TOPIC: Nationality

SIDE: Respondent
BACKGROUND FACTS
FDI 2016 Problem
Historically, the region of Fairyland had been part of the Republic of Euroasia.1 In
fact, the vast majority of people living in Fairyland are of Euroasian origin. The residents
do not identify with Eastasia and preferred to be re-united with Euroasia. 2

Due to multiple wars over the last 100 years, the province of Fairyland became
Eastasian territory in 1918.3 The family of Peter Explosive also had its roots in
Euroasia.4 His grandparents were originally born nationals of Euroasia, but when the
province became part of the territory of Eastasia, they became Eastasian nationals and
relinquished their Euroasian nationality. Peter Explosive’s parents were born in the
territory of Eastasia and remained Eastasian nationals until their deaths.5

On February 1998, Peter Explosive, who was a resident of Fairyland and at the
time undisputedly a national of Eastasia, acquired shares in Rocket Bombs Ltd, a
company located in Oceania, and became its 100% shareholder.6

On 1 November 2013, the residents of Fairyland decided in a referendum that

the province be reunited with its homeland, the Republic of Euroasia.7 The national
government of Eastasia declared that the referendum was unlawful and had no effect
on the shape of the Eastasian territory.8

On 1 March 2014, the region of Fairyland was peacefully re-united with the
Republic of Euroasia.9 On the same day, Euroasia enacted an amendment to the
citizenship act which allowed all residents to apply for Euroasian nationality. However,

1
FDI Problem, Request for Arbitration, p.5
2
FDI Problem, Statement of Uncontested Facts, ¶14
3
FDI Problem, Procedural Order (“P.O.”) No. 2, ¶4
4
FDI Problem, Statement of Uncontested Facts, ¶14
5
FDI Problem, P.O. No. 2, ¶4
6
FDI Problem, Request for Arbitration, p.4; FDI Problem, Statement of Uncontested Facts, ¶2
7
FDI Problem, Request for Arbitration, p.4
8
FDI Problem, Statement of Uncontested Facts, ¶14
9
FDI Problem, Request for Arbitration, p.5
no dual citizenship was allowed. On 23 March 2014 Peter Explosive was recognized as
a national of Euroasia, and he was subsequently issued a Euroasian identity card and
passport.10

On 11 September 2015, Peter Explosive submitted a Request for Arbitration

before the International Chamber of Commerce (ICC). Peter Explosive asserts that his
investment was expropriated by Oceania due to the sanctions imposed by its President.

Both the Euroasia and Eastasia BIT require that the investor seeking protection
from the treaty be nationals of that country. Article 1(2) of both BITs provide similar
definitions for the term “investor”, viz:

2. The term “investor” shall mean any natural or legal person of one Contracting Party
who invests in the territory of the other Contracting Party, and for the purpose of this
definition:

(a) the term “natural person” shall mean any natural person having the nationality
of either Contracting Party in accordance with its laws;

(b) the term “legal person” shall mean, with respect to either Contracting Party,
any entity incorporated or constituted in accordance with, and recognized as
legal person by its laws, having the seat in the territory of that Contracting Party.

NATIONALITY
A. Nationality of Investor

Investor-state arbitration allows foreign investors to directly claim against the

State in which they invested; however, a fundamental requirement before they may do
so is that the investor, whether an individual or a corporation, be a national of a specific
foreign country. The Claimant in the case must show that he has the standing under the
treaty to bring a claim by establishing that he is a national of the state party to the treaty
under which he claims.11 Where an investor does not clearly satisfy the nationality
requirement, States are quick to challenge their standing in the case. The determination
of the nationality of an investor is of utmost importance because the substantive

10
FDI Problem, P.O. No. 2, ¶4
11
Sornarajah, The international law on foreign investment
standards and guarantees in a treaty will only apply to the investors who fall within the
definition provided in the BIT. Additionally, the jurisdiction of the tribunal may also be
determined by the Claimant’s nationality.

While generally nationality is a matter of proof under the domestic law of the
state whose nationality is being claimed12, where there is confusion or problems
involving dual nationality, it is usually settled through the traditional principles of
international law. In these circumstances, international tribunals and courts have applied
the doctrine of effective nationality.

1. Determined by National Laws

International law will refer back to municipal law for the purpose of
determining nationality13. As a significant amount of the legal consequences of
nationality remain internal, international law, for the most part, affords states
broad latitude to confer nationality.14 This rule is expressed by a number of
authorities.
In the Tunis-Morocco Nationality Decrees advisory opinion, the Permanent
Court of International Justice (PCIJ) stated that nationality falls within a domain of
legal competence reserved to internal law, although it may be limited by treaty
obligations15. The PCIJ opinion on Polish nationality also affirmed that while
“generally speaking, it is true that a sovereign state has the right to decide what
persons shall be regarded as its nationals, it is no less true that this principle is
applicable only subject to the Treaty obligations of that state”.16 Similarly, the
Convention on Certain Questions Relating to the Conflict of Nationality Laws
states that:
It is for each State to determine under its own law who are its nationals. This law
shall be recognised by other States in so far as it is consistent with international

12
Sofraki v UAE; Sornarajah, The international law on foreign investment
13
Wisner & Gallus. Nationality requirement in investment-state arbitration
14
Sloane. Breaking the genuine link: The contemporary international legal regulation of nationality
15
Tunis-Morocco Nationality Decrees advisory opinion
16
Acquisition of Polish Nationality, Advisory Opinion, at 16
 conventions, international custom, and the principles of law generally recognised
with regard to nationality.17
Any question as to whether a person possesses the nationality of a particular
State shall be determined in accordance with the law of that State.18
What is glaringly similar in the above cited authorities is that while they all
acknowledge the authority of State to determine nationality, they realize that such
authority is not unlimited, and is subject to their treaty obligations.
While the Convention did not specify the limitations of Article 1, the
Preparatory Committee apparently had in mind typical practices such as the
accepted validity (1) of bestowing a nationality based on descent, birth on state
territory, marriage to a state’s national, and transfer of territory; and (2) divesting
of a person of nationality based on the acquisition of a new nationality, marriage
to a foreign national, or “de facto attachment to another country accompanied by
a failure to comply with provisions governing the retention of nationality, and
transfer of territory”.19
The decision of the Arbitral Tribunal in the case of Champion Trading v.
Egypt also clearly demonstrates this rule.
The case of Champion Trading involves the failed venture of the
shareholders in the National Cotton Company (NCC) – two U.S. companies,
namely, Champion Trading Company and Amitrade, and three U.S. citizens who
are all members of the Wahba family – and their claims against Egypt at the
ICSID for breaches of the Egypt-US BIT. In the case, the nationality of the
members of the Wahba family was questioned. These members of the Wahba
were US citizens, and had parents who were also US citizens. The problem,
however, was that their father was half-Egyptian and, under Egyptian law, the
sons of Egyptian nationals retain that nationality for one hundred generations,
regardless of where they are born or where they lived. This proved to be fatal to
the Claimant’s cause.

