

Article 35(b) of the ILC Articles provides that restitution must not be granted when it
would impose a disproportionate burden upon the responsible State as compared to an award of
compensation.209
89.
In the present case, restitution will impose a disproportionate burden upon Respondent.
Firstly, it would violate Respondents sovereignty.210 Secondly, repealing the Amendment to the
LRE would require Respondent to pay the higher rate of tariff to all licensees, thereby imposing
an inequitable financial burden as compared to compensation. Finally, reinstating the preAmendment rate of tariff for Claimant alone would, in all likelihood, invite legal proceedings
against Respondent for violation of the EU State Aid rules.211 In comparison, the benefit to
Claimant would largely be the same under both restitution and compensation. Therefore, the
second condition under Article 35 has been met.
90.
VI.
Thus, restitution as requested by Claimant cannot be granted.
CLAIMANTS ASSESSMENT OF DAMAGES IS FLAWED

91.
The quantum of damages as calculated by Claimants Expert, Prof. Kovi, is 2.1
million. However, this figure is incorrect because first, the method of discounting used by Prof.
Kovi is flawed (Section A); second, his estimation of damages for project Alfa is flawed
(Section B); third, damages for the New Projects are speculative (Section C); fourth, lost profits
cannot be granted for the Follow-on Solar Installation Projects [Follow-on Projects] (Section
D); and finally, the interest rate applicable need not be equal to the discount rate (Section E).
A. Projected Cash Flows for Project Beta and the New Projects Should be Discounted at the
Rate of 12%
92.
Prof. Kovi has used the Discounted Cash Flow Method [DCF Method] to calculate
the net present value of Claimants investments. There exist two established ways of arriving at

209
Art. 35(b), ILC Articles.

Occidental v. Ecuador (Provisional Measures), 84.
211
Art. 107, TFEU.
210
30

the net present value of a company under this Method: first, by discounting the cash flows to
equity by the cost of equity, or alternatively, by discounting the cash flows to the firm by the
Weighted Average Cost of Capital [WACC] of the firm.212 The WACC includes cost of both
debt and equity. In the present case, however, Prof. Kovi has applied it to discount the cash
flows to equity alone.213 This has led to an inflated estimation of damages.214
93.
As acknowledged by tribunals, the appropriate rate to be used in such cases is the
claimants cost of equity.215 This is particularly true for photovoltaic plants, which have minimal
operating costs, with most of the investment being made at the time of establishment. 216
Consequently, operating revenues are likely to be directed towards repayment of debt, resulting
in a progressive decline in the proportion of debt in the total capital of the firm. This renders the
WACC variable and inappropriate for use as the rate of discount. Therefore, Claimants cost of
equity, which is equal to 12%,217 must be used.
B. Claimants Estimation of Damages for Alfa is Flawed
94.
Compensation may be granted for a breach of legitimate expectation when such
expectation was relied upon at the time of investment.218 In the present case however, Alfa was
established prior to the enactment of the LRE, and was not undertaken in response to it.219
Therefore, no damages are required to be paid for a breach of legitimate expectations regarding
Alfa.
95.
In any case, damages for Alfa as estimated by Prof. Kovi are too speculative. The profits
for which damages are sought must be direct and certain,220 and must be based on a past
history of profitability of the project.221 Alfa had been plagued by severe delays and costoverruns from the time of its inception. In fact, the project would have been abandoned had it not

212
CMS v. Argentina, 430 and 432.

Annex 4, Claimants Experts Report.
214
Damodaran, p. 57 [accessed online].
215
PSEG v. Turkey, 345.
216
Respondents Expert Report, 9.
217
Project Financing, Vasiuki LLC Dataset.
218
AES Summit v. Hungary, 9.3.7; Tecmed v. Mexico, 154.
219
220
221
213
31

