FDI MOOT CASE 2022 – BRIEF ANALYSIS

1. In the present dispute Sutton Holdings (a company incorporated under the laws of
kingdom of Athabasca has submitted a request for arbitration against Republic of
Rhekia pursuant to Article 36 of icsid convention.

2. Rhekia which had historically been a conservative and religious country had opened
up its market and allowed foreign investments in multiple sectors. Due to its
geographical conditions and climate, Rhekia offered an adequate setting conducive for
the growth of marijuana for medicinal and recreational purposes. Realising these
prospects, the govt of Rhekia had legalised the cultivation of cannabis despite clear
discontent by the opposition. Further it had entered into several BITs with different
countries to facilitate investment including the Rhekia- Athabasca BIT 2011.

3. Subsequent to this, Sutton holdings made an investment in Republic of Rhekia through

its locally incorporated company Sutton Investments and set up two production plants
related to cultivation of cannabis - Freya and Odin. All the necessary licenses were
obtained by 2012 and the production began from 2014. (Herein it is necessary to point
that investments in Rhekia could only be made through locally incorporated entities).

4. Following this, the divide between the ruling dispensation and opposing fractions
grew wider particularly upon the issue of legalisation of cannabis cultivation and it
resulted in several public demonstrations. The situation aggravated and a civil war
broke out in the republic of Rhekia which continued till 2017, a change of leadership
took place in the same year which helped in cooling down the dispute.

5. Through the years of civil war, the production plants of Sutton Investments were looted
and ransacked. The damage to Freya’s facilities consisted of shootings, physical
attacks usage of explosives such as petrol bombs. Whereas in Odin, the Rhekian
military had occupied the premises initially and when the rebels took over they used
explosives which destroyed the place completely. Thereby at both the sites the war
brought heavy losses and the plants could not function for that period.
6. The allegation by Sutton Holdings is that the Govt of Rhekia had failed to provide ‘Full
Protection and Security’ as promised in the BIT and there are media reports that
military’s delayed actions in saving sutton’s plants were a result of the govt lack of
interest in prioritising the issue based on its belief that Cannabis Cultivators such as
Sutton have funded the rebel factions in the civil war.

7. Furthermore, Sutton claims that the fresh equity offer floated by it for rebuilding the
plants also suffered because of the rumours spent by the govt about its alleged support
for the rebel groups. And the other financial rebuilding attempts made by Sutton such
as applying for loans from the state bank of bravoos also took the brunt of these
rumours and failed. On these basis and on the loss of reputation because of these
rumours, Sutton has also claimed for moral damages against the republic of rhekia.

8. In response to such allegations the govt of Rhekia has submitted that it recognises the
internal conflicts that existed but it also highlights the fact that it has always received
investors warmly and had made the best use of the resources during the armed conflict.
It has denied the failure of duty to provide full protection and safety.

9. Further the Republic of Rhekia has submitted that the tribunal does not has the
jurisdiction to hear the present claim as the claimant has not exhausted the local
remedies, it has not filed the present dispute in any of the domestic courts within a
period of 18 months. Further the tribunal is barred from hearing the present matter on
the basis of the doctrine of res judicata as in 2017 the majority shareholders of Sutton
Holdings (combined 75%) i.e Donald and Daisy had brought a claim for reflective
losses against the Republic of Rhekia based on the losses suffered by the the two
production plants of cannabis in the civil war and the tribunal had decided against
granting such losses in 2020.

10. Claims of damages regarding violation of FPS clause of BIT are misconceived as the
respondent had duly made the best use of the resources available at that time and sent
military to safeguard the concerned plants. However even if there has been a violation
of FPS there is no obligation to compensate because according to the BIT the condition
for compensation only arises when there is discrimination by the state in terms of
granting protection to different plants in this case there is no such occurrence.
11. Additionally, the respondents have also submitted that moral damages cannot be
granted as such damages are punitive in nature and prohibited by the BIT itself. And
the claimant has failed to provide sufficient evidence for moral damage and prove the
cause-actional link between the govt’s actions and the moral damage suffered.

12. In its counterclaims upon the question of jurisdiction the claimant has submitted that
the Donald and Daisy dispute was wrongly herd by the tribunal as that case was based
on the Rhekian version of the BIT which mentions the concept of reflective losses.
However, the authentic english version of the BIT only mentions claims for ‘losses
suffered by the enterprise’ and as per the agreement the english version of BIT shall
be given preference upon the Rhekian version therefore the claim was wrongfully
heard by the tribunal previously and question of Res Judicata does not arises in the
present case.

13. Further upon the point of exhaustion of local remedies the claimant submits that the
prevailing conditions of civil war and disruption of govt systems in Rhekia were not
conducive to the proceeding of this arbitration and there was no scope for a meaningful
remedy therefore the claimant has approached the tribunal directly.

14. Lastly while answer the counterclaims brought by the claimant, the respondent
submits that there is no such provision for giving preference to the english version of
the BIT and as per the concept of ‘arbitration without privity’ the investor can accept
the standing offer to arbitrate under a treaty and where there are two languages any of
the two can be chosen. Further the Rhekian language was given equal weightage to
that of english and as the claimant respects the icsid system it should take into account
that the tribunal in daisy donald case would have deliberated upon the issue of language
and rightfully decided.

15. The civil war in Rhekia had ended in 2017 and the judicial system was restored and
modernised with the introduction of virtual systems and computerised functioning. The
claimant had a time of 18 months to approach domestic courts but it failed to do so and
thereby does not suffices the condition of exhaustion of local remedies before
approaching this tribunal.