17
Article 1, Convention on Certain Questions Relating to the Conflict of Nationality Laws
18
Article 2, Convention on Certain Questions Relating to the Conflict of Nationality Laws
19
ILC, Report on Nationality, Including Statelessness
 Relying on Egyptian law, the Tribunal ruled that, even if the Wahba
children had never been to Egypt, they fell squarely within the bracket described
by the Egyptian laws. Therefore, the Tribunal had to rule that the Wahba children
were not “nationals” within the definition of the Egypt-US BIT, especially since the
BIT defined “national” as “a natural person who is a national of a party under its
applicable law”.
It should be taken note also that while a certificate of nationality issued by
competent authorities of the State would seem like strong evidence for the
existence of nationality, it is not necessarily conclusive. A tribunal may make its
own decision as to the claimant’s nationality and may even reject the certificate
of nationality.20
In the case of Soufraki, the Claimant signed as a Canadian, concession
contracts for the development of ports in UAE. The Claimant, Mr. Soufraki, also
claimed Italian citizenship and after the relationship of the investor and the State
turned sour, he claimed for breaches under the Italy-UAE BIT.
The Tribunal, in deciding against the Claimant, reasoned that Mr. Soufraki
was not an Italian at the time he made the claim. Also, despite the fact that Mr.
Soufraki produced five certificates of citizenship and a declaration of the Italian
Foreign Affairs Minister that he was an Italian citizen, the Arbitral Tribunal was
still adamant in their decision that he could not claim for breaches under the Italy-
UAE BIT. They also rejected his argument that Italian officials are in the best
position to interpret their laws and the certificates and declarations were more
than satisfactory evidence of his nationality. In justifying their position, the
Tribunal ruled that, by leaving Italy for Canada in 1991, he had abandoned his
Italian citizenship under Italian law. The Tribunal was unimpressed by his
evidence and his assertions that he regained citizenship by subsequently living in
Italy.

20
Soufraki v. UAE, at 55 and 63
 2. Effective Nationality
International law, recognizing that it is difficult to specify the limits of state
competence to confer nationality, instead gives an indirect approach to this matter.
International law limits the ability of states and their nationals to project the legal rights
and consequences of nationality into the international arena.21 In the Nottebohm case,
the ICJ ruled that a national must evince a “genuine link” to his state of nationality. This
link denotes “a legal bond having as its basis a social fact of attachment, genuine
connection of existence, interests, and sentiments with the existence of reciprocal rights
and duties”.22

In the case of Nottebohm, the ICJ was faced with the question of whether
Liechtenstein could champion the case of Mr. Nottebohm, who was a national of both
Liechtenstein and Germany against Guatemala. Mr. Nottebohm had a long-standing
and close connection with Guatemala, but only a minor connection with Liechtenstein.
In that case, the ICJ ruled that his case could not be brought by Liechtenstein because
he did not have a sufficient connection with that country. The court found no sufficient
“bond attachment” between Nottebohm and Liechtenstein, since he had not been
“wedded to its traditions, its interest, its way of life” or assumed the obligations of
Liechtenstein citizenship.23 This case, according to the Iran-US Claims Tribunal showed
the recognition and approval of the ICJ to first search for the “real and effective
nationality” of a person based on the facts of the case, instead of employing a more
formalistic approach24.

However, regarding the case of Nottebohm and the application of the “genuine
link” theory in international arbitration cases, Schreuer stated that the doctrine of
genuine link would not overcome treaty provisions defining nationality based on the
legislation of the countries concerned.25

21
Sloane. Breaking the genuine link: The contemporary international legal regulation of nationality
22
Nottebohm, p. 23
23
Nottebohm, p.26
24
Iran and United States, Case No. A/18
25
Schreuer, Nationality of investors: Legitimate restrictions vs. business interests
TOPIC: Pre-Arbitral Steps
SIDE: Respondent
BACKGROUND FACTS
FDI 2016 Problem
Article 9 of the Agreement between the Republic of Oceania and the Republic of
Euroasia for the Promotion of Investments (“Euroasia BIT”), which provides for the
procedure for the settlement of disputes between the investors and the contracting
parties, states that:

1. Any dispute regarding an investment between an investor of one of the Contracting

Parties and the other Party, arising out of or relating to this Agreement, shall, to the
extent possible, be settled in an amicable consultations between the parties to the
dispute.

2. If the dispute cannot be settled amicably, it may be submitted to the competent judicial
or administrative courts of the Contracting Party in whose territory the investment is
made.

3. Where, after twenty four months from the date of the notice of the commencement of
proceedings before the courts mention in paragraph 2 above, the dispute between an
investor and one of the Contracting Parties has not been resolved, it may be referred to
international arbitration26.

In contravention to the provisions of the Euroasian BIT, Peter Explosive

(“Explosive” or “the Claimant”), instead of complying with the above-mentioned steps,
immediately submitted the case to international arbitration on 11 September 201527.

LOCAL REMEDIES RULE

A. Resort to v. Exhaustion of Local Remedies28
Resort to local remedies is not necessarily identical with exhaustion official
remedies. Exhaustion of local remedies implies that an investor must avail itself of all
accessible judicial and administrative remedies in the host State which are, in principle,

26
FDI Problem, C1, p. 43
27
FDI Problem, Request for Arbitration, p. 3
28
Kriebaum, Ursula. “Local remedies and the standards for the protection of foreign investment”. International
Investment Law for the 21st Century. pp.418-20
able to provide for redress of the claim. On the other hand, a resort to local remedies
does not necessarily imply a requirement to pursue all available remedies.
Reasonable resort to local remedies or at least an attempt to seek redress in
domestic courts – not necessarily exhaustion of local remedies – is a condition for the
violation of a substantive standard29.

B. Function of Local Remedies Rule30

Among the functions attributed to the local remedies rule are as follows:
1. To ensure respect for the sovereignty of States;
2. To provide a State with the opportunity to remedy the behavior of state
organs within its own legal system
3. To ensure that a deliberate act of the State as occurred;
4. To protect States against premature existence of diplomatic protection;
5. To protect States against abusive exercise of diplomatic protection; and
6. To limit the cases which can be brought before international organs.

C. Local Remedies Rule and the Most Favored Nation (“MFN”) Clause
A number of cases invoke MFN Clauses in order to avoid a procedural
requirement contained in the treaty’s dispute settlement provision prior to accessing
arbitration. While previously, the prevailing view was that which allows the investor to
bypass such procedural requirements31, there has been a shift which shows a growing
inclination on the part of tribunals to find that the local remedies principle are, in
principle, conditions that must be fulfilled before jurisdiction can technically be
established32.

D. Futility Defense

29
Jan de Nul NV and Dredging International NV v Egypt, 2006, ¶121; Generation Ukraine v Ukraine, 2003, ¶20.30 ,
20.33; Urusula Kriebaum, Local Remedies and Standards for Protection in INTERNATIONAL INVESTMENT LAW FOR
THE 21ST CENTURY, p. 418
30
Kriebaum, ibid., p.421
31
Maffezini v. Spain; Hochtief AG v. Argentina; Gas Natural SDG v. Argentina;
32
Plama v. Bulgaria; Telenor Mobile v. Hungary; Deborah Ruff & Trevor Tan, Local remedy first: ICSID and the Kilic
Decision
 The futility of local remedies is the defense often posed in not complying with the
local remedies rule33. While there is no consistent approach taken by tribunals in
determining whether the resort to local remedies would be “futile”, some have decided
to limit the scope of the futility defense by stating that the investor’s own substantive
perception of the futility or fairness of the host state’s local remedy structures cannot
alter the need to comply with the conditions set out in the state’s international arbitration
offer34.