been for the enactment of the LRE.222 This was in spite of its already receiving a feed-in tariff of
0.1989 EUR/kWh under the pre-LRE legal framework.223 Therefore, the profitability of the
project, even with the payment of an assured tariff, cannot be reasonably established. This must
be accounted for in the calculation of damages.
C. Claimants Estimation of Damages for the New Projects is too Speculative
96.
In his Report, Prof. Kovi has proposed two alternate methods for the calculation of
damages for the 12 New Projects. The first method seeks to provide reliance damages to
Claimant for expenditure incurred for acquiring land, equipment and personnel. This method
would be applicable in the event that the Projects were cancelled.224 However, Claimant has
decided to complete the Projects.225 Compensating Claimant for such expenditure, when the land
and equipment is already in use, would amount to double compensation. 226 Thus, such
compensation should not be granted.
97.
The other alternative proposed by Prof. Kovi is to quantify the loss of profits from the
Projects by applying the DCF Method. However, for compensation to be granted under this
method, the project in question must be a going concern 227 with a past record of
profitability. 228 Estimation of damages on the basis of future profits would otherwise be
inherently speculative.229
98.
In the present case, the New Projects have not been completed yet. Further, they are of a
much larger scale than Alfa or Beta, and are based on new, untested technology. 230 Any
projection of profits for these projects would be speculative. Therefore, the DCF Method should
not be applied. For instance, in Levitt v. Iran, the tribunal refused to grant compensation for lost
profits from an unfinished building project as it was uncertain whether the project would have

222

Claimants Expert Report, 6.
224
Claimants Expert Report, 9-10.
225
226
MTD v. Chile, 243.
227
Walde/Sabahi, p. 1078.
228
PSEG v. Turkey, 311.
229
Marboe, 5.427.
230
223
32

been a commercial success.231

99.
Since neither method proposed by Prof. Kovi is appropriate, at most a nominal lump
sum amount should be granted as compensation for these Projects.232 In any case, the uncertainty
with regard to future profits must be accounted for while estimating damages under the DCF
Method.233
D. Claimant is not Entitled to Damages for the Follow-on Projects
100.
Compensation for projects which have not been undertaken yet, is inherently speculative
and must not be granted.234

101.
In LIAMCO v. Libya, the tribunal refused to grant compensation for the mere loss of
opportunity to develop an oil field as no action had been taken towards such development.235
Further, in Micula v. Romania, it was held that mere witness statements of company employees
were not sufficient to establish claimants plans for future investment, in the absence of any
documentary proof to this effect.236
102.
In the present case, Claimant has only produced a witness statement as evidence to
indicate that it did plan to establish the Follow-on Projects.237 Therefore, any damages for these
Projects are entirely speculative, and must not be granted.
E. The Rate of Interest on Damages need not be Equal to the Discount Rate
103.
Prof. Kovi in his Report, has stated that the rate of interest must always be equal to the
discount rate used under the DCF Method. This is based on the assumption that the rate of
interest must be derived from Claimants cost of capital. However, cost of capital is only one of
many factors from which the interest rate may be derived.238 Since the cost of capital of a
company is based on subjective considerations, such as the capital structure, risk portfolio and
expected returns of that company, it has been considered to be an inappropriate standard for the

231
Levitt v. Iran, 56.

Shufeldt Claim (United States v. Guatemala), p. 1101.
233
Himpurna v. PLN, 365.
234
PSEG v. Turkey, 310-312.
235
236
Micula v Romania, 965.
237
238
Marboe, 6.47.
232
33

calculation of interest.239 Therefore, the rate of interest need not be equal to the discount rate
applied.
104.
Given the absence of a uniform international practice for determining interest rate, this
Tribunal has discretion in selecting the applicable rate in the present dispute.240 Article 5 of the
BIT provides for the 6-month LIBOR rate as the appropriate rate of interest to be applied in
cases of lawful expropriation by either of the Contracting Parties.241 This rate can also be applied
in case of a breach of other obligations under the BIT since the rationale for payment of interest
remains the same. Further, the application of such a rate is in accordance with the larger principle
of party autonomy under international arbitration.242
105.
Thus, the damages calculated by Prof. Kovi must be altered accordingly.

239
Marboe, 6.97-6.99; PSEG v. Turkey, 345.

241
Art. 5(1), BIT.
242
Autopista Concesionada v. Venezuela, 382; Reynolds Tobacco v. Iran, p. 192.
240
34

REQUEST FOR RELIEF

106.
For the aforementioned reasons, Respondent respectfully requests the Tribunal to find
that:
(a) It does not have jurisdiction over this dispute.
107.
In the event that the Tribunal finds it has jurisdiction, Respondent requests the Tribunal
to conclude that:
(a) Respondent has not violated Article 2 of the BIT.
(b) Respondents actions are exempt by virtue of its obligations under EU law, and under the
defence of necessity.
108.
In the event that the Tribunal does not grant Respondents first or second prayer for
relief, Respondent requests that the Tribunal:

