Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Indian Moot on Artificial Intelligence and Law, 2021, Decoded An active collection of the best memorials for Indian Moot on Artificial Intelligence and Law, 2021 by the team of Indian Society of Artificial Intelligence and Law.

© Indian Society of Artificial Intelligence and Law, 2021.

1

The Collection of the Best for IMAIL 2021

Year: 2021 Date of Publication: September 15, 2021 ISBN (online): 978-81-947131-4-2 ISBN (paperback): 9798472724340 Editors: Abhivardhan, Aditi Sharma, Mridutpal Bhattacharyya.

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher and the authors of the respective manuscripts published as papers. except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, write to the publisher, addressed "Attention Permissions Coordinator," at the address below.

Printed and distributed online by Indian Society of Artificial Intelligence and Law in the Republic of India Indian Moot on Artificial Intelligence and Law, 2021, Decoded, First Edition, 2021.

Price (Online): 250 INR Price (Paperback). 12 USD (Amazon.com) Indian Society of Artificial Intelligence and Law, 8/12, Patrika Marg, Civil Lines, Prayagraj, Uttar Pradesh, India - 211001 The publishing rights of the papers published in the book are reserved with the publisher. The authorship of the specific sections, chapters and other portions are of the editors/authors who have contributed to the book.

For the purpose of citation, please follow the format for the list of releretices as follows 2021. Indian Moot on Artificial Intelligence and Law, 2021, Decoded, Prayagraj: Indian Society of Artificial Intelligence and Law, 2021.

You can also cite the book through cite this forme.com (recommended) For Online Correspondence purposes, please mail us at editorial@isail.in.

For correspondence purposes, please contact at: 8/12, Patrika Marg, Civil Lines, Prayagraj, Uttar Pradesh, India - 211001

2

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Preface The Indian Moot on Artificial Intelligence and Law, 2021, India’s emerging moot court on issues of artificial intelligence ethics and law, was organized by the Indian Society of Artificial Intelligence and Law on August 5-8, 2021. The event was envisioned with the hope that the field of artificial intelligence & law must be understood and practiced with conscious and aware approaches. Manohar Samal & I, therefore came up with a special moot problem, which directly focuses on the nexus between AI ethics and international law – which is why one of the key moot problem issues anyone can find is algorithmic camouflage.

At the same time, a question jostled as to choose which kind of law system under which the students could be given a competitive environment. Public law is unprepared for AI and Law adjudication.

Hence, we took up private international law as an important domain for consideration. That is why the court/juridical body where the teams argue (which is an arbitral body), is the International Centre for the Settlement of Investment Disputes.

We also had no planning to endorse any cash prizes. At the same time, the organization is still young and very few people commit to proper research in AI & Law as a field of research & education.

Hence, it was a challenge to attain reasonable participation in the event. Yet, we did the same and over 20 colleges had provisionally registered, 19 completed their registration & 11 participated (due to logistics, examination issues, COVID19 and other special circumstances). For a Moot of first edition, this is considered a stupendous achievement of the team, especially the Convenors.

The moot problem is not based on one real case, but is a combination of various legal issues related to international investment law and tech policy. Hence, it is impossible to allude the origin of the moot problem on the basis of one legal dispute, which makes the problem very competitive and engaging. We have tried to ensure that many AI ethics issues are effectively covered as well.

As per official stats of ISAIL, 11 institutions had participated in the moot out of 19 registered due to logistical issues, COVID19 and

3

The Collection of the Best for IMAIL 2021

even late examination announcements in some colleges.

Nevertheless, we had a fruitful participation of the teams. It was a diverse participation as well because the same was not limited to National Law Universities, and even private universities, & some unpopular law colleges had also participated.

Some of the colleges which had participated were, Amity Law Schools, Noida, Delhi & Lucknow, Hidaytatullah National Law University, Naya Raipur, IIT Kharagpur, Alliance University, Jagran Lakecity University, Rajiv Gandhi National University of Law, Patiala and others.

Female participation – both as student teams and Arbitrators who came in to judge, was stellar. The feedback of the teams was enthralling since they appreciated the logistical setup of the event and the hospitality accorded to them at the same time.

The Winner of the Moot was the team representing Hidayatullah National Law University, Naya Raipur, under the students, Amrutha Desikan, Vijay Kumar Chawla, Amrita Soni, & Anushka Choudhary. The final was judged by Maksim Karliuk, Program Specialist, UNESCO, Dr Prabhash Ranjan, Associate Professor, South Asian University & Mr Paul Sils, Mediator, Arbitra International.

We had a stellar participation of the Arbitrators, who are legal and policy professionals from various areas of law, such as technology law, arbitration, investment law & international law.

Over 20-21 arbitrators participated in the moot. Some of the reputed names include Maksim Karliuk, UNESCO, Bharat Chugh, Dr Prabhash Ranjan, Paul Sils, Sanjay Notani, Economic Laws Practice, Girish K Mishra, August Legal, Sunanda Tewari, CTIL, Kartikey Vipul Misra, Tushar Behl, Gunjan Soni, Shardul Amarchand Mangaldas, Animesh Bordoloi, Jindal Global Law School, Savitha Kesav Jagdeesan and others.

We had also invited Mr Aniruddha Rajput from the International Law Commission to judge the finals.

4

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

The feedback has been reasonable. Most arbitrators stated that considering this was the first edition, the participation was inclusive, diverse and competitive, since nearly all teams according to them did compete very well.

This book is therefore a collation of the best memorials curated and selected by the ISAIL Team for the purposes of publication and to feature the efforts by the participating teams, for future mooters and researchers in the field of law, to promote legal education in India, in the domain of law and digital technologies.

Finally, this book is dedicated to the Arbitrators, the Student Teams and the Organizing Team of IMAIL 2021.

Abhivardhan Founder and Convenor Indian Moot on Artificial Intelligence and Law, 2021.

5

The Collection of the Best for IMAIL 2021

Table of Contents 1. The Overview of IMAIL 2021 2. The Moot Problem The Memorials 3.

4.

5.

6.

7.

8.

9.

10.

Best Memorial – Claimant Best Memorial – Respondent The Respondent Memorial – Winning Team The Claimant Memorial – Runners-Up Team The Respondent Memorial – Runners-Up Team The Claimant Memorial – Second Runners-Up Team The Claimant Memorial – Amity Law School, Delhi The Respondent Memorial – Amity Law School, Delhi

6

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

The Overview of IMAIL 2021

7

The Collection of the Best for IMAIL 2021

About the Moot

The Indian Moot on Artificial Intelligence and Law, 2021 was organized by the Indian Society of Artificial Intelligence and Law on August 5-8, 2021.

The Organizing Team Abhivardhan, Founder and Convenor Aditi Sharma, Co-Convenor Mridutpal Bhattacharyya, Deputy Convenor Kshitij Naik, Deputy Executive for the Co-Convenor Ateka Hasan, Deputy Executive for the Convenor Abhishek Jain, Senior Advisor Tejas Kothari, Head of Volunteers and Special Coordinator Rishika Pandey, Head of Volunteers and Special Coordinator

The Volunteers Team Aparna Bhatnagar Ahsnat Mokarim Deva Dharshini K Maanvi Arora Neha Mary Bipin Reeti Shetty Pankhuri Bhatnagar

The Arbitrators Dr Prabhash Ranjan Senior Associate Professor, South Asian University, India

Bharat Chugh Founder, Office of the Chambers of Bharat Chugh

Maksim Karliuk Program Specialist, UNESCO

Anish Wadia Independent Arbitrator

Paul Sils Mediator at Arbitra International

Girish K Mishra Senior Counsel, August Legal

Sanjay Notani Partner, Economic Practice

Kartikey Vipul Misra Advocate and GLIA Advisory Board Member, Global Law Assembly

Laws

8

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Disha Patwa Independent Technology Law Professional

Tushar Behl Advocate Pallab Das Assistant Professor, University

Pravarshini Palanivel International Dispute Settlement Lawyer

Bennett

Sunanda Tiwari Senior Research Fellow, Centre for Trade and Investment Law, India

Gunjan Soni Associate (Disputes) at Shardul Amarchand Mangaldas & Co. Gowri Bhargava Legal Professional

Pavni Tuli Legal Professional, Mumbai Centre for International Arbitration Anjali Chawla Lecturer, Jindal Global University

Devansh Mohta Advocate Savitha (Sivanandan) Kesav Jagadeesan Senior Resident Partner at Kochhar & Co., Chennai

Sadaf Fahim Research Scholar, NLU Delhi

Krishna Deo Singh Chauhan Associate Professor, Jindal Global University

Arnab Bose Assistant Professor, Global University

Gautam Mohanty Assistant Professor, Global University

Animesh Bordoloi Assistant Lecturer, Jindal Global University

Jindal

Jindal

Partners Internationalism Global Podcasts, Broadcasting Partner Indian Journal of Artificial Intelligence and Law [e-ISSN: 2582-6999], Publication Partner Enhelion, Innovation Partner MemoPundits, Innovation Partner My LawRD, Media Partner

9

The Collection of the Best for IMAIL 2021

Participating Institutional Teams

Student teams representing these institutions participated in the event: • • • • • • • • • •

Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur Amity Law School, Noida Alliance University Rajiv Gandhi National University of Law, Punjab Amity Law School, Lucknow Jagran Lakecity University (School of Law) Chanakya National Law University, Patna Vivekanand Education Society's College of Law, Chembur Amity Law School, Delhi affiliated to GGSIPU Hidayatullah National Law University, Raipur

The Category-Wise Winners Winning Team – Hidayatullah National Law University, represented by: • Vijay Kumar Chawla • Anushka Choudhary • Amrita Soni • Amrutha Desikan Runners-Up Team - Rajiv Gandhi National University of Law, Punjab, represented by: • Tamanna Gupta • Deeksha Bhatia • Aditi Dubey Best Speaker – Claimant – Tamanna Gupta, Rajiv Gandhi National University of Law, Punjab Best Speaker – Respondent – Devanshi Sharma, Amity Law School, Delhi Best Memorial – Claimant – Hidayatullah National Law University, Raipur Best Memorial – Respondent – Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur Best Researcher Group – Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur

10

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Qualifying Teams other than Winning and Runners-Up Teams Semi-Finalists • Second Runners-Up – Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur • Alliance University Quarter-Finals • Amity Law School, Delhi • Jagran Lakecity University, India • Chanakya National Law University, Patna • Vivekanand Education Society's College of Law, Chembur

Governing Rules for the Moot • • •

Rules of the Indian Moot on Artificial Intelligence and Law, 2021 The First Additional Rules of the Indian Moot on Artificial Intelligence & Law, 2021 The Second Additional Rules of the Indian Moot on Artificial Intelligence & Law, 2021

11

The Collection of the Best for IMAIL 2021

The Moot Problem

Authored by Manohar Samal & Abhivardhan Disclaimer: This is a work of fiction. Any resemblance to actual events or locales or persons, living or dead, is entirely coincidental.