33
Ruff & Tan, ibid
34
ICS Inspection and Control Services Ltd v Argentina; Ambiente Ufficio SpA and others v Argentina
 RELATED CASES
A. Maffezini v. Spain
1. Facts
Under the Argentina-Spain BIT, prior to resorting to arbitration, the
investor shall submit the dispute to the local courts for a period of 18
months. Mr. Maffezini, an Argentinian national, managed to avoid such
requirement by invoking the application of the Spain-Chile BIT through the
MFN clause contained in Article IV of the Spain-Argentina BIT. In contrast
with the latter, the former provided direct access to arbitration.
Article IV of the Spain-Argentina BIT provides that: “In all matters
subject to this Agreement, this treatment shall not be less favorable than
that extended by each Party to the Investments made in its territory by
investors of a third country.
2. Doctrine
The Tribunal ruled that the invoked MFN clause could be invoked to
bypass the pre-arbitral requirements. According to the Tribunal, both
substantive and procedural rights granted under BITs were essential
aspects of the protection of investors. They concluded that the dispute
settlement agreements are inextricably related to the protection of foreign
investors, as they are also related to the protection of rights of traders
under treaties of commerce. Therefore, the Tribunal regarded them not
merely as procedural devise but as arrangements designed to better
protect the rights of such persons abroad. It follows that such
arrangements, even if not strictly a part of the material aspect of the trade
and investment policy, were essential for the adequate protection of the
rights they sought to guarantee
B. Kilic v. Turkmenistan
1. Facts
Kilic, a Turkish construction company, entered into a number of
building contracts in 1994 with various government officials in
Turkmenistan. A number of issues arose in regard to each party's
 performance under the relevant contracts. Despite the investor's sending
of numerous letters to the government officials involved in an attempt to
resolve these issues, no suitable solution was found and, consequently,
Kilic filed an arbitration request with ICSID in December 2009.
In its initial decision on jurisdiction, the Tribunal upheld the
interpretation of Turkmenistan of Article VII.2 of the Turkey-Turkmenistan
BIT. In that decision, they held that prior submission of the dispute to
national courts is a condition precedent to the commencement of
international arbitration against them.
In light of this finding, the Tribunal then heard arguments from the
parties regarding the following issues:
(a) whether the local litigation requirement is a condition of
Turkmenistan's consent;
(b) whether the MFN clause of the BIT could be applied specifically
to Article VII.2 and dispute resolution matters; and
(c) whether recourse to the local courts would ultimately have been
futile.
2. Doctrine
(a) Local litigation requirement as a condition of consent
The Tribunal, applying Article 26 of the ICSID Convention35, ruled
that “the principle of imposing conditions to consent applies, a fortiori, to
agreed provisions which require something other than full ‘exhaustion of
local or administrative remedies’”. They found that the multi-layered,
sequential dispute resolution system in Article VII of the BIT was in
accordance with the provisions of Article 26. Therefore, they concluded
that the exercise of the right to arbitration is conditional upon having met
the requirements enumerated under Article VII. As such, the non-
fulfillment of these conditions went to the tribunal’s jurisdiction, on the

35
Article 26 of the ICSID provides that a contracting state “may require the exhaustion of local administrative or
judicial remedies as a condition of its consent to arbitration under this Convention”.
basis that the investor did not properly accept the state’s offer of
arbitration.

(b) MFN clause to bypass local litigation requirement

In ruling that the MFN clause may not be invoked by the Claimant
to bypass the local litigation requirement, the Tribunal distinguished
substantive rights in relation to investments and remedial procedures in
relation to those rights, with Article VII.2 falling into the latter category.
According to the Tribunal, the treatment of investments for which MFN
rights were granted clearly only refer to the substantive rights identified, as
opposed to the procedural rights wherein Article VII.2 is included. Further,
they found that, if they allow Kilic to bypass the local litigation requirement,
such decision would be contrary to the principle of effectiveness of
provisions. The absence of a “local courts” requirement would mean that
the jurisdictional preconditions in the BIT would be rendered obsolete, as
the claimants could use the MFN clause argument to circumvent such
requirements and obtain jurisdiction of an international tribunal without
recourse to local courts.
(c) Futility of local courts recourse
As for Kilic’s argument that such recourse to the local courts would
have proved futile, the Tribunal noted that Kilic provided no evidence to
prove their assertions that resort to local courts would be futile. The
Tribunal held the burden of proving such futility would fall on the shoulders
of the investor-claimant. Likewise, they also held that evidence that such
recourse was unavailable or futile should have been submitted. It was
insufficient for the claimant to adduce third-party studies or reports
attesting to the generalized failings of Turkmen institutions – “probative”
evidence was required. In failing to tender any evidence to support their
assertion, and simply relying on their own submissions, the Tribunal ruled
that Kilic failed to establish that resorting to local courts would prove futile.
 PROPOSED ARGUMENTS
I. Failure to even resort to local remedies
Despite knowledge of the contents of the Euroasia BIT, and in contravention
thereof, the Claimant directly submitted a request for international arbitration, without
first complying with the requirements under Article 9 – particularly, paragraphs 1-3
thereof. Such failure on the part of the Claimant to even resort to local remedies is
detrimental to his case.

II. Language of the BIT

The mandatory nature of the language of Article 9(1) of the Euroasia BIT is clear:
1. Any dispute regarding an investment between an investor of one of the
Contracting Parties and the other Party, arising out of or relating to this
Agreement, shall, to the extent possible, be settled in an amicable consultations
between the parties to the dispute (Emphasis provided)

The use of the mandatory word “shall” contemplates that an attempt at amicable
settlement through prior consultations is a condition before one may submit his case to
judicial or administrative courts and, later on, international arbitration

Article 31 of the Vienna Convention on the Law of Treaties (“VCLT”) provides

that: “a treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and
purpose”. The mandatory nature of the Article cited is clear from the express language
of the treaty.

III. Contrary interpretation would render provision ineffective

A contrary interpretation would render the provisions of Article 9(1) and (2)
ineffective. Such interpretation would violate the established international law principle
of effectiveness, as expressed by the maxim “ut res magis valeat quam pareat36”, which

36
“It is better for a thing to have effect than to be made void”
warns that an interpreter should not adopt a reading that would result in reducing
clauses or paragraphs of a treaty to redundancy or inutility37.

IV. Failure to prove futility (Rebuttal)

Should the Claimant assert that resort to the domestic courts of the Respondent
would have been a futile, such argument should fail as they did not provide evidence
showing such fact. The investor’s own substantive perception of the futility or fairness of
the host state’s local remedy structures cannot alter the need to comply with the
conditions set out in the state’s international arbitration offer38.

37
Kilic v Turkmenistan, 2014,¶7.4.4; Appellate Body Report on United States – Standards for Reformulated and
Conventional Gasoline, WT/DS2/AB/R, adopted 29 April 1996, p.23; Malgosia Fitzmaurice & Panos Merkouris,
Canons of Treaty Interpretation: Selected Case Studies From The World Trade Organization and The North
American Free Trade Agreement in TREATY INTERPRETATION AND THE VIENNA CONVENTION ON THE LAW OF
TREATIES: 30 YEARS ON, Martinus Nijhoff (2010) Publishers, p. 179.
38
ICS Inspection and Control Services Ltd v Argentina; Ambiente Ufficio SpA and others v Argentina
TOPIC: Clean Hands
SIDE: Respondent
BACKGROUND FACTS
FDI 2016 Problem
On November 1997, Rocket Bombs Ltd (“Rocket Bombs”) lost its environmental
license, which contained an approval for arms production. This was the reason behind
the deteriorating situation of the company39.

The following year, on February 1998, Peter Explosive (“Claimant” or

“Explosive”), an Eastasian national at the time, acquired shared in the company and
became its 100% shareholder40. He also became the president and sole member of the
board of directors of the company41.

To gain the necessary financial resources, it was necessary for the company to
resume production as soon as possible and generate the income necessary to cover
the initial expenses. He turned to the Ministry of Environment of Oceania with a request
for a subsidy for the purchase of the environmentally-friendly technology. While the
Environmental Act of 1996 provided for such possibility, as the threshold was very high,
not a single entity had succeeded in receiving such subsidy42.

Sometime in July 1998, the Claimant managed to have a private meeting with the
President of the National Environmental Authority of Oceania. Later that month, on 23
July 1998, he was able to obtain an environmental license from the National
Environment Authority of Oceania, which allowed for the commencement of arms
production at Rocket Bombs43.

