216083

CODE NO.: 229510

DATE: 20 April 2022

TIME: 2 PM

SUBJECT: International Investment Law

Question No. Marks [Figures]

TOTAL

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Question No. 1 –

In the present case, it is submitted that Phantom Asia, the Peruvian investor, is entitled to
damages on account of the prejudice caused by the intervention of the Indian army and police
personnel, and the consequent forceful seizure of all the hotel properties, that were under the
control of the lawful owner, Dark-Knight Phantom Public Limited. Further, Phantom Asia is
also entitled to compensation from the Indian government on account of the sudden
withdrawal of Dark-Knight Phantom Public Limited’s licence under the concession
agreement without any previous notice or a fair hearing. As a consequence of these
unfriendly measures as well as significant inactivity on the part of the Indian authorities,
Phantom Asia was stripped of the authority to operate and manage the Hotel. Against this
backdrop, I will seek to critically assess the standards of protection and the grounds on which
Phantom Asia, the foreign investor is entitled to compensation from the Indian government in
the current case. For the purpose of ease, I will break my response into three sections,
wherein I shall assess each premise for why Phantom Asia is entitled to compensate. The
three components are as follows:

i. Full Safety and protection.

ii. Due Process.

iii. Arbitrariness.

i. Full Safety and protection.

Over a long time, arbitral jurisprudence has contributed to the steady development of the
interpretation of the phrase “full protection and security”. There is an agreement that the
norm of “full protection and security” does not give total protection to the foreign investor
against physical or legal violation. The host state is not placed under an absolute
responsibility of strict accountability to avoid such breaches. However, at the same time, it is
widely agreed that the host state has the duty to undertake due diligence and implement
reasonable steps for the protection of the foreign investment.

The obligation of the host state to give physical safety and security may operate with regard
to invasion on the part of State organs as well as private actors. In the case of Wena Hotels v.
Egypt, the Tribunal had found Egypt liable under the standard of “full protection and
security” since the employees of a state entity had seized the hotel in question in the
particular case, and the police authorities had not taken any measure to protect the foreign

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investor despite being aware of such forceful seizure by the State employees. The Tribunal
concluded in favour of the claimant corporation that Egypt, the host state had failed to offer
complete protection and security with regard to the foreign investment, as well as committed
violation of the “Fair and Equitable Treatment” (FET) criterion under the BIT. The
fundamental justification for this finding was that the host State was aware of the purpose of
the State body to seize the hotels forcefully, and failed to take any action during or even after
such intrusive conduct.

Further, in the case of AAPL v. Srilanka, the security forces had perpetrated acts of violence
against the foreign investors, and subsequently, led to a considerable degree of damage of the
foreign investment during a counter-insurgency campaign. The Tribunal took into
consideration such excessive activities, and found the State accountable for the infringement
of the “Full Protection and Security” requirement. Similarly, in AMT v. Zaire, the Tribunal
held the host state accountable under a reasonable protection and security provision in the
BIT due to repeated cases of theft and seizure of the assets associated to foreign investment
on the part of the military forces.

Coming to the current case, in 2011, Dark-Knight Public Limited forcefully took over the
administration of the hotel, and afterwards, the Indian army as well as police forces
participated in seizure of the hotel and associated assets. The actual scenario also discloses
that Dark-Knight Public Limited, which is a fully owned subsidiary of Marvel Ltd, that is
entirely under the Indian Government’s supervision and direction, had threatened to take over
the hotel as the owner. As a consequence, it is obviously demonstrative of the fact that the
Indian State was fully aware of the intentions of Dark-Knight Public Limited to forcibly
acquire the property relating to the foreign investment in issue in the current case. Despite
being cognizant of such hostile intents, the Indian State failed to take any step for the
protection of the foreign investment. On the contrary, the Indian army and police troops
carried out a comprehensive takeover of the hotel premises. It is stated that these conduct and
inactivity on the part of the Indian government obviously amounts to a flagrant breach of the
“full protection and security standard”, that was due to Phantom Asia.