If any participant team's member(s) are found communicating with any of the authors of the moot problem for any advisory or other reasons, with respect to the preparation of this Moot, the participant team shall be disqualified from participating in the Indian Moot on Artificial Intelligence & Law, 2021.

Any unauthorized reproduction or plagiarization of the Moot Problem in any virtual or physical form possible shall be considered as a violation of copyright law. Adaptations can be considered provided the permission of the Organizers of the Moot and the authors of the moot is taken in writing. © Indian Society of Artificial Intelligence and Law.

12

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Windiva is a democratic republic country spanning over to 32,87,263 square kilometres making it the 7th largest country in the world. Firel is a parliamentary democracy spanning over to 22,145 square kilometres.

Windivia has strong economic, military and strategic relations with Firel since the year 1992 and this has resulted in investments by both nations across various sectors of development. In the year 2022, Windiva and Firel entered into a Bilateral Investment Treaty (BIT).

Under the scheme of the BIT, after complying with all requisite procedures of the Government route of investment, a group of companies from Firel named Aveeron Group set up their Indian subsidiary and opened a local manufacturing unit in Special Economic Zone “AAY” of Windiva under the “Make in Windiva” scheme and set up its Indian branch office in Windiva’s capital city of Mekhli. Meanwhile, the Ministry of Defence, Government of Windiva floated a tender inviting eligible Indian companies and Indian subsidiaries of foreign companies for manufacturing and delivery of 100 artificially intelligent unmanned aerial vehicles for its air force by November, 2024. After due process, Aveeron Group was awarded the contract by the Government of Windiva looking at the fact that the group of companies had significant experience in manufacturing artificially intelligent unmanned aerial vehicles and had been successfully manufacturing them for its home country.

The terms of the awarded contract stated that a payment of USD 200 Million had to be made in four tranches and that upon payment of each tranche, 25 artificially intelligent unmanned aerial vehicles would be delivered to the Government of Windiva. The mode of payment chosen in the contract was blockchain enabled smart contracts and the company hired for providing these services was a Windivan based company called Anubandh. A liquidated damages clause was not negotiated looking at the fact that the payments and orders would be executed automatically through the smart contract. After sale service clauses for the artificial intelligence software as well as the hardware of the aerial vehicles were specified in the contract but problems arising out of countermeasure technology were not covered in the after sale service clause. The first tranche of USD 50 Million was paid by the Government of Windiva to Aveeron Group in June, 2023 and the second, third and fourth tranches were scheduled for December 2023, June 2024 and November 2024 along with their correlative orders on the smart contract.

In August, 2023 while testing few of the delivered artificially intelligent unmanned aerial vehicles, one of them crashed into a military tank while landing. On investigation it was found out that since the military tank used

13

The Collection of the Best for IMAIL 2021

algorithmic camouflage, the unmanned aerial vehicle could not identify it and miscalculated the landing trajectory. The Windivan Ministry of Defence contacted Aveeron Group upon which its representatives denied all forms of assistance stating that algorithmic camouflages were countermeasure technology. The Windivan Ministry of Defence objected to this interpretation and presented its counter- argument showing how algorithmic camouflages were not countermeasure technologies so as to be excluded for after sale service under their contract. However, Aveeron Group did not respond.

Meanwhile, in September 2023, civil unrest and violent protests took place in the city of Mekhli against the Population Control Bill which was introduced in the Parliament by the Central Government of Windiva. The civil unrest and violent protests wreaked havoc in the city of Mekhli since protestors damaged alot of Government owned as well as private property and this included significant damage to Aveeron Group’s Indian branch office. Aveeron Group made several applications to the Government of Windiva up till November, 2023 seeking compensation by specifying Article 3 of the BIT (Annexure) between Windiva and Aveeron Group’s home country, Firel which stated that all investors would be granted full protection and security in the host country. However, a response rejecting the claims of Aveeron Group was sent to them stating that the damage to the company’s property was caused out of a force majeure event which was excluded under Article 3 of the BIT. In December, 2023 (the month in which the second tranche payment and its co- relating order was scheduled on the smart contract), the tranche payment did not take place because of an error in the code of the blockchain enabled smart contract. Upon enquiry it was found by Aveeron Group that the payment had defaulted since the blockchain technology being used by Anubandh for the smart contract was actually being tested under a regulatory sandbox framework where similar blockchain technologies were being tested and that the company Anubandh had concealed this fact to Aveeron Group.

At this stage, Aveeron Group also received information that the Ministry of Defence of Windiva had sent a few of its artificially intelligent unmanned aerial vehicles to an indigenous company which specialized in defence technology to solve the problem in the aerial vehicles related to identifying algorithmic camouflage. Several notices and replies were exchanged between the parties, wherein the Government of Windiva stated that it was only obligated to pay Aveeron Group on the mode of payment contracted upon, i.e., blockchain enabled smart contract and because of lack of a fail safe clause. After this, Aveeron Group opted for civil remedies claiming

14

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

breach of contract on account of default of payment and also alleged breach of the confidentiality clause under the contract as well as the BIT. Aveeron Group also filed a separate civil suit against Anubandh for fraudulent misrepresentation.

In January 2024, Aveeron Group received its pre- ordered third consignment of unmanned aerial vehicle parts from Firel but decided not to go ahead with manufacturing them since the second tranche payment had defaulted and the parties were in dispute. In February 2024, Aveeron Group received a notice from the Goods and Services Tax authorities stating that the Integrated Goods and Services Tax (IGST) exemption granted to import of defence equipment had been reversed by a Notification w.e.f 01st January, 2024 issued by the Central Government and thus, Aveeron Group would be liable to pay Integrated Goods and Services Tax on the unmanned aerial vehicles consignment it received in January, 2024.

After legal consultation, it was brought to the notice of Aveeron Group that in April, 2023 the Windivan Government had exempted Central Goods and Services Tax and State Goods and Services Tax for indigenous manufacturers of defence equipment under the Windivan Nirbharta Scheme and that the exemption was not reversed for indigenous manufacturers from January, 2024. It was also brought to the notice of Aveeron Group through legal consultation that despite having a local manufacturing unit, Aveeron Group would have to incur Integrated Goods and Services Tax since as per Windivan law, movement of goods from a Special Economic Zone to other States and provinces of Windiva tantamount to “import.” As a result, Aveeron Group had to make several representations before the tax appellate forums including the Goods and Services Tax Tribunal where it lost the case and the IGST authorities attached the bank accounts of Aveeron Group for recovery. Aveeron Group made several representations before the Governmnet of Windiva claiming the violation of principle of national treatment and breach of legitimate expectation on the fair and equitable standard claiming that there was differential treatment in indirect tax imposition between Aveeron Group and indigenous manufacturers of defence equipment. In response, the Government of Windiva stated through correspondence that the withdrawal of the IGST exemption was inevitable since the Exemption Notification clearly stated that the tenure of the exemption would be from 2019 to 2023, making it an event which pre- existed the BIT. After a failed domestic dispute resolution process for 1 year as per the Articles of the BIT, Aveeron Group transmitted a notice of dispute to the Government of Windiva. No fruitful results emanated from attempts to

15

The Collection of the Best for IMAIL 2021

resolve the dispute amicably for a period of 6 months and thus, Aveeron Group served a notice of arbitration to the Government of Windva and filed a request for arbitration before the International Centre for Settlement of Investment Disputes after 60 days claiming damages of USD 670 Million in addition to the full costs of the arbitration proceedings. After an assessment of the claims of both the parties in the first session by the ICSID, the following issues were framed: 1.

2.

3.

4.

5.

Whether Aveeron Group’s cause of action before the International Centre for Settlement of Investment Disputes has arisen out of an underlying contract to the BIT/ violation of contract leading to violation of BIT or is it a pure breach of contract to be solved before domestic courts of Windiva?

Whether Aveeron Group is correct in claiming violation of doctrine of full protection and security or is the Windivan Government correct in using the force majeure exception?

Whether Aveeron Group is justified in treating algorithmic camouflage as countermeasure technology so as to not provide after sale service to the Government of Windiva and whether the Government of Windiva breached business-related confidential information while dispatching few unmanned aerial vehicles (UAVs) to an indigenous company specializing in defence technology?

Whether Aveeron Group is correct in stating violation of principle of national treatment and breach of legitimate expectation on the fair and equitable standard in respect of the differential treatment given in imposition of indirect tax or is the claim of the Windivan Government correct in interpreting the withdrawal of tax exemption as an event which pre- exists the BIT? Whether Aveeron Group is entitled to damages of USD 670 Million and costs of the entire arbitration proceedings and what is the mode of calculation of these damages?

The Bilateral Investment Treaty is available in the moot rules at isail.in/moot2021 for the purposes of downloading.

16

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Best Memorial – Claimant Hidayatullah National Law University

Amrutha Desikan, Vijay Kumar Chawla, Amrita Soni, & Anushka Choudhary, Authors

17

The Collection of the Best for IMAIL 2021

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-GCN-COLS-AV-C INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP, Claimant, v.

GOVERNMENT OF WINDIVA, Respondent.