On 3 August 1998, the Ministry of Environment of Oceania denied Rocket

Bomb’s request for subsidy. This meant that the company lacked the resources to
resume arms production. As a result, the Claimant decided to search for the necessary

39
FDI Problem, Statement of Uncontested Facts, p.32
40
ibid; FDI Problem, Request for Arbitration, p.4
41
FDI Problem, Statement of Uncontested Facts, p.32
42
ibid, p.33
43
ibid
financial resources elsewhere44. He was able to secure a contract with the Ministry of
National Defense of Euroasia, through his long-time friend, John Defenceless on 23
December 199845.

In 2013, the General Prosecutor’s Office of Oceania conducted an investigation

regarding corruption in the National Environmental Authority of Oceania. This was
caused by an anonymous denunciation alleging that the officials of the agency
suggested to the anonymous denunciator that it would be possible to expedite the
issuance of an environmental license if they received a pecuniary gratification. Later on,
the General Prosecutor’s Office formally initiated criminal proceedings against those
officials, including the President of the National Environment Authority. On 1 February
2015, the President of the National Environmental Authority, along with other officials,
was convicted of accepting bribes46. The President of the National Environment
Authority named Explosive as one of those persons whom he allegedly received bribes
from and against whom he is willing to testify. The General Prosecutor’s Office of
Oceania concluded a non-prosecution agreement with him with respect to bribes he
may have received from such persons47.

On 5 May 2015, the Claimant was informed that he was under investigation with
regard to the environmental license he obtained on 23 July 1998. On 23 June 2015, the
General Prosecutor’s Office officially initiated criminal proceedings against Explosive 48.
Such criminal action against him remains pending49.

Curiously, Rocket Bombs was only able to fully comply with the legal
requirements set forth in the Environmental Act of 1996 of Oceania on 1 January
201650. This fact is peculiar because to obtain an environmental license approving the
commencement of arms production, an arms producer must provide the National

44
ibid
45
FDI Problem, Request for Arbitration, p.4
46
FDI Problem, Statement of Uncontested Facts, p.36
47
FDI Problem, Procedural Order (“PO”) No.2, ¶5
48
FDI Problem, Statement of Uncontested Facts, p.36
49
FDI Problem, PO No.2, ¶5
50
FDI Problem, Statement of Uncontested Facts, p.34
Environmental Authority evidence that its production line complies with the
environmental license set forth in the Environmental Act of 199651.

CLEAN HANDS DOCTRINE

A. Clean Hands Doctrine
The Doctrine of Clean Hands provides that an investor cannot seek to benefit
from an investment which had been tainted with illegality52. Under this doctrine, the
Tribunal can deny relief to a claimant whose “conduct in regard to the subject matter of
litigation has been improper”. Likewise, they should “refuse refuse to aid a complaint in
protecting any right acquired or retained by inequitable conduct”53.

Consequently, as a result of their illegal conduct, the investor cannot enjoy the
protections granted by the host state under the BIT, such as access to international
arbitration, because of the legal maxim or “"nobody can benefit from his own fraud"54.

Among the maxims that embody this doctrine are “ex turpi causa non oritur
action55” and “nemo auditor turpitudinem allegans56”. These may be used as defenses
by the respondent-state against the investor-claimant, as was done in the cases of
World Duty Free and Plama Consortium. In World Duty Free, the Tribunal ruled that the
ex turpi causa rule barred the claimant therein to maintain any of its pleaded claims in
the proceedings57. They explained that this is based on a principle of public policy that
“the courts will not assist a plaintiff who has been guilty of illegal (or immoral)
conduct”58. In Plama Consortium, which concerned the Energy Charter Treaty (“ECT”),
the Tribunal stated the following:

51
FDI Problem, PO No.2, ¶1
52
Inceysa Vallisoletana, S.L. v. Republic of El Salvador, 2004, ¶242 ; World Duty Free v. Kenya, 2000, ¶161; Plama
Consortium Ltd v. Bulgaria, 2005, ¶143; Richard Kreindler, Corruption in International Investment Arbitration:
Jurisdiction and Unclean Hands Doctrine, BETWEEN EAST AND WEST: ESSAYS IN HONOUR OF ULF FRANKE, p.316
53
Kreindler, Corruption in international investment arbitration
54
Inceysa Vallisoletana, S.L. v. Republic of El Salvador, 2004, ¶242
55
Literally, “an action cannot arise from a dishonorable cause”
56
Literally, “no one shall be heard, who invokes his own guilt” or “no one can be heard to invoke his own
turpitude”
57
World Duty Free v. Kenya, ¶ 179
58
ibid, ¶143
 The Tribunal is of the view that the granting of ECT protections to the Claimant’s
investment would be contrary to the principle of nemo auditor propriam turpitudinem
allegans. It would also be contrary to the basic notion of international public policy – that
a contract obtained by wrongful means (fraudulent misrepresentation) should not be
enforced by a tribunal59.

Aside from the maxim of ex turpi causa and nemo auditor maxims, maxims which
derive from or are related to the doctrine are as follows60:
a. "Ex dolo malo non oritur actio" (an action does not arise from fraud).
b. "Malitiis nos est indulgendum" (there must be no indulgence for malicious
conduct).
c. "Dolos suus neminem relevat" (no one is exonerated from his own fraud).
d. "In universum autum haec in ea re regula sequenda est, ut dolos omnimodo
puniatur" (in general, the rule must be that fraud shall be always punished).
e. "Unusquique doli sui poenam sufferat" (each person must bear the penalty for
his fraud).
f. "Nemini dolos suusprodesse debet" (nobody must profit from his own fraud).
1. As a general principle of public international law
Article 38(1) of the Statute of the International Court of Justice (“ICJ
Statutes”) lists the following as sources of international law:
a. international conventions, whether general or particular, establishing rules
expressly recognized by the contesting states;
b. international custom, as evidence of a general practice accepted as law;
c. the general principles of law recognized by civilized nations; and
d. subject to the provisions of Article 59, judicial decisions and the teachings
of the most highly qualified publicists of the various nations, as subsidiary
means for the determination of rules of law.
International courts and tribunals have always borrowed concepts from
domestic law if they can be applied to relations between states, and by this
means have developed international law by filling gaps and strengthening weak

59
Plama Consortium Ltd v. Bulgaria ¶ 143
60
Inceysa Vallisoletana, S.L. v. Republic of El Salvador, 2004, ¶ 240
 points61. Similar to this, Kreindler explained, in relation to Article 38(1)(c) of the
ICJ Statute, that these general principles of law are those encountered in the
“domestic legal orders of the individual members of the international community
and which are applied in order to fill gaps in the law of nations”62.
The wide adoption of the clean hands doctrine and its related principles
could justify its treating it as a “general principle of law recognized by civilized
nations”, as cited in the quoted provision above 63.
2. Bribery / Corruption
In World Duty Free, the Tribunal found bribery to be contrary to the
international public policy of most, if not all, States or to transnational public
policy. As such, claims based on contracts of corruption or contracts obtained by
corruption cannot be upheld64. The fact that corruption or bribery is either
widespread or a common practice in a certain states do not, in any way, alter the
legal consequences of such unlawful acts. Even if corruption was a common
practice in that particular state, the practice should not be condoned by the
Tribunals65.
a. Quantum of proof and evidence required
At present, there is no single approach for determining the standard
of proof that should be applied to prove allegations of corruption.
However, the most popular approaches are the following:
i. A higher standards of proof, such as, “clear and convincing
evidence” “more likely than not” or even “beyond reasonable
doubt”;
ii. The usual standard (i.e., “preponderance of evidence” or “balance
of probabilities”) was found to be appropriate in some cases;