(a) Deny Claimants request for specific performance.
(b) Find that Claimants calculations for damages are ill-supported and based on false and
incorrect legal and factual assumptions.
Respectfully submitted on September 26, 2015 by
PETREN
On Behalf of Respondent
THE REPUBLIC OF BARANCASIA
35

FDI Moot, 2015 (International Rounds: Runners Up) - Respondent Memorandum

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FDI Moot, 2015 (International Rounds: Runners Up) - Respondent Memorandum

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TEAM ALIAS: PETREN

THE LONDON COURT OF

LCIA ARBITRATION NO. 00/2014

MEMORIAL FOR RESPONDENT

Rudolph Dolzer and Christoph Schreuer, PRINCIPLES

Ahmad Ghouri, INTERACTION AND CONFLICT

Ulf Linderfalk, ON THE INTERPRETATION OF TREATIES: THE

Irmgard Marboe, CALCULATION OF COMPENSATION

Campbell McLachlan et al, INTERNATIONAL INVESTMENT

Lord Arnold McNair, LAW OF TREATIES (1961).

Martn Molinuevo, PROTECTING INVESTMENT IN SERVICES:

Andrew Newcombe and Llus Paradell, LAW AND PRACTICE OF

M. Sornarajah, THE INTERNATIONAL LAW

Mark E. Villiger, COMMENTARY ON THE 1969 VIENNA

Robert Ago, Eighth Report (Addendum) of the Special

Markus Burgstaller, European Law and Investment Treaties,

William W. Burke-White and Andreas von Staden, Investment

Anna de Luca, Non-Pecuniary Remedies Under the Energy

Oliver Dorr, Article 31: General Rule of Interpretation in

Francois Dubuisson, Article 59: Suspension of the Operation of

Thomas Eilmansberger, Bilateral Investment Treaties and EU

G.G. Fitzmaurice, Second Report of Special Rapporteur on the

Christine D. Gray, Is there an International Law of Judicial

Kaj Hober, State Responsibility and Attribution, in The Oxford

Avidan Kent and Alexandra P. Harrington, The Plea of Necessity

Jan Kleinheisterkamp, The Next 10 Year ECT Investment

Desmond Lachman, Economic Crisis: The Global Impact of a

I. C. MacGibbon, The Scope of Acquiesance in International

Lars Markert, The Crucial Question of Future Investment

Mui (accessed online)

Alexander Orakhelashvili, Article 30: Application of Successive

Adarsh Ramanujan, Conflicts Over Conflict: Preventing

Eleanor Sharpston, European Community Law and the Doctrine

Prof. Dr. Wolfram Karl, Article 1: Purposes and Principles in

Tariff Deficit Report

Asa Johannesson Linden et al, Electricity Tariff Deficit:

Thomas W Wlde and Borzu Sabahi, Compensation, Damages,

INVESTMENT LAW (Peter T Muchlinski et al, eds., 2008).

Commentary to the VCLT

International Law Commission's Draft Articles on the Law of

Community Guidelines on State Aid for Environmental

COMMUNICATION FROM THE COMMISSION Guidelines on State

COMMUNICATION FROM THE COMMISSION to The European

DIRECTIVE 2003/54/EC OF THE EUROPEAN PARLIAMENT AND OF

Fiscal Crisis Report

Congressional Budget Office, Federal debt and the Risk of a

DIRECTIVE 2009/28/EC OF THE EUROPEAN PARLIAMENT AND

COUNCIL REGULATION (EC) NO. 1466/97 OF 7 JULY 1997 on the

LIST OF LEGAL SOURCES

AES Summit Generation Limited v. The Republic of Hungary,

AES Summit v. Hungary

AES Summit Generation Limited v. Republic of Hungary,

ATA Construction, Industrial and Trading Company v. The

Autopista Concesionada v. Autopista Concesionada de Venezuela CA v. Venezuela, 10

British Petroleum Company (Libya) Ltd., v. The Government

CME v. Czech Republic

CME v. Czech Republic, UNCITRAL Arbitration (March 14,

CMS v. Argentina, ICSID Case No. ARB/01/8 (May 12, 2005).

Commission of the European Communities v. Republic of

Commission of the European Communities v. Republic of

Commission of the European Economic Community v. Italian

Commission of the European Communities v. Republic of

Continental Casualty v. Continental Casualty Company v. The Argentine Republic,