ICSID Case No. ARB/XZ/A CLAIMANT’S MEMORIAL August 5-8, 2021

18

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

SUMMARY OF ARGUMENTS ISSUE 1: The Claimant submits that the instant matter is maintainable before this Tribunal as per Article 25 of the ICSID Convention to which the Claimant’s home state, Firel and host state, Windiva, are parties. The dispute is a direct result of breach of the BIT. It pertains directly to the investments that were to be protected under the treaty. The Claimant is an investor incorporated in Firel with an investment in Windiva. Therefore, the Tribunal also has jurisdiction ratione materiae as well as ratione personae.

ISSUE 2: The Claimant submit that the damage caused to the branch office of Aveeron group is a direct violation of FPS Clause which is guaranteed under article 3 of the BIT. The same is argued on two counts; firstly, that damage so caused constitutes damage to an investment and secondly, that the respondent are liable to provide full protection to this investment.

ISSUE 3: The Claimant submits that countermeasure technology was never a part of the contractual agreement between the Claimant and the Respondent. The Claimant also submits that the act of the Respondent to send the UAVs to the indigenous manufacturer was a breach of the National Treatment clause and also the international obligations of the Respondent.

ISSUE 4: The Claimant submits that the change in the taxation policy by the Respondent state has been an ex post facto event, and such action is in contravention of its obligations under the BIT, as well as its obligations under customary international law. The Respondent, while changing its taxation policy breached the clauses for National Treatment, Transparency and the standards of fair and equitable treatment. Further, the Claimant, through this issue will also establish that the 19

The Collection of the Best for IMAIL 2021

Respondent has acted in an unfair, discriminatory and opaque manner, and such actions of the Respondent are in contravention of its obligations under the BIT. ISSUE 5: The Claimant submits that the Respondent is liable to compensate the Claimant for the unlawful losses caused in their state. The Claimant seeks to establish arguments seeking compensation for the projected loss of future profit and the cost of the breach of confidential trade secrets, and the losses suffered by the Claimant due to tax exemption.

20

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

ARGUMENTS ADVANCED

1. The Claimant’s Cause Of Action Before The ICSID Arose From A Breach Of The BIT. 1.

The Claimant respectfully submits that the Respondent has breached its obligations under Articles 3 (Full Protection and Security clause) and 4 (National Treatment clause) of the BIT. It has also breached the international minimum standard of fair and equitable treatment by differentially taxing the Claimant from its own nationals. Given that the parties to the BIT, Windiva and Firel, are both signatories to the ICSID Convention1, and that the transaction from which the present legal dispute arises is an investment under the BIT, the instant cause of action is maintainable before this Tribunal. This is because: The Tribunal has jurisdiction ratione materiae (1); the parties to this dispute are bound by the BIT (2); all alternate domestic remedies have been exhausted by the Claimant (3).

1.1. This Tribunal Has Jurisdiction Ratione Materiae.

2.

3.

1 2

Article 25(1) of the ICSID Convention states: “The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment”. In the instant matter, the subject-matter of the contract between the Claimant and the Respondent is an “investment” (a); and there exists a legal dispute that has arisen directly from this investment (b). (a) The subject-matter of the contract between the Claimant and the Respondent is an “investment” under the BIT. The contract between the Claimant and the Respondent pertains to the manufacture and delivery of 100 UAVs over a period of two years.2 For this Tribunal to have jurisdiction to hear this matter, the transaction under this contract must

Moot Problem, p. 10, ¶ (A).

Moot Problem, p. 3, ¶ 3.

21

The Collection of the Best for IMAIL 2021

4.

5.

qualify as an investment under the BIT as well as the ICSID Convention. The Claimant submits that both conditions are met in the instant matter.

Article 1.4 of the BIT states that an investment is an “enterprise … taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made.”

It is submitted that the investment in this case meet all the above criteria: i.

The Windivan subsidiary of the Aveeron group is an enterprise that is established in accordance with Windivan law solely for the purpose of the present investment. 3 ii.

There has been a commitment of capital and other resources, as the Aveeron Group set up its manufacturing unit in the Special Economic Zone in Windiva4, and a branch office in Mekhli, Windiva forms a part of the enterprise, and by extension, the investment, under Article 1.2 (ii) of the BIT. All the assets of the enterprise including the know-how for the UAVs5 as well as the infrastructure in the manufacture unit and branch office6 form a part of the resources committed to the investment. iii.

The duration and scope of the investment is fixed. It extends for the limited period of delivery of 100 UAVs within two years up to November 2024.7 iv.

The enterprise is a for-profit organisation that was established with the expectation of a profit, and not as a charitable enterprise. Correspondingly, it was also faced with all business risks that are characteristic of for-profit organisations. v.

Finally, the investment was made pursuant to a tender floated by the Ministry of Defence, The Respondent

Moot Problem p. 3, ¶ 3.

Moot Problem p. 3, ¶ 3.

5 Windiva-Firel Bilateral Investment Treaty, 2022, Article 1.4(f).

6 Windiva-Firel Bilateral Investment Treaty, 2022, Article 1.4 (g).

7 Moot Problem p. 3, ¶ 3.

3 4

22

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

6.

7.

8.

for the manufacture and delivery of UAVs to add to the Windivan Air Force. Therefore, it is of great significance to Windiva.

Aside from the above metrics, the transaction involved in the instant matter must also be considered an investment under the ICSID Convention. No definition of an investment is provided in the Convention. 8 However, in Salini v.

Morrocco,9 the Tribunal found that four requirements must be met for an enterprise to qualify as an investment under the ICSID Convention, namely: a contribution of capital, risk, definite period and development of the host state. It was observed that in long term projects that spanned over a period of years there was always an assumption of risk that must be acknowledged. This test is widely accepted as decisive for determining the status of investments under the convention. 10 Given that all the requirements of an investment under both the BIT and the Salini test have been met, the present transaction is an investment. (b) There exists a legal dispute that arose directly from the investment.

The Claimant acknowledges that for a dispute to be maintainable before an ICSID Tribunal, it must be a legal one in nature arising directly from the investment 11, rather than a purely contractual or economic dispute. 12 In the present matter, the dispute raised by the Claimant is a legal one, pertaining to a breach of provisions of the BIT (i); arising directly from the investment (ii). (i) The dispute is of a legal nature pertaining to the BIT

9.

The Claimant submits that the instant dispute is of a legal nature. While it is true that investment disputes to which a

‘Investment Requirements Rationae Materiae’, [2003] International Centre for Settlement of Investment Disputes, UNCTAD, p. 13, available at: https://unctad.org/system/files/official-document/edmmisc232add4_en.pdf.

9 Salini Costruttori SpA. & Italstrade SpA. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Award, ¶ 34.

10 Shihata & Parra, ‘The Experience of the International Centre for Settlement of Investment Disputes’, [1999] 14 ICSID Review FILJ 299, p. 308, n. 27.

11 ICSID Convention, 1966, Article 25(1).

12 Amco Asia Corporation v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award.

8

23

The Collection of the Best for IMAIL 2021

10.

11.

12.

State is a party frequently have political elements or involve governmental actions, such disputes do not lose their legal character as long as they concern legal rights or obligations or the consequences of their breach. 13 Under the BIT, the Respondent had assured any Firelian investor of certain legal rights and had corresponding legal obligations to ensure that the Claimant’s investment was provided with Full Protection and Security from any physical harm14, that the principle of National Treatment be respected15 and that the Claimant’s legitimate expectation of fair and equitable treatment be met 16. However, it is the Claimant’s contention that all the above-mentioned duties have been violated by the Respondent.

The Claimants concede that there is a pure breach of the investment contract in the non-payment of the amount due for the second consignment of UAVs. However, that breach is not the basis for the present legal dispute. The present claim finds its basis in the breach of the provisions of the BIT. In SGS v. Pakistan, the Tribunal held that where a claim is largely based on the breach of the BIT, it is maintainable before an ICSID Tribunal, even if it has certain elements of contractual breach. 17 This finding is applicable in the present matter as the Claimant’s grievances all arise from a breach of the provisions of the BIT, and not purely from the investment contract.

The Claimant submits that there has been a violation of the protections guaranteed under the BIT, such as the full protection and security clause, national treatment principle and fair and equitable treatment clause. The Respondent has acted in a manner adverse to the Claimant’s interests despite the guarantees made under the BIT which promoted the Claimant to enter the investment contract in the first place.

13 Ceskoslovenska

Obchodni Banka, A. S. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision on Jurisdiction.

14 Windiva-Firel Bilateral Investment Treaty, 2022, Article 3.

15 Windiva-Firel Bilateral Investment Treaty, 2022, Article 4.

16 Windiva-Firel Bilateral Investment Treaty, 2022, Article 5.

17 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, SwitzerlandPakistan BIT, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction.

24

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Therefore, the dispute presently being raised is one of a legal nature pertaining to a breach of the BIT. (ii) The dispute arises directly from the investment 13.

14.

15.

16.

Article 25(1) ICSID Convention requires that the legal dispute must arise directly from the investment. According to Professor Christoph Schreuer, “directly” as it is used in this article means “reasonably closely connected to the investment”.18 Presently, all issues raised by the Claimant are closely connected to the investment.

The physical damage to the branch office in Mekhli is a prima facie violation of the full protection and security clause under Article 3.1 of the BIT. The branch office constitutes a part of the enterprise under Article 1.2(ii) and its physical infrastructure is an asset of the enterprise under Article 1.4 (g). Therefore, damage to the office is damage to the investment.

Similarly, the discrimination in exemption from tax burdens between Windivan nationals and the Claimant is a prima facie violation of the legitimate expectation of fair and equitable treatment, as well as the national treatment principle under Article 4 and 5 of the BIT. The Claimant as an investor has a legitimate expectation that the legal and economic environment under which it carries out its business will remain stable, and any violation of that expectation is a violation of the fair and equitable treatment clause. 19 There has also been a breach of confidentiality, as defined under Article 1.1 of the BIT, on part of the Respondent. The Respondent handed over UAVs manufactured by the Claimant over to one of its direct competitors. 20 This competitor is a Windivan national engaged in the manufacture of defence technology. The UAVs that the Respondent handed over to the competition forms a part of the Claimant’s

Christoph Schreuer, ‘The ICSID Convention: A Commentary’ [2009] Cambridge Publication, Article 25, ¶ 67.