61
Aust, Handbook of international law
62
Kreindler, p. 317
63
ibid, p.318
64
World Duty Free v. Kenya ¶157
65
ibid, ¶156
 iii. A lower standard of proof, like ruling on the existence of corruption
on the basis of indirect or circumstantial evidence was also
sometimes favored by arbitrators66.
The use for the higher standard of proof was used in Dadras v. Iran
wherein, in view of the standard required in American and English law, the
requirement of heightened proof in relation to allegation of fraudulent
behavior was used67. However, it is undoubtedly questionable to use the
standards of proof that are used in criminal proceedings for international
arbitration, especially taking into consideration the context for the
requirement. In criminal cases, the higher standard (i.e., “proof beyond
reasonable doubt”, etc.) is required because there is a chance that the
party may suffer a deprivation of liberty and be sent to imprisonment. In
arbitration proceedings, arbitrators do not have the power to send any of
the parties or their representatives to jail, therefore, there is no need for
the application of such higher standard of proof68.
The lower standard of proof was used in the case of Oostergetel &
Laurentius v Slovak Republic. The Tribunal reasoned that while it is
generally difficult to bring positive proof of corruption, it may also be
proven by circumstantial evidence69. In Metal-tech, the Tribunal, citing
both Oostergetel and World Duty Free, added that it will determine on the
basis of the evidence presented before it whether corruption was
established with reasonable certainty70.

B. Breach of domestic laws

Many investment treaties provide that they cover investments made “in
accordance with the laws” of the host state. Such provision may be found along with the
definition of investment itself, or it may also be found in other parts of the treaty.

66
Vladimir Khvalei, Standards of proof for allegations of corruption, p.60
67
Dadras v. Iran, ¶123
68
Vladimir Khvalei, Standards of proof for allegations of corruption, p.64
69
Oostergetel & Laurentius v The Slovak Republic, 2012, ¶303
70
Metal-tech v. Uzbekistan, 2013, ¶243
 The rationale for this provision is that the investment treaty creates obligations for
the host state. The host state, in turn, may limit the right of the investors to invoke the
dispute settlement clause of a treaty in case an investor violates their laws. By placing
the provision “in accordance with law” in the treaty, it may be understood to imply that
investments made in violation of the national laws are not covered by the treaty and,
consequently, the benefits derived therein. These laws relate not only to the laws n
admission and establishment, but also to other rules of the domestic legal order,
including those relating to corruption71.
To allow an investor to benefit from an investment made in violation of the rules
of the state would be a serious failure of justice. In relation to this, the Tribunal in
Inceysa stated that: “no legal system based on rational grounds allows the party that
committed a chain of illegal acts to benefit from them”72.
1. Provision on conformity of investment
Even if the treaty does not explicitly provide that it should be made in
accordance with the laws of the host state, such requirement is implied. This is
because an investment treaty cannot be read and interpreted in isolation from public
international law and its general principles. In Phoenix Action, the Tribunal gave the
following by way of example:
… To take an extreme example, nobody would suggest that ICSID protection should be
granted to investments made in violation of the most fundamental rules of protection of
human rights, like investments made in pursuance of torture or genocide or in support of
slavery or trafficking of human organs73.
However, a contrary view was give in the case of Saba Fakes, wherein the
Tribunal disapproved of the implication of a requirement of legality into the definition
of “investment” under the ICSID Convention, or an investment treaty without an “in
accordance with host state law” clause74.

71
Rudolf Dolzer & Christoph Schreur, Principles of International Investment Law, p.85
72
Inceysa Vallisoletana, S.L. v. Republic of El Salvador, 2004, ¶ 242
73
Phoenix Action Ltd v. Czech Republic, ¶778
74
Saba Fakes v. Republic of Turkey ¶112-4
 RELATED CASES
A. Inceysa Vallisoletana, S.L. v. Republic of El Salvador
3. Facts
Following the decision of El Salvador's Ministry of the Environment
and Natural Resources not to proceed with a concession contract for the
operation of vehicle inspection services previously awarded to Inceysa,
the investor commenced arbitration proceedings. According to them, El
Salvador not only breached the concession contract, but also their
national investment law and the 1995 bilateral investment treaty between
Spain and El Salvador.
El Salvador claimed that the investment of Inceysa was made
through fraud and misrepresentation. In particular, they discovered that
Inceysa submitted false financial documents, misrepresented its
qualifications, and concealed its relationship with another bidder. As a
result, El Salvador prayed that the Tribunal find that it lacked jurisdiction to
hear the case.
4. Doctrine
The Tribunal sided with El Salvador and ruled that it lacked
jurisdiction to hear the case due to Inceysa unlawful and fraudulent
conduct in securing their investment. They further declared that
international policy bars parties from benefitting from their own fraud.
B. World Duty Free v. Kenya
1. Facts
The investor, World Duty Free, initiated ICSID arbitration against
Kenya pursuant to a contract to run duty-free operations in Kenya's
international airports. The investor, during the proceedings, admitted to
paying a “donation” to the former President of Kenya amounting to two
million US dollars to secure the contract.
2. Doctrine
The contact of the investor was set aside and the investor’s claim
was dismissed due to the bribery that was used to secure the contract.
The claimant was not legally entitled to maintain any of its pleaded claims
on the ground of the the maxim ex turpi non oritur action, which rests on
the public policy principle that courts will not assist a plaintiff who has
been guilty of illegal (or immoral) conduct.
 PROPOSED ARGUMENTS
I. Not in accordance with law
The facts of the case cast a shadow of doubt over the legality of the investment
made by the Claimant. In particular, there is a strong suspicion that the Claimant
obtained his license through bribing the President of the National Environmental
Authority of Oceania. Further, the company of the Claimant was already engaging in
arms production without first complying with the environmental license set forth in the
Environmental Act of 1996.
A. Bribery charges
The following series of events, if taken together, clearly indicate that the
Claimant made use of bribery:
a. In order to resume arms production, Rocket Bombs was obliged to secure
a license from the National Environmental Authority of Oceania;
b. The procedure to obtain an environmental decision for the issuance of the
environmental license from the National Environmental Authority of
Oceania was notorious for being very long and time-consuming. In spite of
this, within the same month following his meeting with the President of the
National Environmental Authority of Oceania, he was able to secure the
said license;
c. The President of the National Environmental Authority of Oceania was
later convicted of accepting bribes. The Claimant was included among
those persons named by the President from whom he received bribes. He
also stated that he was willing to testify against those persons whom he
received bribes from, which included the Claimant. A few months after his
conviction, the General Prosecutor’s Office officially initiated criminal
proceedings against the Claimant.
As allegations of corruption and bribery may be proven by circumstantial
evidence75, the Respondent submits that the above-mentioned circumstances, if
taken together, would lead one to the reasonable belief that the Claimant was able
to secure the license through bribery.

75
Oostergetel & Laurentius v The Slovak Republic, 2012, ¶303; Metal-tech v. Uzbekistan, 2013, ¶243
 B. Acquisition of environmental license
Among the conditions before a company may be able to obtain an
environmental license is that it the production line must first comply with the
environmental requirements set forth in the Environmental Act of 1996. Curiously,
even thought the Claimant was able to secure an environmental license for his
company on 23 July 1998, the Uncontested Facts provide that Rocket Bombs was
only able to fully comply with the legal requirements set forth in the Environmental
Act of 1996 of Oceania on 1 January 2016. This is further evidence that the
investment of the Claimant was not made in accordance with law and, therefore, is
not entitled to any of the protections provided under the BIT.