Moreover, in the case of Azurix v. Argentina, the Tribunal had found that “full protection and
security may be broken even if no physical violence or harm occurs”. The Tribunal stated that
comprehensive protection and security must be considered to go much beyond protection and
security given by the police. According to the Azurix Tribunal, the stability given by a stable

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investment environment is equally crucial from an investor’s point of view. Similarly, in

In the current instance, it is alleged that in late-2010, Dark-Knight Public Limited had
directly warned the foreign investor that they would take over the hotel assets as the owner. It
is vital that we must take into account the fact that the Indian government had extensive
influence over the choices and activities of Dark-Knight Public Limited. Nevertheless, the
claimed corporation moved forward, and jeopardised the security of the foreign investor in
the immediate instance. Hence, in light of the aforesaid observations, it is submitted that the
threats on the part of Dark-Knight Public Limited, and the seizure of the hotel properties on
the part of the Indian army and police personnel contributes to a blatant violation of the “full
protection and security” standard, that was owed to the foreign investor.

ii. Due process

According to Professor Christoph Schreuer, who is a highly regarded scholar in the field of
investment law, and has served as an arbitrator in various investment arbitration matters, the
FET standard includes the obligation not to deny justice in accordance with the principles of
due process embodied in the principal legal systems of the world. He believes that the
important concept of due process is addressed by the demand of complete protection and
security as well as the FET norm. Several Investor-State arbitral tribunals have held that the
absence of a fair hearing in respect of a matter constitutes a grave violation of the due process
principle under the FET rule (Metalclad Corporation v. United Mexican States, Award, 91-
93; Dan Cake v. Hungary, Award, 150; Binder v. Czech Republic, Award, 448). Further, in
the instance of Azinian v. the United Mexican States, the ICSID Tribunal had concluded that
the foreign investor is entitled to a proper chance to explain their case and a right to a fair
trial.

It is also important for us to consider the holding of the arbitral tribunal in Tecmed v. the
United Mexican States, wherein the Tribunal had found the Respondent State to be in
violation of the FET standard since the foreign investor was denied a licence renewal without
having an opportunity to “express his position”. Further, in the instance of Genin v. Estonia,
the Tribunal had decided that any procedural irregularity that may have been present would
amount to ill faith, and a wilful violation of due process of law”. In Metalclad v. Mexico, the
municipality had declined to give a building permission. The Respondent State had provided

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no notice to Metalclad, and denied them a chance to appear in the proceedings. Thus, the
Tribunal determined that the Respondent State had committed a breach of the FET
requirement under the NAFTA due to a lack of procedural propriety, and notably a failure to
grant a fair hearing to the investor. In the instant instance, the authorities of the Indian
government cancelled the licence of Dark-Knight Phantom Public Limited under the
concession agreement without any prior notice or a fair hearing. Thus, the Indian
government’s refusal to grant a fair hearing to Phantom Asia prior to the termination of their
licence obviously constitutes a violation of the “due process” norm under the FET standard,
and is highly condemnable.

iii. Arbitrariness

Several Investment Tribunals have adopted the criteria put out in the ELSI case, whereby the
ICJ defined the word arbitrary as “…a wilful contempt of due process of law, an act which
shocks, or at least disturbs a sense of judicial propriety.” In the instance of Enron v.
Argentina, the Tribunal had decided that arbitrariness needs some type of evident irregularity.
Further, the Tribunal in Teinver v. Argentina, in interpreting the word “arbitrariness”, noted
that an arbitrary action is not founded on legal norms but on judgment, bias or personal
preference.

Moreover, some judges have decided that a measure implemented in intentional contempt of
due process and legal procedure might be judged to be “arbitrary” (EDF v. Romania, Award,
para 303; Lemire v. Ukraine, Decision on Jurisdiction and Liability, para 262). In the current
instance, the evidence is plainly suggestive of the fact that the Indian government had failed
to offer any notice or fair hearing to the foreign investor before terminating their license.
Such a conduct certainly amounts to a flagrant violation of the rule of law, and shows evident
impropriety. Hence, in light of the foregoing, is urged that Phantom Asia is entitled to
compensation on account of the infringement of the arbitrariness standard on the part of the
Indian government.

Question No. 2 –

Fair and equitable treatment is amongst the most prevalent norm of treatment which is
included in investment treaties. The idea has been subject of significant debate and
governmental practice. But the exact meaning in distinct contexts has been subject to varied
interpretations. Although the fair and equitable norm appears in virtually all of the treaties as
a required clause, it is not stated in investment treaties. FET as a standard gives for both

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procedural and substantive protection. FET is the minimal standard which should be provided
to all investors. It is a catch all clause which attempts to give effect to good faith.

In ADF Group Inc. v. United States of America, (ICSID Case No. ARB AF/00/1) ADF was a
Canadian business who was awarded a concession agreement to develop a junction where 3
motorways converged. The highway junction operated successfully for some time but it was
now prone to more accidents and there was a major traffic congestion. The Federal Highway
Administration (FHWA) provided authority to State of Virginia (Virginia Department of
Transportation) to create the junction. The two primary contractors were the Shirley
Contracting Corporation (Shirley) and ADF and there was one sub-contractor responsible for
the providing steel. To satisfy the VDOT criteria, ADF recommended that US bought steel
should be sent to its facilities in Canada to further manufacture and process the steel girders.
The final object would subsequently be sent to the building site. But the government of
Virginia wants to have the complete process in US solely following the “Buy America” rule.
ADF requested exemptions from the Buy America provision but the same was refused. ADF
utilise its capabilities available in US to build the griders. The construction was delayed and
high expenditures paid by ADF.