19 Duke Energy Electroquil Partners and Electroquil S.A. v. Ecuador, ICSID Case No. ARB/04/19, Award, Agreement on U.S.-Ecuador BIT and Individual Arbitration, 2008.

20 Moot Problem p. 6, ¶ 8.

18

25

The Collection of the Best for IMAIL 2021

17.

investment along with the know-how regarding the mechanics of the vehicles. In doing so, the Respondent prima facie breached the national treatment clause and the full protection of investments clause.

As a consequence of the above actions of the Windivan government, the Claimant has suffered a loss of business and damage to property pertaining to the investments. Therefore, the present legal dispute is closely connected to the investment and is maintainable before this Tribunal.

1.2. This Tribunal Has Jurisdiction Ratione Personae

18.

19.

20.

21 22

Under Article 25(1) of the ICSID Convention, for a dispute to be maintainable before this Tribunal, it must be “…between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State”. Under Article 25(2)(b), a “national of another Contracting State” may be “any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention.”

In the instant matter, Firel and Windiva are contracting states to the ICSID Convention. 21 The Claimant is the investor in this case, with its home state as Firel and host state as Windiva. The Claimant is a juridical person that is incorporated in Firel. Tribunals have traditionally adopted the test of incorporation to determine nationality. 22 Given that the Claimant is a juridical person that is incorporated in Firel, it is a national of a Contracting State and therefore is entitled to bring this arbitration.

Additionally, tribunals also apply the test of control to identify whether control over the juridical person rests with a foreign

Moot Problem p. 10, ¶ (A).

Schreuer, Supra note 18.

26

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

national of a contracting state. 23 In the present case, the Claimant has complete control over the investment in Windiva. Therefore, the Claimant satisfies the test of control, and is entitled to bring this arbitration.

For these reasons, the Tribunal has jurisdiction, ratione personae.

1.3. All Domestic Remedies Have Been Exhausted By The Claimant 21.

22.

Under Article 8.2 of the BIT, an investor raising “a claim that the Defending Party has breached an obligation under this Treaty must first submit its claim before the relevant domestic courts or administrative bodies within a period of 6 months from the alleged breach.”

In the present case, all domestic remedies have been duly exhausted. i.

With respect to the differential taxation issue, the Claimant approached the tax appellate forums including the Goods and Services Tax Tribunal. 24 The outcome of these representations was only an attachment of its bank accounts, with no satisfactory addressal of its grievances. 25 ii.

With regard to the damage to property in the protests at Mekhli, the Claimant made several applications to the Respondent up till November, 2023 seeking compensation by specifying Article 3 of the BIT.26 These applications were all unceremoniously rejected. iii.

With respect to the breach of confidentiality in handing over the UAVs to a direct competitor without authorisation, the Claimant did in fact attempt to resort to civil remedies for a breach of contract.27 However, this attempt was also to no avail.

Ibid.

Moot Problem p. 6, ¶ 9.

25 Ibid.

26 Moot Problem p. 5 ¶ 6.

27 Moot problem p. 8, ¶ 8.

23 24

27

The Collection of the Best for IMAIL 2021

iv.

23.

All domestic dispute resolution processes remained unfruitful for over a year.28 Accordingly, pursuant to the BIT, the Claimant initiated dispute resolution processes within six months to settle the matter amicably. 29 No resolution was born of this measure.

Therefore, as per Article 8.4 of the BIT, the instant arbitration was requested.

Therefore, all alternate domestic remedies were exhausted according to the treaty before approaching this Tribunal.

For all the above reasons, this Tribunal has the jurisdiction to try this matter as the dispute pertains to a blatant breach of the BIT and not simply a pure breach of contract.

2. Aveeron Group has a Valid claim of Full Protection and Security under The BIT.

24.

The Claimant most humbly submits that the Respondent is liable to compensate him for the damages caused to the claimant’s Branch Office due to the violent protests and civil unrest in Mekhli. Article 3 of the BIT specifically provides for ‘Full’ Protection and Security of the investments in the host country. Thus, the claim against the said damages is a valid one because: Damage to the Branch Office qualifies as damage to investment (1); The present claim is not saved by the Force Majeure Clause (2).

2.1. Damage to the Branch Office qualifies as damage to investment.

25.

28 29

According to Article 42 of the ICSID Convention, “the Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties.” In the current dispute, the parties are as such bound by the Bilateral Investment Treaty between Windiwa and Firel.

Moot Problem p. 10, ¶ 10.

Moot Problem p. 10, ¶ 10.

28

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

26.

27.

Under the said BIT, “Each Party shall accord in its territory to investments of the other Party and to investors with respect to their investments full protection and security.” 30 In the BIT, an ‘investment’ is defined in very clear words to include “…assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made.”31

28.

29.

30.

31.

Further, the enterprise has “moveable or immovable property and related rights”32 as assets.

Thus, the Branch Office qualifies as an investment under the terms of Article 1.4 of the BIT, and as such, Respondent has consented to treat assets falling within the categories enumerated therein as investments which may be the subject of disputes submitted to the Centre for arbitration. As set out previously, the BIT defines “investment” in extremely broad terms in its Article 1.

The standard of protection accorded to the investments depends upon the identity of the alleged perpetrator.

Moreover, it is an absolute standard, which means that it does not depend on how the state receiving the investment treats other investments or investors.33 A State is directly liable for harm committed by its organs, or otherwise attributable to it, pursuant to customary rules of State responsibility. 34 The Claimant submit that there has been significant damage to their Branch Office due civil unrest and violent protests in Mekhli and that the government of Windiva is liable to compensate for the physical damage caused to the abovementioned investment according to the Full Protection and Security Clause of the BIT between the Parties.

Windiva-Firel Bilateral Investment Treaty, 2022, Article 3.

Windiva-Firel Bilateral Investment Treaty, 2022, Article 1.4.

32 Windiva-Firel Bilateral Investment Treaty, 2022, Article 1.4 sub-clause (g).

33 R. A. Lorz, ‘Protection and Security: in Bungenberg, Griebel, Hobe and Reinisch’, [2015] International Investment Law, C.H. Beck, Hart, Nomos, Baden-Baden, Munchen and Oxford, p. 764.

34 ILC, 'Draft Articles on the Responsibility of States for Internationally Wrongful Acts', [2001] 2(2) Yearbook of the International Law Commission, Article 4, 8 and 1.

30 31

29

The Collection of the Best for IMAIL 2021

2.2. Respondent Is Liable To Provide Full Protection To The Branch Office.

32.

33.

34.

35.

36.

According to Article 9(e) of the BIT, the host country is liable to compensate for those losses which were foreseeable and directly caused by the breach.35 Article 3.1 of the BIT mandates each party to “accord in its territory to investments of the other Party and to investors with respect to their investments full protection and security.”36 The Population Control Bill which was introduced in the Parliament by the Respondent resulted in civil unrest and violent protests in the city of Mekhli and the protestors caused significant damage to the Claimant’s Indian branch office. 37.

The Claimants submit that Full Protection and Service clause shall be invoked in the present case as this standard is applied when a foreign investment is violated by civil conflicts and physical violence38 and it obliges the state to provide the "foreign investment with a certain level of protection against physical damage".39 In the seminal case of AAPL v. Sri Lanka, on the basis of the full protection and security clause in the United Kingdom–Sri Lanka BIT, the tribunal held that Sri Lanka had violated its obligation by not taking “all” possible measures to prevent the killings and destruction of investment. The investor argued that the treaty language created a strict liability standard. Sri Lanka counter-argued that the obligation was limited to invoking the standard of due diligence in customary international law. The tribunal held that an independent treaty standard was applicable and found Sri Lanka liable for its failure to take precautionary measures to prevent harm to the investment. The tribunal found there was no need to establish

Windiva-Firel Bilateral Investment Treaty, 2022, Article 9.2 subclause (e).

Ibid.

37 Moot Problem p. 5, ¶ 7.

38 Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award, 2006, ¶ 483.

39 Rumeli Telekom A.S. & Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, para. 668.

35 36

30

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

37.

38.

39.

malice or even negligence, but that “the mere lack or want of diligence” 40 would be sufficient. It went on to say that due diligence “is nothing more nor less than the reasonable measures of prevention which a well-administered government could be expected to exercise under similar circumstances.”41 In the AMT arbitration, 42 it was held that the host State “must show that it has taken all measures of precaution to protect the investments of [the investor] in its territory and it is obliged to exercise due dilligence”. In this case, the Tribunal stated, “The obligation incumbent on the [host State] is an obligation of vigilance, in the sense that the [host State] shall take all measures necessary to ensure the full enjoyment of protection and security of its investments.”

It is pertinent to note that the Biwater Gauff Tribunal had confirmed that the guarantee of protection under FPS Standard extends to actions of host state as well as of third parties. It also held that due diligence is not observed if the host has failed to take precautionary, reasonable and preventive action to protect an investment. Full protection implies stability in a secure environment, physical, commercial and legal.43 Finally, it was confirmed by the Tribunal in Parkering v.

Lithuania44 that “Full Protection” implies not only prevention of damage, but also restoration to the previous situation.

2.3 THE DISPUTED EVENT IS NOT A FORCE MAJEURE EVENT.

40.

The claimants submit that a force majeure event has three basic elements that need to be fulfilled in order for it to qualify as a force majeure event.

Para 77, AAPL v. Sri Lanka, 1990.

Ibid.

42 Wena Hotels Ltd. (UK) v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award; Supra note 15.

43 Biwater Gauff v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award.

44 Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award.

40 41

31

The Collection of the Best for IMAIL 2021

41.

(a) Unforeseeability - An event is unforeseeable when it could not be foreseen at the time the agreement laying down the obligation breached was concluded. The same has been upheld by the ICSID in a catena of awards. In Niko Resources v. BAPEX & Petrobangla 45, the element highlighted was that a force majeure even is one that cannot be foreseen. Even in the case of Aucoven v.