II. Violation of clean hands doctrine

An investor cannot, after commit an unlawful act such as bribery, later on benefit
from such illegal act – this rule is set forth in the doctrine of clean hands. Under this
doctrine, the Tribunal can deny relief to a claimant whose “conduct in regard to the
subject matter of litigation has been improper”. Likewise, they should “refuse refuse to
aid a complaint in protecting any right acquired or retained by inequitable conduct”.
In this case, as the Claimant made use bribery to be able to obtain an
environmental license, pursuant to the doctrine of clean hands, the Tribunal should
deny his claims and refuse to give him aid.
TOPIC: Expropriation
SIDE: Respondent
BACKGROUND FACTS
FDI 2016 Problem
After the annexation of Fairyland with Euroasia, the international community was
divided into two factions – one faction was found the annexation to be in accord with
international law, while another found it to be illegal. Oceania was included in the latter
category76.

In light of the illegal annexation, on 1 May 2014, the President of the Republic of
Oceania issued an Executive Order on Blocking Property of Persons Contributing to the
Situation in the Republic of Eastasia (“Executive Order”) 77. The Executive Order
introduced a system of sanctions. The sanctions were introduced against the persons
engaged in certain sectors of the Euroasian economy, including those producing arms
for Euroasia. The sanctions also included a ban on business operations with such
persons, and provides for the suspension of existing contracts and making future
contracts with them illegal78.

Section 1 of the Executive Order enumerates those entities who would be

affected by it, viz:

(a) All property and interests in property that are in the Republic of Oceania that are or hereafter
come within the possession or control of any person (including any foreign branch) of the
following persons are blocked and may not be transferred, paid, exported, withdrawn, or
otherwise dealt in:

(i) persons operating in such sectors of the Euroasian economy such as financial
services, energy, metals and mining, engineering, and defense, in particular arms
production services, and related materiel;

(ii) persons having materially assisted, sponsored, or provided financial, material, or

technological support for, or goods or services to or in support of, any person whose
property and interests in property are blocked pursuant to this order; or

76
FDI Problem, Statement of Uncontested Facts, ¶16
77
ibid
78
ibid
 (iii) persons being owned or controlled by, or to have acted or purported to act for or on
behalf of, directly or indirectly, any person whose property and interests in property are
blocked pursuant to this order.

(b) The prohibitions in subsection (a) of Section 1 shall be understood to extend to the prohibition
to engage professionally in any way with the blocked person. By the power of this Executive
Order, any contract concluded with the blocked person is declared to be no longer effective and
any contracting party of the blocked persons is released from its contractual obligations towards
the latter. Any person who engages in the business dealings with the blocked person, even in the
unrelated matter, will be automatically treated as such a blocked person 79.

Sanctions were imposed on Rocket Bombs Ltd (“Rocket Bombs”) and the
Claimant, Peter Explosive. As such, he was unable to sell his shares in Rocket Bombs
Ltd. Furthermore, the value of shares was reduced almost to zero. Simultaneously, all
the Oceanian companies that contracted with Rocket Bombs issued formal notices,
declaring that, pursuant to the Executive Order, they were no longer bound by the
provisions of the respective contracts and they had no intention to perform them 80.

EXPROPRIATION
A. Expropriation
Foreign investment treaties often contain guarantees against expropriation of
foreign investments without payment of compensation. This guarantee is intended to
remove the fear of what investors perceive to be the greatest threat to their
investment81.
In general, the term expropriation carries with it the connotation of a “taking” by a
governmental-type authority of a person’s “property” with a view to transferring
ownership of that property to another person, usually the authority that exercised its de
jure or de facto power to do the “taking” 82.
1. Direct Expropriation

79
FDI Problem, C2, p.52
80
FDI Problem, Statement of Uncontested Facts, ¶17
81
Sornarajah, The international law on foreign investment, p.99
82
S.D. Myers Inc. v Government of Canada, ¶ 280
 Direct expropriation or direct takings constitute taking of property that
result from legislative or administrative acts that transfer title and physical
possession83
2. Indirect Expropriation
Indirect expropriation or indirect takings result from official acts that
effectuate the loss of management, use or control, or a significant depreciation in
the value of the assets84. Such expropriation does not necessarily involve an
overt act of taking, but an act which effectively neutralizes the enjoyment of the
property85. In the Metalclad case, the expansive scope of indirect expropriation
was discussed. In particular, they explained that it includes the following:
[the] covert or incidental interference with the use of property which has the effect
of depriving the owner, in whole or significant part, of the use or reasonably to be
expected economic benefit of property even if not necessarily to the obvious
benefit of the host state86.
Indirect expropriation may take on different names such as “disguised
expropriation”, meaning that they are not immediately recognizable as
expropriations, or “creeping expropriations”, which describes the slow strain it
inflicts upon the foreign investor, or “constructive taking”87.
3. Requisites
Expropriation is generally allowable so long as the taking is made
according to the following criteria:
a. For a public purpose;
b. In a non-discriminatory manner;
c. In accordance with due process of law; and
d. Payment of compensation.
However, even before analyzing the lawfulness of the expropriation (i.e.,
whether the above conditions are met), the Tribunal should first answer the

83
UNCTAD, Taking of Property, UNCTAD series on issues in international investment agreements
(UNCTAD/ITE/IIT/15), UN, 2000, pp. 3-4
84
UNCTAD, Taking of Property, UNCTAD series on issues in international investment agreements, 2000, pp. 3-4
85
Lauder v. Czech Republic, 2001,
86
Metalclad Corporation v United Mexican States, 2002, ¶103
87
Sornarajah, p. 368
 question whether expropriation actually occurred. Only after it concluded that
taking has indeed taken place can it proceed to examine the presence of the
above conditions88.
a. For public purpose – The taking must be motivated by the pursuance of a
legitimate welfare object, as opposed to a purely private or illicit end 89.
However, mere allegations of “public interest” would not suffice, as the
genuine interest of the public is required90. For the most part, international
law has traditionally left it to the State to decide for itself what it considers
as useful or necessary for the public good. In fact, a wide margin of
appreciation is given to national authorities as to the existence of a public
concern warranting measures that result in a dispossession91.
b. Non-discriminatory manner – Treaties contain that the expropriation
should be taken “on a non-discriminatory basis”, “in a non-discriminatory
manner”, or “without discrimination”. Tribunals find that this requirement is
violated when a State has discriminated against foreign nationals on the
basis of their nationality92.
c. Due process of law – To be satisfied, the following requisites must be met:
i. the expropriation must comply with the procedures established in
domestic legislation and fundamental internationally recognized
rules in this regard; and
ii. that the affected investor is provided with an opportunity to have the
case reviewed before an independent and impartial body. This is
otherwise known as the right to have an independent review 93.
In ruling that the requisite of due process was lacking, the Tribunal
in ADC v. Hungary stated the following in relation to that requisite:
…‘due process of law’, in the expropriation context, demands an
actual and substantive legal procedure for a foreign investor to

88
UNCTAD, Expropriation, UNCTAD series on issues in international investment agreements II, 2012, p. 27
89
UNCTAD, Expropriation, UNCTAD series on issues in international investment agreements II, 2012, p. 28-9
90
ADC v. Hungary, 2006, ¶432
91
ibid, pp. 31-2
92
ibid, p. 34
93
ibid, p.36
 raise its claims against the depriving actions already taken or about
to be taken against it. Some basic legal mechanisms, such as
reasonable advance notice, a fair hearing and an unbiased and
impartial adjudicator to assess the actions in dispute, are
expected to be readily available and accessible to the investor to
make such legal procedure meaningful. In general, the legal
procedure must be of a nature to grant an affected investor a
reasonable chance within a reasonable time to claim its
legitimate rights and have its claims heard. If no legal procedure
of such nature exists at all, the argument that ‘the actions are taken
under due process of law’ rings hollow94. (Emphasis supplied)
However, the requirement on prior notice is not a well-established
rule. Such prior notice is not necessarily a fixed requirement, especially in
circumstances wherein there is an imminent necessity or emergency. The
requirement of due process should be deemed fulfilled if the alleged
expropriation was made in accordance with international domestic law, in
a non-arbitrary manner, and with the opportunity for the investor to have
the measure reviewed95.
d. Compensation – In deciding what constitutes adequate compensation,
treaties often refer to the investment’s fair market value. Flexibility is
generally given to Tribunals in evaluating the amount to be given for
compensation96.
Identifying whether the taking involved constitutes expropriation or
a regulatory action becomes more important due to the fact that the former
requires compensation while the latter, generally, does not. The
explanation for the non-necessity of compensation when it comes to
regulatory actions is clear: compensation will negate the punitive purpose
behind such takings97.