ADF said the three American legislations violated the FET clause. They also contended that
US had breached various terms of NAFTA including National Treatment, FET and Full
Protection and Security.

The panel had to assess whether the Buy America provision breached the FET standard.
NAFTA regards minimal standard of treatment as FET. The panel disagreed with the claim of
ADF that Buy America provision was unjust and equitable. It found that the obligation was
not restricted to NAFTA parties but was embedded in the administrative procedures of
numerous governments. Thus, the US measure cannot be considered as arbitrary or deviant.
The tribunal found that “the investor did not establish a serious basis for contending that
some specific treatment received by ADF International from either the FHWA or the VDOT
constituted a denial of the fair and equitable treatment and full protection and security
included in the customary international law minimum standard embodied in Article 1105(1) “

In Impregilo S.p.A. v. Argentine Republic, (ICSID Case No. ARB/07/17), Argentina issued a
concession agreement for 30 years to Inpregilo where Inpregilo was the promoter of consortia
for water and sewage management in Argentina. In the late 90s, Argentina was suffering
severe financial crisis and implemented Emergency Act which dramatically changed the

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contract. The tariff adjustment facilities that were offered to the investors by the government
was placed on hold. They were in turn forced to increase the region to which they offered
services. Specification legislation which made the dollar peso exchange unfriendly to the
investors was also enacted afterwards.

ORAB which was the government organization which recognized the rates was replaced by
OCABA in 2003. The new entity got into arrangement with ABSA and granted incentives to
this corporation.

Therefore, Inpregilo argued that Argentina had breached FET provision contained in Article
2 of the Italy Argentina BIT. Two categories of breaches were reviewed by the ICSID panel,
contractual and BIT violations. The tribunal ruled that the way in which Argentina addressed
the financial crisis constituted a violation of obligation to offer fair and equal treatment to the
investors.

In LG&E, three local US investors owned shares in local gas firm of Argentina. Argentina
also established regulations which ensured that tariffs for the gas distribution would be
computed in US Dollars and semi-annual levies were also assured. Due to economic issues in
the nation in late 90s, the government postponed semi-annual tariffs which were promised
before. the government subsequently enacted an order freezing the bank accounts of the
investors. The privilege provided to investors for conversion of Dollar to Peso was likewise
annulled.

The investors alleged infringement of FET Clause combined with indirect expropriation,
breach of umbrella clause and discriminatory behavior. The tribunal found argetina
accountable for infringement of FET norm with respect to investment assurances via public
utility licesnse.

Question No. 3 –

Fact of the Cases-

Mondev is a real estate development company based in Canada. A Mondev subsidiary

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parking structure. The Agreement gave LPA a conditional option to buy the Phase II property
if the City expressed its intent to demolish the garage.

When the City informed LPA of its intention of stopping use of the parking garage in 1983,
the three-year option period began. LPA exercised the option on July 2, 1986. On the other
hand, the city and the LPA were unable to reach an agreement on Phase II plans. In 1987, the
parties extended the closing deadline and added a "drop dead" date: "the Developer shall lose
its rights hereunder to proceed with an acquisition if a closing has not occurred by January 1,
1989, unless the City and/or the Authority shall fail to work in good faith with the Developer
through the design review process to conclude a closing." Their differences, however, were
insurmountable.

When the option on the project was about to expire, LPA leased its rights to a Canadian
developer, the Campeau Corporation ("Campeau"). Campeau's proposals were only approved
after the January 1, 1989 deadline had passed and Campeau agreed to pay the current market
price (rather than the more favourable option price indicated in the Agreement). At the time,
the contractual arrangements appeared to benefit both parties.

However, following the agreement, there was a real estate boom in Boston, resulting in a
significant increase in property values. The Phase II parcel's fair market value skyrocketed.
Indeed, if the city had not been bound by the Agreement's formula, it could have made much
more money on the sale of the Phase II parcel. Raymond Flynn took over as Mayor in
January 1984, succeeding Kevin White. The Agreement appeared to heavily favour LPA
when viewed through the eyes of a new City administration, but the City was contractually
bound by those terms. LPA interpreted the City's unwillingness to complete Phase II as an
attempt to avoid the contract's terms, and sought redress through the legal system.