Venezuela 46, a case of civil unrest owing to an executive decision of toll increase was termed foreseeable. (b) Uncontrollability (or “Externality”) - The event must have been “beyond the control” of, 47 or “external” – nonattributable – to,48 the party asserting force majeure. The party must not have caused or induced the event. 49 In the current case, not only were the protests induced as an obvious consequence to the controversial population control bill. Consequently, providing security in view of the imminent riotous protests was nowhere beyond the control of the Government of Windiva. (c) Impossibility (and/or “Irresistibility”) - The event must render the obligation impossible to perform. 50 The full protection from physical harm that was guaranteed to the Aveeron Group was nowhere rendered impossible to perform in any manner whatsoever. The Government of Windiva is a fairly powerful state with immense resources at its disposal. Outrightly denying that subjects under the protection of such a state cannot be protected from harm borders on contending a failed state.

The Claimants submit that upon the question as to whether the impossibility to perform be absolute, the same has been answered in the affirmative.51 It can be clearly seen that there

Para 200, Niko Resources v. BAPEX & Petrobangla (2014).]

Para 118 Autopista v. Venezuela, ICSID Case No. ARB/ 00/5, Award.

47 Huntington Ingalls Inc. v. Ministry Def. of Bolivarian Republic of Venezuela, No. 1:18-cv0469 (KBJ) (D.D.C. Jun. 13, 2019)] , Platinum Blackstone PTY LTD v. Maldives SIAC ARB No. 003 of 2014, Award.

48RSM v. Central African Republic, ICSID Case No. ARB/07/2, Award.

49 Unión Fenosa Gas v. Egypt, ICSID Case No. ARB/14/4, Award.

50Bureau Veritas v. Paraguay (2009), ICSID Case No. ARB/07/9, Award.

51 Para 77, Difference between New Zealand and France concerning the interpretation or application of two agreements, concluded on 9 July 1986 between 45 46

32

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

42.

43.

44.

would be no such scenario available on the fact set that can establish the fact that the impossibility to perform was absolute in any manner whatsoever. Hence, the force majeure defence is not available on this count as well.

Further, the party invoking Force Majeure must prove that its conditions are met. 52 It is necessary therefore in the interests of the clear determination of liabilities that the Government of Windiva be put to strict proof of the aspect that there indeed was a force majeure event.

Thus, based upon the above contentions it can be clearly seen that the Government of Windiva failed in providing full protection and security to the Aveeron Group’s Assets and thus is liable for appropriate action. Even further, any defences with respect to force majeure cannot be accepted in any manner whatsoever owing to the unacceptable flaws in the relevant argument of the Government of Windiva with respect to unforeseeable force majeure events having arisen which rendered it impossible for them to provide appropriate security to the Aveeron Group.

The Claimant submits that they have suffered significant damage which could have been averted had the respondent observed due diligence. Therefore, the damage to the branch office of the Claimant shall be restored as the respondent is as such liable to provide protection and security to the investments of an investor under Article 3 of the BIT. 3. AVEERON GROUP IS JUSTIFIED IN TREATING ALGORITHMIC CAMOUFLAGE AS COUNTERMEASURE TECHNOLOGY SO AS TO NOT PROVIDE AFTER SALE SERVICE TO THE GOVERNMENT OF WINDIVA AND THE GOVERNMENT OF WINDIVA BREACHED BUSINESS-RELATED CONFIDENTIAL INFORMATION WHILE

the two States and which related to the problems arising from the Rainbow Warrior Affair (1990).

52 Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award.

33

The Collection of the Best for IMAIL 2021

DISPATCHING FEW UAVS TO AN INDIGENOUS COMPANY SPECIALIZING IN DEFENCE TECHNOLOGY. 45.

46.

It is most humbly submitted that the Claimant was absolutely justified in not providing after sale services for the UAVs sold to the Respondent. Algorithmic camouflage technology is used for the purpose of defense by deception or mimicry and so, falls within the category of countermeasure technology.

It is further submitted that the Government of Windiva by dispatching a few UAVs to an indigenous company, having its expertise in defense technology, has grossly breached business-related technical information of confidential nature and the same has resulted in utter breach of the BIT between the parties.

3.1.

ALGORITHMIC CAMOUFLAGE IS A COUNTERMEASURE TECHNOLOGY TO ARTIFICIALLY INTELLIGENT UNMANNED VEHICLES. 47.

48.

49.

It is humbly submitted that from a deeper understanding of the underlying technology behind artificially intelligent UAVs and algorithmic camouflage, it is clear that algorithmic camouflage falls within the category of countermeasure technology, and so any defects to UAVs due to the same cannot be covered under the after-sale service clause.

“Artificial intelligence is the ability of a digital computer or computercontrolled robot to perform tasks commonly associated with intelligent beings. The term is frequently applied to the project of developing systems endowed with the intellectual processes characteristic of humans, such as the ability to reason, discover meaning, generalize, or learn.”53 In the most simple sense, study of intelligent agents is known as AI. These intelligent agents can observe their surroundings and respond to them in order to enhance performance.

For UAV manoeuvring, a key branch of AI widely recognized as machine learning is applied. Machine learning is concerned

B.J. Copeland, ‘Artificial Intelligence’, Britannica Dictionary, available at: https://www.britannica.com/technology/artificial-intelligence.

53

34

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

with self-learning algorithms that analyse data from earlier experimentation and devise an appropriate action for the present scenario. 54 50.

Artificially Intelligent Unmanned Aerial Vehicle being manufactured by the Claimant, are to be used for the purpose of defense by facilitating visual surveillance, object recognition or attacking a specific target.

51.

An AI algorithm is used to examine from the behaviour of the Proportional Navigation Guidance system (“PNG”).55 The PNG approach approximates the UAV's guiding commands in order for it to approach the target. The sensor tracks the target's dynamic location and computes the guiding command, which steers the UAV towards the target. The UAV's operation is to identify and reach the target. Multiple simulations with diverse circumstances can be used to develop the AI model.

52.

On the other hand, camouflage, in the field of defence technology, is known to be a form of passive countermeasure against detection by radar, optical visible and infrared and acoustic sensors.56 In case of algorithmically generated camouflage, algorithms establish the coordinates of the composing elements of camouflage patterns which functions as a counter-surveillance technique by facilitating concealment, deception or producing mimicry effect, ultimately making the object undetectable.

53.

“Algorithmically generated camouflage patterns borrow from nature the mimicry strategies of background matching and disruptive coloration to

C. Chithapuram, Y. V. Jeppu & C. A. Kumar, ‘Artificial Intelligence guidance for Unmanned Aerial Vehicles in three dimensional space’, [2014] International Conference on Contemporary Computing and Informatics (IC3I), p. 1256-1261 55 C. Chithapuram, Y. V. Jeppu & C. A. Kumar, ‘Artificial Intelligence learning based on proportional navigation guidance’, [2013] International Conference on Advances in Computing, Communications and Informatics (ICACCI), pp.1140,1145, 22-25.

56 JV Ramana Rao, Director (Retd.) Defence Laboratory, Jodhpur, ‘Introduction To Camouflage And Deception’, [1999] Defence Research & Development Organisation, Ministry of Defence, New Delhi- 110011, ISBN: 81-86514-02-7.

54

35

The Collection of the Best for IMAIL 2021

impair the perceptive faculties of ambient and focal vision.”57 Furthermore, “ambient vision is predominantly responsible for detection – the observer successfully distinguishes target and environment and identifies the presence of a potential target – while focal vision is responsible for recognition – the observer recognizes the shape of a three-dimensional object in the field of vision as that of the target.”58 54.

Disruptive coloration and background matching lead to different types of concealment according to different principles – for instance, background matching mostly aims at the avoidance of detection – Rather than simply copying the background or the perceived back- ground, with a depersonalizing generalization, algorithmic subsets originate pattern components by abstracting the colour and prevalent shading of an environment and by tracing backward the operations of abstraction carried out by human and machine vision.59

55.

The military tanks, in the present case, used algorithmic camouflage for the purpose of hiding these tanks from getting traced or attacked.60

56.

The terms of the contract between the Claimant and the Respondent, provided an exhaustive list as to what shall be covered under the after-sale service clause. It clearly specified that service shall be provided only for problems arising due to software as well as the hardware of the UAVs and not out of countermeasure technology.61

57.

In literal sense, the term ‘countermeasure’ refers to “an action taken against an unwanted action or situation.” 62 In defence technology, a countermeasure is a system or strategy intended

Martin Stevens & Sami Merilaita, ‘Defining Disruptive Coloration and Distinguishing its Funtions’, [2009] Philosophical Transactions of The Royal Society B Biological Sciences 364(1516):481-8.

58 Ibid.

59 Mollicchi, Silvia, ‘Flatness versus Depth: A Study of Algorithmically Generated Camouflage’, [2017] Security Dialogue 48, p.78-94, available at: https://www.jstor.org/stable/26294203.

60 Moot Problem, p. 4, ¶ 5.

61 Moot Problem, p. 4, ¶ 4.

62 ‘Countermeasure’, Cambridge Dictionary, available at: https://dictionary.cambridge.org/dictionary/english/countermeasure.

57

36

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

to prevent an enemy from compromising a target by shielding, concealing or moving the target, creating decoys or otherwise confusing the enemy.

58.

Aiming and shooting using a UAV, at an enemy are actions dependent on the capacity to read a target’s position, orientation and shape, understanding not simply where a threat is located but also what it is, in which direction it is moving and where its weak points rest. Targeting is a matter of gaining a visual, and more generally speaking informational, vantage point to carry out deliberate decisions. Algorithmic camouflage technology by generating deception or mimicry effect using the logic of human vision target detection and recognition, tries to pre-empt a UAV from extracting visual information from it surrounding environment, resultingly acting as a countermeasure technology. Due to the application of algorithmic camouflage technology on military tanks, the artificially intelligent UAV could not identify the same, resulting in miscalculation of the landing trajectory.