94
ADC v. Hungary, 2006, ¶435
95
UNCTAD, Expropriation, UNCTAD series on issues in international investment agreements II, 2012, p.40
96
ibid, p.44
97
UNCTAD, Taking of Property, UNCTAD series on issues in international investment agreements, 2000, p.14
B. Expropriation v. Regulatory Measures
Before requiring the state to pay compensation for the taking, it must first be
identified whether the taking may be described as a regulatory measure, for which no
compensation needs to be paid. It is an established rule that interference on the basis of
a legislation creating a valid regulatory measure does not constitute a compensable
taking in situations wherein public harm has already resulted or is anticipated98.
Sornarajah explained that to require the state to pay compensation would be
tantamount to rewarding the wrongdoer or to “recognize an absence of overwhelming
public interest in the use of property” 99. The category of regulatory “expropriations”
which are, as a rule, non-compensable, was made definite by the Tribunal in Methanex:
A non-discriminatory regulation for a public purpose, which is enacted in accordance
with due process, and which affects, inter alios, a foreign investor or investment, is not
deemed expropriatory and compensable unless specific commitments had been given
by the regulating government to refrain from such regulation100.
Stated differently, states are not liable to pay compensation to a foreign investor
when, in the normal exercise of their regulatory powers, they adopt in a non-
discriminatory manner bona fide regulations that are aimed at the general welfare101.
The right of States to engage in regulatory activity, which should not be
undermined or restricted by investment treaties, is widely recognized in state practice,
arbitral awards, and academic literature. Such regulatory conduct carries with it a
presumption of validity. Therefore, foreign assets and their use may be subjected to
taxation, trade restrictions involving licenses and quotes, or measures of devaluation.
As a general rule, such measures are not unlawful; it does not constitute
expropriation102.
C. Countermeasures*
The Articles on Responsibility of States for Internationally Wrongful Acts
(“Articles on State Responsibility”) provides that:

98
Sornarajah, p. 374
99
ibid
100
Methanex v USA, Part IV, ¶7
101
Saluka Investments v. Czech Republic, 2006, ¶255
102
Ian Brownlie, Principles of Public International Law, p.535
 [t]he wrongfulness of an act of a State not in conformity with an international obligation
towards another State is precluded if and to the extent that the act constitutes a
countermeasure taken against the latter State in accordance with Chapter II of part three103.
A countermeasure is defined as an “injurious and otherwise internationally illegal
acts of a State against another as are exceptionally permitted for the purpose of
compelling the latter to consent to a satisfactory settlement of a difference created by its
own international delinquency”104. Under this measure, an act of reprisal can be
performed against anything and everything that belongs or is due to the delinquent
State and its citizens105.
However, Crawford warns that a mere assertion or belief that an act is unlawful is
insufficient – that is, the conduct must actually be unlawful for a countermeasure to be
valid106.
Chapter II of Part Three of the Articles on State Responsibility enumerates the
rules on countermeasures107.

103
State Responsibility for Internationally Wrongful Acts, Art. 22
104
Oppenheim, International Law
105
Oppenheim
106
James Crawford, Counter-measures as interim measures, p. 66
107
Article 49 : Object and limits of countermeasures
1. An injured State may only take countermeasures against a State which is responsible for an
internationally wrongful act in order to induce that State to comply with its obligations under part two.
2. Countermeasures are limited to the non-performance for the time being of international obligations of
the State taking the measures towards the responsible State.
3. Countermeasures shall, as far as possible, be taken in such a way as to permit the resumption of
performance of the obligations in question.
Article 50: Obligations not affected by countermeasures
1. Countermeasures shall not affect:
(a) the obligation to refrain from the threat or use of force as embodied in the Charter of the
United Nations;
(b) obligations for the protection of fundamental human rights;
(c) obligations of a humanitarian character prohibiting reprisals;
(d) other obligations under peremptory norms of general international law.
2. A State taking countermeasures is not relieved from fulfilling its obligations:
(a) under any dispute settlement procedure applicable between it and the responsible State;
(b) to respect the inviolability of diplomatic or consular agents, premises, archives and documents.
Article 51: Proportionality
Countermeasures must be commensurate with the injury suffered, taking into account the gravity of the
internationally wrongful act and the rights in question.
Article 52 :Conditions relating to resort to countermeasures
1. Before taking countermeasures, an injured State shall:
(a) call upon the responsible State, in accordance with article 43, to fulfil its obligations under
part two;
 1. Countermeasures by non-injured states*
The aforementioned Articles on State Responsibility likewise allows non-injured
states to enact countermeasures against states who commit an internationally
wrongful act, such as the unlawful use of force or illegal annexation:
[t]his chapter does not prejudice the right of any State, entitled under article 48,
paragraph 1, to invoke responsibility of another State to take lawful measures
against that State to ensure cessation of the breach and reparation in the interest
of the injured State or the beneficiaries of the obligation breached.
In relation to the article above, Article 48 of the Articles on State Responsibility
provides for provisions for the invocation of responsibility by a State other than an
injured State. In particular, it provides that even a non-injured state may invoke the
responsibility of another state in relation with the latter’s internationally wrongful act if
either: (a) the obligation breached is owed to a group of States including that State,
and is established for the protection of a collective interest of the group; or (b) the
obligation breached is owed to the international community as a whole. These states
are recognized as having a legal interest in compliance.
The collective measure against Argentina in 1982 in response to its taking of
control over a part of the Falkland Islands is an example of this countermeasure.
After the Security Council called for Argentina’s immediate withdrawal, and after the
United Kingdom made a request to the international community, a number of nations

(b) notify the responsible State of any decision to take countermeasures and offer to negotiate
with that State.
2. Notwithstanding paragraph 1 (b), the injured State may take such urgent countermeasures as are
necessary to preserve its rights.
3. Countermeasures may not be taken, and if already taken must be suspended without undue delay if:
(a) the internationally wrongful act has ceased; and
(b) the dispute is pending before a court or tribunal which has the authority to make decisions
binding on the parties.
4. Paragraph 3 does not apply if the responsible State fails to implement the dispute settlement
procedures in good faith.
Article 53: Termination of countermeasures
Countermeasures shall be terminated as soon as the responsible State has complied with its obligations
under part two in relation to the internationally wrongful act.
Article 54 : Measures taken by States other than an injured State
This chapter does not prejudice the right of any State, entitled under article 48, paragraph 1, to invoke the
responsibility of another State, to take lawful measures against that State to ensure cessation of the
breach and reparation in the interest of the injured State or of the beneficiaries of the obligation
breached.
 adopted train sanctions against Argentina, which included a temporary prohibition on
all imports of Argentine products108.
However, the ICJ warned that such measure is permissible only when there is (a)
a State injured by the breach in question and (b) other States have acted at the
request or on the behalf of that state. It should be noted that a request by the injured
state is required109. Stated more clearly by the ICJ:
At all events, the Court finds that in customary international law, whether of a general
kind or that particular to the inter-American legal system, there is no rule permitting the
exercise of collective self-defence in the absence of a request by the State which
regards itself as the victim of an armed attack. The Court concludes that the requirement
of a request by the State which is the victim of the alleged attack is additional to the
requirement that such a State should have declared itself to have been attacked110.