Background of the case-

According to the Massachusetts Tort Claims Act, the Boston Redevelopment Authority
(BRA) is a public employer protected by sovereign immunity from intentional torts. The
decision was overturned by LPA. On the basis of immunity, the Supreme Judicial Court
("SJC") upheld the lower court's decision in favour of the BRA.

Arguments-

Mondev contends that Massachusetts' legislative immunity from BRA's intentional tort
liability violates international law, and that the Supreme Judicial Court's decision was

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arbitrary and capricious, resulting in a denial of justice. Mondev also claims that the US
failed to meet its Chapter Eleven commitments by:

a. Failing to accord LPA national treatment (Article 1102):- The alleged discriminatory
statements were made before NAFTA went into effect, and Mondev's Article 1102 claim was
denied on jurisdictional grounds because NAFTA cannot be applied retroactively.

However, the tribunal stated in its dicta that if it were to rule on the merits, Mondev's claim
would be dismissed due to a lack of evidence demonstrating discriminatory intent or effect.
Anti-discrimination provisions are found in Article 1102(2).

The evidence suggested that the City and the BRA acted not because they were anti-
Canadian, but because they wanted more money for the property than the option price in the
Agreement allowed. Because of the dramatic increase in downtown real estate values, the
City could have received more than $16 million more for the property if it had been sold for
its current market value rather than using the formula in the Agreement. Furthermore,
Campeau, a Canadian company, eventually reached an agreement with the city for Phase II,
removing any evidence of discrimination.

b. By failing to treat it in accordance with international law (Article 1105); only Article
1105(1) applies in this case. Mondev presented four main arguments to back up its claim that
the Massachusetts Supreme Judicial Court failed to meet the minimum standard of care.

i) On the city's contract claim against LPA being dismissed:

Claimant's contention: By dismissing LPA's contract claim against the City after explicitly
finding that the parties had entered into a binding contract, the SJC deviated significantly
from its established jurisprudence.

The SJC's dismissal of LPA's contract claim against the City based on LPA's failure to tender
its own performance was merely an application of existing Massachusetts law, or at most a
development of Massachusetts law "within the limits of common law adjudication." Even a
delicate judicial sensibility will not be shocked or surprised by this.

ii) The SJC's failure to remand the contract claim:

The SJC should have remanded the contract claim to the jury to determine whether LPA was
ready and willing to fulfil its contractual obligations. The tribunal was once again
unconvinced that the SJC's actions were improper, emphasising that the application of local

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procedural rules, such as those governing appellate fact-finding, will only result in a denial of
justice in the most egregious cases.

iii) The SJC's failure to consider whether it retrospectively applied a new rule:

According to the Claimant, the SJC failed to consider whether the allegedly new rule it was
applying to government contracts should be applied retrospectively, violating its own judicial
law-making standards. The Tribunal held that it is usually up to local courts to decide
whether and when new decisional law should be applied retrospectively.

iv) BRA's statutory immunity:

Mondev did not argue that the decision was correct under Massachusetts law. Rather, it
argued that conferring immunity from suit on one of a NAFTA Party's public authorities for
wrongful conduct affecting an investment was in and of itself a failure to provide full
protection and security to the investment, and thus violated Article 1105(1).

The tribunal reasoned that, "within broad limits, the extent to which a State decides to
immunise regulatory authorities from suit for interference with contractual relations is a
matter for the competent organs of the State to decide," that there were legitimate reasons
why a legislature might wish to do so, and that there was thus no breach of Article 1105 in
the SJC's decision that BRA was statutorily immune from tort liability. Although statutory
immunity may not protect a state party from liability for a substantive breach of NAFTA, the
mere fact that a state party has extended statutory immunity to a regulatory authority does not
constitute a breach of Article 1105(1).

The key question is not whether a particular result is surprising, but whether the shock or
surprise elicited by an impartial tribunal leads to justified concerns about the judicial
propriety of the outcome, bearing in mind, on the one hand, that international tribunals are
not courts of appeals, and on the other hand, that Chapter 11 of NAFTA is intended to
provide a real measure of protection (Article 1110).

When a government agency interferes with an alien's property use or enjoyment, this is
known as expropriation. Despite the fact that the tribunal found no expropriation, the award is
significant because it suggests that judicial decisions can be expropriations, even if only in
dicta.

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Mondev argued that the expropriation was triggered by the judicial decision rather than the
City's breach of contract. Mondev claimed that the SJC took away his right to seek redress for
the City's and BRA's wrongdoings through an "unprincipled, arbitrary decision." Despite the
fact that Mondev's Article 1110 claim was properly presented, the tribunal dismissed it as
time-barred (without ruling on the merits), concluding that any expropriation that may have
occurred prior to the implementation of NAFTA.

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