59.

In the present case, the after sale service clause of the contract between the parties herein, did not cover problems arising out of any form of countermeasure technology. 63 Thus, it is most humbly submitted that the Claimant was absolutely justified in treating algorithmic camouflage as countermeasure technology so as to not provide after sale service to the respondent.

3.2. THE UAVS WERE ABSOLUTELY FIT FOR THEIR ORDINARY USE AND THE MACHINES CONFORMED TO THE CONTACT.

60.

61.

63

It is submitted that the artificially intelligent UAVs were fit for the purpose of defence as was explicitly contemplated in the Contract. The Claimant has a significant experience in manufacturing such UAVs and has been successfully manufacturing the same for its home country i.e. Firel.

The Respondent never laid down any terms for the UAVs in question to be equipped against Algorithmic Camouflage.

Moot Problem, p. 4, ¶ 4.

37

The Collection of the Best for IMAIL 2021

Any allegations made by the Respondent against the same are frivolous and baseless.

3.3. THE GOVERNMENT OF WINDIVA HAS GROSSLY BREACHED BUSINESS-RELATED CONFIDENTIAL INFORMATION WHILE DISPATCHING UAVS TO AN INDIGENOUS COMPANY SPECIALIZING IN DEFENCE TECHNOLOGY. 62.

It is most humbly submitted that, when the Claimant informed the Respondent that they were not entitled to any after-sale service, the Respondent instead of negotiating the Terms with the Claimant, wrongfully dispatched the UAVs to an indigenous company, causing a breach of business-related confidential information of the Claimant. (a)

There has been a gross breach of Aveeron Group’s confidential Information

63.

Article 1.1 of the BIT clearly lays down, that “confidential information” is such information that refers to any business information be it either commercial, financial or technical information of confidential nature. Further, such information has the capacity to “result in material loss or gain or prejudice a disputing party’s competitive position, and information that is privileged or otherwise protected from disclosure under the law of a Party.”64

64.

It is also pertinent to be noted that the Agreement on Trade Related Aspects of Intellectual Property i.e., the TRIPS agreement, one of the foundational agreements of the WTO, explicitly requires that WTO member States protect “undisclosed information”. 65 As per Section 7, Article 3966 of the TRIPS Agreement, in the course of ensuring effective

Windiva-Firel Bilateral Investment Treaty, 2022, Article 1.1. of Windiva the Government of Firel ratified their memberships to WTO in 1995.

66 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 39, [1994] Marrakesh Agreement Establishing the World Trade Organization.

64

65 The Government

38

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

protection against unfair competition, 67 members shall protect undisclosed information. In case of a disclosure contrary to honest commercial practice, redressal may be claimed where such information “is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question,”68 or “has commercial value because it is secret.”69 65.

Furthermore, the hon’ble Bombay High Court of Windiva in Beyond Dreams Entertainment Pvt Ltd & Ors v. Zee Entertainment Enterprises Ltd & Anr.,70 further noted: “Firstly, it must be shown that the information itself is of a confidential nature. Secondly, it must be shown that it is communicated or imparted to the defendant under circumstances which cast an obligation of confidence on him. In other words, there is a relationship of confidence between the parties. Thirdly, it must be shown that the information shared is actually used or threatened to be used unauthorized by the Defendants, that is to say, without the licence of the Plaintiff.”

66.

In the given factual matrix, the Respondent has acted in a mala-fide manner by handing over the Claimant confidential information to it indigenous competitor. The technical information of confidential nature here are vested in the UAVs that were sold to the Respondent in confidence, and was not to be disclosed. This confidential information has a commercial value to which only the Claimant is entitled to, however, by unduly disclosing the same to the indigenous competitor, the Respondent has exposed the Claimant to the threat of unwarranted competition and material loss.

67The

Paris Convention, 1967, Article 10bis. on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 39 2 (a), [1994] Marrakesh Agreement Establishing the World Trade Organization.

69 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 39 2 (b), [1994] Marrakesh Agreement Establishing the World Trade Organization.

70 Beyond Dreams Entertainment Pvt Ltd & Ors v. Zee Entertainment Enterprises Ltd & Anr., Notice Of Motion (L) No. 785 Of 2015 In Suit (L) No. 251 Of 2015, Bombay High Court (Windiva).

68Agreement

39

The Collection of the Best for IMAIL 2021

(b) 67.

68.

69.

70.

The dispatching of UAVs to the indigenous company, who is a competitor of the Claimant, has resulted in the breach of National Treatment Standard of the BIT. Article 4 of the BIT provides for National Treatment standards for the investors. National Treatment here, refers to “Each party shall not apply to investor or to investments made by investors of the other Party, measure that accord less favourable treatment that that it accords, in like circumstances, to its own investors or investments by such investors with respect to the management, conduct, operation, sale or other disposition of investments in its territory.”

The standard of comparison used to judge national treatment standards is the treatment of the foreign investors in comparison to the national investors. The national treatment standard here, requires the Respondent’s country regulation to be opened up to the Claimant, and it requires ensuring that the rules at issue are de jure and de facto providing nondiscriminatory treatment to foreign investors. 71 The reason for having an investment treaty is to level the playing field for a foreign investor who might be at a disadvantage in a home state's courts and who might have less political leverage than domestic investors. 72 The Permanent Court of Arbitration in Bilcon v.

Governemnt of Canada73 observed “'in the absence of a legitimate rationale for the discrimination between investors in like circumstances, the Tribunal will presume- or at least inferthat the differential treatment was a result of the Claimant nationality.” Further, in Cf Corn Products Int'l v. Mexico74, the ICSID Tribunal pointed out that the Tribunal must be sure that the comparative analysis for national treatment, takes into account the regulatory context, as well as any market-based competition, in determining the identity of those in like circumstances with the foreign claimant.

71 Andrea

K. Bjorklund, ‘National Treatment’, Standards of Investment Protection, [2008] Oxford University Press, p. 29.

72T. Weiler, ‘The Interpretation Of International Investment Law’, [2013], p. 28896.

73 Bilcon v. Governemnt of Canada, PCA Case No. 2009-04.

74 Cf Corn Products Int'l v. Mexico, ICSID Case No. ARB(AF)/04/01, Decision on Responsibility, ¶ 126.

40

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

71.

72.

73.

74.

In another case of S.D. Myers International v. Canada, 75 the tribunal while focusing on de facto, rather than de jure, national treatment, laid ground that a competitive relationship can be derived from the position of one business to take business away from its competitors.

It is most humbly submitted that, in the present case, a compromise with the National Treatment Standards can be directly derived from the Respondent’s act of favouring and consigning the indigenous company with the Claimant’s confidential informational. The Respondent with no prior authorization dispatched the UAVs to an indigenous company having its expertise in defence technology, making it a marketcompetitor of the Claimant. The indigenous company is in a position to substantially debilitate the Claimant’s position in the market by using its confidential information and finally taking over the market share of the Claimant.

The act of the Respondent is clearly discriminatory to the interest and rights of the Claimant.

It is also pertinent to be noted that, as has been stated above, Windivan laws provide for a domestic regulatory framework for protection of confidential information. By way of wrongfully dispatching the UAVs, the Respondent has compromised confidential information vested in the UAVs. However, no civil remedy was provided on account of this breach. The discriminatory behaviour by the Respondent has resulted in the breach of National Treatment Standards as accorded in the BIT, which is a direct breach of the BIT. 4. Aveeron Group Is Correct In Stating Violation Of Principle Of National Treatment And Breach Of Legitimate Expectation On The Fair And Equitable Standard In Respect Of The Differential Treatment Given In Imposition Of Indirect Tax.

75

S.D. Myers Inc. v. Canada, UNCITRAL, Partial Award (Nov. 13, 2000).

41

The Collection of the Best for IMAIL 2021

4.1. THE RESPONDENT’S ARGUMENT OF THE CHANGE IN TAXATION POLICY BEING A PRE-EXISTING EVENT IS ERRONEOUS: DE JURE AND DE FACTO. 75.

It is humbly submitted by the Claimant that the stand taken by the Respondent, that the change in the taxation policy was a pre-existing event is wrong in fact (de facto) and the same was also in contravention of the relevant international law (de jure). (a)

76.

77.

THE CHANGE IN THE TAX POLICY WAS IN CONTRAVENTION OF THE INTERNATIONAL OBLIGATIONS OF THE RESPONDENT (DE J URE ).

The Agreement on Trade Related Investment Measures (TRIMs) was entered into by the members of the WTO, to ensure a legal framework for conducive transnational investment and growth by the member countries. Article 2 of TRIMs specifically calls upon the members to enforce laws which are in consonance with the measures of national treatment and eliminate quantitative restrictions for foreign investors.

In case DS472,76 the Dispute Settlement Body (“DSB”) of the WTO was notified of tax measures adopted by Brazil which were inconsistent with the provisions of the TRIMs Agreement. The DSB held that the Brazilian governments taxation rules were inconsistent with Article 2 of the Agreement, and thus Brazil was made to amend its laws in a manner consistent with the agreement. Similar restrictive measures were also reversed by China, after the DSB found the its taxation policy on imports restrictive and in violation of Article 2 of the Agreement. 77 Thus, it is relevant to understand that taxation measures inconsistent with TRIMs and WTO obligations are often reconciled with GATT, TRIPs and TRIMs. All these agreements have a common

DS472: Brazil — Certain Measures Concerning Taxation and Charges [2020], available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds472_e.htm.

77 DS339: China — Measures Affecting Imports of Automobile Parts [2009], available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds339_e.htm.

76

42

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

78.

clause: the existence of a requirement for non-discriminatory treatment of investments, especially on the basis of nationality.

The Claimant would like to submit that the change in the taxation policy undertaken by the Respondent is in itself is an act violative of the obligations it undertook as a member of the World Trade Organization underneath the TRIMs Agreement. Thus, the action of the Respondent to extend the tax exemption for the Claimant, and treat indigenous and foreign investors in a discriminatory manner should be considered an act which is in contravention of the TRIMs agreement. Thus, due to the change in taxation policy being in contravention of the TRIMs agreement, the timing of such an event, be it in 2019 or 2023, is irrelevant and the Respondent should be punished for the same regardless. (b)

79.