108
ILC, Commentaries on Draft Articles on State Responsibility, p.335
109
ibid
110
Nicaragua v. USA, ¶199
 PROPOSED ARGUMENTS
I. Not expropriation, but a non-compensable regulatory measure
The alleged “taking” of the investments of Claimant by the Respondent does not
amount to expropriation. Rather, it constitutes a non-compensable regulatory measure
within the competence of the state to enact. The right of the state to enact regulatory
measures is already well-recognized in international law and rulings by Tribunals. The
only condition for this to be considered valid is that should be (a) non-discriminatory, (b)
enacted in accordance with due process, and (c) that it is aimed at the general
welfare111.
A. It was non-discriminatory
The Executive Order of the President of Oceania is non-discriminatory as
it does not single out Claimant or any particular nationality in providing for a
sanction.
B. Claimant cannot invoke lack of due process
Claimant cannot invoke lack of due process as he did not even attempt to
resort to the domestic courts. When lack of denial of justice due to lack of due
process is invoked, there should be at least a resort to – if not total exhaustion of
– local remedies. This is because the local courts should be given the chance to
review its regulations and reverse them, if found necessary.
C. It constitutes a valid countermeasure against the illegal annexation of
Fairyland
The Articles on State Responsibility provides in Article 54 thereof that
even the non-injured states may validly enact countermeasures against states
who committed an internationally wrongful act.
In this case, Euroasia, through its unlawful annexation with Fairyland, violated
the following principles of international law: (a) principle of non-intervention and (b)
violation of the use of force. As a result, under Article 54 of the Articles on State
Responsibility, the Respondent has the right to impose countermeasures against
investors who may aid Euroasia in the furtherance of their illegal acts.

111
Methanex v USA, Part IV, ¶7; Saluka Investments v. Czech Republic, 2006, ¶255
TOPIC: Remedies
SIDE: Respondent
BACKGROUND FACTS
FDI 2016 Problem
After the annexation of Fairyland with Euroasia, the international community was
divided into two factions – one faction was found the annexation to be in accord with
international law, while another found it to be illegal. Oceania was included in the latter
category112.

In light of the illegal annexation, on 1 May 2014, the President of the Republic of
Oceania issued an Executive Order on Blocking Property of Persons Contributing to the
Situation in the Republic of Eastasia (“Executive Order”) 113. The Executive Order
introduced a system of sanctions. The sanctions were introduced against the persons
engaged in certain sectors of the Euroasian economy, including those producing arms
for Euroasia. The sanctions also included a ban on business operations with such
persons, and provides for the suspension of existing contracts and making future
contracts with them illegal114.

Sanctions were imposed on Rocket Bombs Ltd (“Rocket Bombs”) and the
Claimant, Peter Explosive. As such, he was unable to sell his shares in Rocket Bombs
Ltd. Furthermore, the value of shares was reduced almost to zero. Simultaneously, all
the Oceanian companies that contracted with Rocket Bombs issued formal notices,
declaring that, pursuant to the Executive Order, they were no longer bound by the
provisions of the respective contracts and they had no intention to perform them 115.

The Claimant asserted that the Respondent expropriated his investment through
the implementation of the sanctions. As a result, the Claimant requested that the

112
FDI Problem, Statement of Uncontested Facts, ¶16
113
ibid
114
ibid
115
ibid, ¶17
Tribunal award him with compensation of no less than 120,000,000USD, with interest
from the date of the issuance of the award116.

REMEDIES

A. Basis

Tribunals have often relied on the International Law Commission’s (“ILC”) Draft
Articles on Responsibility of States for Internationally Wrongful Acts (“Articles on State
Responsibility”) as a basis for awarding damages117.

B. Contribution to the injury

The common-law precept of contributory fault is also acknowledged in

international investment law. It is a widely-accepted basis for reducing damages
wherein the claimant’s actions, which have materially added to his loss or injury, is
taken into consideration in the award for damages. When contributory fault is found in a
particular case, the award is to be reduced proportionally with the injury caused by the
claimant118.

Article 39 of the Articles on State Responsibility provides for the effect of the
aggrieved party’s contribution to his injury:

In the determination of reparation, account shall be taken of the contribution to the injury
by willful or negligent action or omission of the injured State or any person or entity in
relation to whom reparation is sought.

The UNDROIT Principles, which is used as a guide by Tribunals in awarding

damages, likewise has a provision for the aggrieved party’s role in the injury:

Where the harm is due in part to an act or omission of the aggrieved party or to another
event for which that party bears the risk, the amount of damages shall be reduced to the
extent that these factors have contributed to the harm, having regard to the conduct of
each of the parties.

116
FDI Problem, Request for Arbitration. p.6
117
Thomas Webster, Handbook of investment arbitration, ¶II-6-2
118
Sergey Ripinsky & Kevin Williams, Damages in international investment law, pp.314, 316
 The unwise business decision or the business risks of the investor have often
been considered by Tribunals in reducing the damages awarded to them 119.

Corollary to this is the concept of inadequate assessment of risk or a voluntary

assumption thereof whereby a “victim evidenced an understanding of a dangerous
situation and voluntarily encountered it”120.

119
Azurix v Argentina, 2001, ¶430, 432
120
Sergey Ripinsky & Kevin Williams, Damages in international investment law, pp.314-5
 RELATED CASES
A. MTD v. Chile
1. Facts
The Tribunal had to determine the relevance of the investor’s
allegedly negligent failure to take into account relevant Chilean urban
regulation policies.
. The project of the claimant in this case was approved by the
Chilean Foreign Investment Commission; however, the project did not
comply with the Chilean urban regulations. As a result, the investor failed
to secure the necessary permit to begin construction.
2. Doctrine
The investor had contributed to its own injury by failing to undertake
adequate “due diligence” of its own in order to investigate whether it would
be able to obtain the various licenses and approvals needed for the
investment to proceed. The Tribunal held that the investor should bear 50
percent of the damage it suffered.
 PROPOSED ARGUMENTS
I. Not liable for damages
The Respondent maintains that they cannot be liable for damages because:
(a) Claimant’s investment is not protected because the same was not
made in accordance with the national law of the Respondent, as required
by Article 1.1 of the Eastasia BIT; and
(b) There was no expropriation to speak of; rather, the sanctions imposed
by the Respondent were a regulatory measure for which compensation is
not necessary.

II. Contributory fault

In the event that the Tribunal finds that the Respondent is indeed liable for
damages, the same must be reduced on account of the Claimant’s own contributory
fault. The investor’s inadequate assessments of risks and unwise business decisions
may be taken into consideration by Tribunals in reducing the amount to be awarded to
them121. This is in line with the Articles on State Responsibility122 and the UNDROIT
Principles123.
In this case, the Claimant, being an investor, should have exercised due
diligence and taken note of the political climate, especially with the tension between
Eastasia and Euroasia in light of Fairyland’s referendum, and the former’s declaration of
the illegality of the referendum. Instead, the Claimant opted to conclude a new contract
with the Ministry of Defense of Euroasia, no less, on 28 February 2014. It must be taken
into consideration that the Claimant did not have to enter into a new contract with
Euroasia, especially since his company became prosperous over the years. Therefore,
the Claimant should bear the consequences of his risky business decision, and the
Tribunal should reduce the damages to be awarded to him as a result.

III. No basis for the amount of compensation

121
Azurix v Argentina, 2001, ¶430, 432; Sergey Ripinsky & Kevin Williams, Damages in international investment
law, pp.314-5
122
Article 39, Articles on State Responsibility
123
Articl 7.4.7, UNDROIT Principles
 The Claimant should also be faulted for requesting the exorbitant amount of 120
million US dollars without even providing for a basis for such amount.