80.

THE CHANGE IN THE TAX POLICY WAS NOT AN EVENT PRE -EXISTING THE BIT (DE FACTO ).

The Claimant submits that even if the previous submission is not accepted, the actions of the Respondent that the Claimant is complaining against was committed in the year 2023, and is not an event pre-existing the BIT. The Claimant agree with the statement of the Respondent that the tax exemption in question was for a limited time period, i.e., from 2019 to 2023.78 However, the action of the Respondent to provide the tax exemption to only indigenous manufacturers in the defense industry, 79 is an act of discriminatory national treatment, and violative of the obligations of the Respondent as a host state for the investments of the Claimant.

4.2. The National Treatment Clause Was Breached By The Respondent.

81.

78 79

The Claimant submits that the Respondent has breached its obligations under Article 3 of the BIT, which acts as the

Moot Problem, p. 6, ¶ 9.

Ibid.

43

The Collection of the Best for IMAIL 2021

82.

‘national treatment’ clause. According to the eminent jurist R Dolzer, the national treatment clause serves the purpose of creating an environment of equitable and stable legal framework for foreign investments by casting an obligation upon the host state to accord treatment no less favourable to the foreign investors and their investments than that which the host state accords to its own investors. 80 The ICSID Tribunal, in paragraph 388 of its award in Bayindir v.

Pakistan81, stated that the National Treatment clause makes no exceptions, and covers both regulatory as well as contractual matters.

The three requirements to prove breach of national treatment have evolved under customary international law and are as follows:82

CLAIMANT SATISFIES THE TEST OF ‘LIKE ’ AS THE B ASIS O F C OMPARISON The ICSID Tribunal, in the case of Feldman v. Mexico, 83 (a)

83.

84.

held that ‘in like circumstances’ was interpreted to refer to situations wherein the two business entities were engaged in the same business activity. To qualify under ‘like circumstances’, tribunals compared entities and analyzed whether they were subject to ‘like legal requirements’ in their regulatory treatment.84 It is thus pertinent to mention here that not only was the Claimant engaged in the manufacturing of defence goods similar to those manufactured by other indigenous manufacturers, the Claimant was also expected to meet the same legal criteria throughout the process of running its business. The same is evident from the fact that the Claimant was a legitimate bidder who won the legal tender floated by the Respondent. 85 The current dispute, among other things, pertains to the different taxation standards adopted by the Respondent for

R Dolzer & M Stevens, ‘Bilateral Investment Treaties’ [1995], p. 63-65.

Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, ¶ 388.

82 R. Dolzer & C. Schreuer, ‘Principles of International Investment Law’, p. 198203.

83 Marvin Feldman v. Mexico, Award, ICSID Case No. ARB(AF)/99/1, Award, ¶ 171.

84 Grand River Enterprises v. United States, IIC 481 (2011), Award, ¶ 166.

85 Moot Problem, p. 3, ¶ 3.

80 81

44

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

indigenous manufacturers and the Claimant. The disputed actions taken by the Respondent violate the Agreement on Trade Related Investment Measures (TRIMs), to which the Claimant and the Respondent, both, are a party. A comparison is being drawn with companies operating in the same business, i.e., defense manufacturing. Moreover, the change in the taxation policy of Windiva specifically protects only indigenous manufacturing, thus being an expressly discriminatory measure, which is violative of Article 4 and 5 of the BIT, as well as the international minimum standards with respect to fair and equitable treatment of foreign investors and their investments in host states. (b)

85.

86.

87.

86

THERE EXISTS SUBSTANTIAL DIFFERENTIAL TREATMENT BY THE RESPONDENT FOR FOREIGN INVESTORS AND I NDIGENOUS MANUFACTURERS .

The relevance of targeting foreign nationals was highlighted in a case before the ICSID Additional Facility titled Corn Products v. Mexico.86 In the instant case, the Tribunal held that where adverse effects of a change in the taxation policy affected by the government are only felt exclusively by the foreign investors, such actions would be sufficient to establish the requirement of ‘less favorable’ treatment.

In the instant case, a differential measure is clearly adopted by the Respondent, as it expects foreign investors protected under the BIT to pay taxes on importing raw material for defense manufacturing, while indigenous manufacturers, undertaking manufacturing for the same products have been granted an extension of the exemption already in place.

Such a measure, wherein the taxation policy was amended specifically taxing the foreign investors in the ‘like business’ more so than the indigenous manufacturers is manifestly against the NT Clause. Moreover, such taxation would significantly affect the ability of the Claimant to undertake its already existing obligations.

Cf Corn, Supra note 74.

45

The Collection of the Best for IMAIL 2021

(c) 88.

THE RESPONDENT HAS NO J USTIFICATION FOR DIFFERENTIAL TREATMENT .

It has been established over the years that the application of the right to implement exigent sovereign measures (for example. Taxation, Defense matters) by host states is a reasonable justification to that the above-mentioned differentiating measures. However, the same can only be accepted if justifiable rational grounds are shown. 87 In the case of SD Myers v. Canada, 88 the Tribunal held that a discrimination in a case of ‘like circumstances’ may be held to be valid, if the same is done in furtherance to protect the public interest. However, in the current factual matrix, not a single objective has been provided wherein the Claimant investments can be seen to be in contravention of the public interest or policy of the state of the Respondent. On the contrary, the supply of UAVs to the military of the state of Windiva is indicative of the progress that the Claimant is providing to the military of Windiva, as such technology and product is the result of years of hard work and billions of dollars spent in research and development to achieve a successful product as the UAV. The goodwill and the expertise of the Claimant in the defense manufacturing industry was also one of the reasons cited by the Respondent while handing them the tender successfully. 89 4.3. The FET Clause has been breached by the Respondent.

89.

The Claimant submits that the actions of the Respondent in reversing the tax exemptions were in clear and absolute violation of its representations and commitments, as it undertook under Article 5 of the BIT. The Claimant posits, that the standards of the FET Clause are now recognized as part of the international minimum standard, and the same do

R. Dolzer, ‘The Impact of International Investment Treaties on Domestic Administrative Law’ [2003] p. 296-305.

88 SD Myers v. Canada, 2000, First Partial Award, ¶ 250.

89 Moot Problem, p. 3, ¶ 3 87

46

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

not need to be construed stringently with the wordings of the Treaty itself. (a) 90.

91.

92.

The FET standard is meant as a rule of international law and is not determined by the laws of the host state. Tribunals have repeatedly emphasized the independence of the FET standard from the national treatment standard.90 As the great jurist Stephen Schill also pointed out, fair and equitable treatment can be understood as embodying the rule of law as a standard that the legal systems of host states have to embrace in their treatment of foreign investors. 91 Moreover, the applicability of the standards of Fair and Equitable Treatment have gained the status of customary international law, as is the view of several jurists in the subject. 92 Thus, it is imperative that the treatment of the investments, as by the Claimant in the current proceedings should be treated in a ‘non-discriminatory’ manner, as is required by the BIT (Article 5) and the standards of customary international law as well.

In order to apply the FET standards, and adjudge the violation of the same, the international Tribunals dealing with International Investment Arbitrations have held that transparency and legitimate expectations establish a central role in the application of the FET standard. (b)

93.

BREACH OF THE FET CLAUSE IS NOT DEPENDENT ON THE LAWS OF THE HOST STATE

THE CLAIMANT IS CORRECT IN CLAIMING PROTECTION OF ITS LEGITIMATE EXPECTATIONS

The investor’s legitimate expectations are based on the host state’s legal framework and on any undertakings and

Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v. The Republic of Estonia, ICSID Case No. ARB/99/2, Award, ¶ 367.

91 S W Schill, ‘Fair and Equitable Treatment, the Rule of Law, and Comparative Public Law’ [2010], p. 150.

92 R Dolzer, Supra note 79.

90

47

The Collection of the Best for IMAIL 2021

representations made by the host state. 93 Tribunals have also emphasized that the legitimate expectations of the investor will be grounded in the legal order of the host state as it stands at the time the investor acquires the investment. 94 In the case of Occidental v. Ecuador, the Tribunal noted that the framework under which the investor had been operating had been changed in an important manner. 95 In the instant case, the host country changed the regulations for VAT reimbursement, seriously affecting the rights of the foreign investor. The Tribunal held such acts to be in clear violation of the legitimate expectations of the foreign investor and a breach of the FET clause. Moreover, the FET principle involves the governments obligation not to frustrate the investor’s legitimate expectations by arbitrarily changing the legal framework under which the investment had been made.96 (c)

94.

95.

96.

THE RESPONDENT VIOLATED ITS OBLIGATIONS TO MAINTAIN TRANSPARENCY IN ACCORDANCE WITH THE TERMS OF THE BIT.

The Claimant submits that the Respondent has taken actions violative of its obligations to act in a transparent and unambiguous manner.

The Government undertook the obligation to take legal, policy and regulatory measures in its territories in a transparent measure, and provide the investors covered under the treaty with an opportunity to comment on such measures.

(Article 7, BIT).

The Tribunal, in the case of Metaclad v. Mexico, 97 stated:

R Dolzer, ‘New Foundations of the Law of Expropriation of Alien Property’, [1981] 75 AJIL 553; G Burdeau, ‘Droit International et contracts d’ Etat’, [1982] Annuaire Francaise De Droit International, p. 454, 470.

94 C Schreuer and U Kriebaum, ‘At What Time Must Legitimate Expectations Exist?’, J Werner and A H Ali (eds), [2009] A Liber Amicorum: Thomas Wilde. Law Beyond Conventional Thought, p. 265.

95 Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467, Award.

96 CME, Supra note 43, ¶ 611.

97 SPP v. Egypt, ICSID Case No. ARB/84/3, Award.

93

48

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

“Mexico failed to ensure a transparent and predictable framework for Metaclad’s business planning and investment. The totality of these circumstances demonstrates a lack of orderly process and timely disposition in relation to an investor of a Party acting in the expectation that it would be treated fairly and justly in accordance with the NAFTA.” 97.

The Respondent is bound to publish and invite comments while taking measures that will affect investors and their investments, as covered under the BIT. 98 However, the Claimant were never invited to comment on the sudden change in taxation policy that was affected, and neither was the withdrawal of tax policy published, Thus, the same was done in a concealed and utmost opaque manner, and is against the standards of Transparency, as are set by the BIT in Article 7 itself.

5. The Claimant Is Entitled To Received US$ 670 Million In Damages Along With The Cost Of The Arbitration Proceedings.

98.

The Claimant submits that it is entitled to received US$ 670 million in damages along with the cost of the arbitration proceedings. This is because: as an aggrieved investor, the Claimant is entitled to full reparation of the loss incurred by it (1); such full reparation must include the total value of the Claimant’s business along with any future projected losses (2); and the cost of arbitration proceedings must be borne by the breaching party (3).

5.1 THE CLAIMANT IS ENTITLED TO FULL REPARATION OF THE LOSS INCURRED BY IT. 99.

98 99

The Claimant has already established that there has been a violation of the full protection and security clause99, the

Windiva-Firel Bilateral Investment Treaty, 2022, Article 7.1 & Article 7.2.

Issue 2.

49

The Collection of the Best for IMAIL 2021

national treatment clause100, the principle of fair and equitable treatment101 and a breach of confidentiality leading to a loss of trade secret 102. The Claimant has also submitted that the above breaches have had the effect of an indirect expropriation of its Windivan investment. Given that these actions were unlawful and caused unjust losses to the Claimant, it is entitled to full reparation in damages.103 100. In the Chorzow Factory Case104, the Permanent Court of International Justice (PCIJ) articulated the full reparation standard as follows: “The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation

must, as far as possible, wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible, payment of

a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it.”

101. In BG Group v. Argentina 105, the tribunal held that the full reparation standard described above can be applied in case of any breach of an investment treaty, a view that was subsequently adopted by several tribunals around the world.106 The purpose of the standard is to indemnify the investor of any loss created by lapses on part of the host state.

This principle of full reparation has been considered as a

Issue 4.

Id. 102 Issue 3.

103 See, ADC Affiliate Limited and ADC & ADMC Management Limited v. The Republic of Hungary, ICSID Case No. ARB/03/16.

104 Factory at Chorzów (Germany v. Poland), Merits, 1928 PCIJ (Ser. A) No. 17 (13 September).

105 BG Group Plc v. Republic of Argentina, UNCITRAL, Final Award, paras. 421– 429 (24 December 2007).

106 See also, Unión Fenosa Gas, SA v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award (31 August 2018); SICAR v. Kingdom of Spain, SCC Arbitration Case No. 2015/063, Final Award (15 February 2018); Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (28 March 2011); Swisslion DOO Skopje v. Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award (6 July 2012).

100 101

50

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

general principle of customary international law. 107 For this reason, any breaches in the treaty will lead to an obligation to fully restore the investor’s economic position.

102. Therefore, given that the Claimant has established that there has been a breach of the provisions of the BIT, it is entitled to being paid the entire value of monetary loss it has suffered in full reparation of its initial position.

5.3 THE TOTAL AMOUNT DUE MUST ACCOUNT FOR THE VALUE OF THE CLAIMANT’S CURRENT AND PROJECTED FUTURE LOSSES DUE TO THE ACTIONS OF THE RESPONDENT 103. The Claimant submits that an approximate US$ 670 million is payable to it by the Government of Windiva. The Claimant submits that it is entitled to receiving monetary damages equivalent to: a portion of its future profits lost by virtue of the confidentiality breach (a); the value of the contract that remains unpaid (b); and the losses faced by it due to the unjust withdrawal of the tax exemption (c). (a) The total value of the Claimant’s business lost by virtue of a confidentiality breach 104. The make of the UAVs is a specialty of the Claimant. The Claimant has already established that the technical and mechanical blueprint of the UAVs is a trade secret, which was leaked to a direct competitor, in violation of the BIT. 108 It is submitted that the Claimant is entitled to compensation for this leak of sensitive information to an indigenous competitor by the Respondent.

105. In Phillips Petroleum Co. Iran v. Islamic Republic of Iran109, the tribunal concluded that damages were due for the damage to intangible property just as much as they were due Mark W. Friedman, Floraine Lavaud, Damages Principles in Investment Arbitration, The Guide to Damages in International Arbitration, Global Arbitration Review, (3rd edition, 2018) at p. 97.

108 Issue 3.

109 Phillips Petroleum Co. Iran v. Islamic Republic of Iran 21 Iran- U.S. Cl. Trib.

Rep. 79, 1989 WL 663903, at p. 20.

107

51

The Collection of the Best for IMAIL 2021

106.

107.

108.

109.

for damage to tangible property. In this case, there existed a contract between the claimant and the Republic of Iran regarding certain oil mining rights, which were repudiated by the latter. The tribunal declared damages for the damage caused to the contract rights of the claimant.

In the present case, the loss of confidential information is the loss of an intangible property that forms the basis of the Claimant’s whole business. It not only is a breach of the provisions of the BIT, it also causes a long-term damage to the future possible profits of the Claimant. This is because, the make of its UAVs can be cracked by the Windivan national that was unceremoniously handed the vehicles without the Claimant’s permission. This could lead to a great loss in the Claimant’s market share which, although excluded from the ambit of “investments” by the BIT 110, is a loss that will arise directly from factors closely connected to the investment. 111 In LETCO Case 57 112, the ICSID tribunal found that under the principle of customary international law, an aggrieved party is not only entitled to damages for its lost investments, but also for its forgone future profits.

In this regard, the Claimant suggests that the Tribunal employ the income-based approach to determine the amount of forgone future profits. In doing so, the Tribunal may choose to consider the total projected income that the Claimant would have received if not for the breach, for a period of five years.

Total annual income From the proposition we know that: Total

number

of

UAVs

sold

per

annum

450

Article 1.4 (v), BIT. Schreuer, Article 25, ¶ 60.

112 See, Liberian Eastern Timber Corporation v. Republic of Liberia, ICSID Case No. ARB/83/2.

110 111

52

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Selling

price

per

UAV

USD 2 mil.

Total

annual

income

USD 900 mil.

Duration for compensation 110. According to the University of Oslo’s PluriCourts Investment Treaty Arbitration Database, the second largest arbitration data-base in the world113, the average duration of an arbitration proceeding is 3.6 years. 114 111. In the present factual matrix, the Claimant was made aware of the breach of confidentiality in December 2023. The arbitration proceedings were initiated roughly 1.5 years later.

Therefore, the estimable duration between the occurrence of the dispute and its resolution is about five years.

112. The Respondent submits that the Tribunal must order compensation for at least the period of subsistence of the present dispute, during which time the status of its investment stands in limbo.

Percentage for damages 113. Of this total, the Claimant submits that a share of at least 10% must be awarded as compensation. Given that the Claimant is a seasoned group of companies, with considerable industry experience, the available data may be used to predict the projected cash flows in the future.115 114. From the abovementioned data, it can be concluded that the amount that can be ordered as compensation for the breach

Holger Hestermeyer and Anna De Luca, Duration of ISDS Proceedings, European Journal of International Law Blog, 3 rd April, 2019, accessible at https://www.ejiltalk.org/duration-of-isds-proceedings/.

114 PluriCourts Investment Treaty Arbitration Database, University of Oslo, https://www.jus.uio.no/pluricourts/english/topics/investment/researchprojects/database.html.

115 See, Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, ¶ 879.

113

53

The Collection of the Best for IMAIL 2021

of confidentiality is 10% of USD 900 million for a period of five years (i.e.) USD 450 million. (b) The amount unpaid under the contract 115. As already stated above, the full reparation standard requires that a tribunal consider not only the present value of the investment but also the projected losses in the future. The idea is to erase all the consequences of the illegal act so as to reinstate the investor in the same economic position it would have held otherwise.

116. Of the USD 200 million payable to the Claimant under the state contract, only USD 50 million for the first tranche was actually paid. The subsequently delivered second tranche has not been paid for so far, entitling the Claimant to it, and all subsequent tranches remain suspended due to the Respondent’s utter violation of the Claimant’s rights under the BIT. Therefore, the Claimant is entitled to the remaining sum of USD 150 million under the contract. (c) The loss incurred due to discriminatory withdrawal of tax exemption 117. In the payment of damages to the Claimant for the unlawful attachment of its bank accounts, it is recommended that the Tribunal order the restitution of the attached accounts. From the Chorzow Factory Case, it has been a widely accepted rule of customary international law that “where a state is not permitted to expropriate alien property, the party whose assets have been expropriated is entitled to restitution in kind.”116 118. The attachment of bank accounts for attempting to demand compensation for losses was a direct violation of Article 5 of the BIT and flies in the face of due process. 117 This amounts to unlawful expropriation of the Claimant’s investment, as it was not carried out in accordance to due process or for a public purpose. For these reasons, the Respondent must be ordered to restore the Claimant’s possession of its bank accounts and pay the projected amount of future losses so as to wipe out all consequences of the illegal act. The value of 116 117

See, Friedman and Lavaud, p. 98.

Issue 4.

54

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

projected future losses due to the actions of the Respondent is USD 70 million. This figure must be added to the total value of compensation.

119. From the above mentioned, the sum of USD 670 million can be derived as follows: Working Note Particulars Total loss due to the withdrawal of tax exemption Loss of future income Value of contract Unpaid Unrealised Total

Amount (in USD) 70 million 450 million 50 million 100 million 670 million

5.3 THE COSTS OF THESE PROCEEDINGS MUST BE BORNE BY THE RESPONDENT 120. The Claimant submits that the Government of Windiva must be made to bear the costs of these arbitration proceedings.

While admittedly the BIT calls for a sharing of costs between parties, under Article 11, this Tribunal has the power to direct the Respondent to bear all the costs, and must exercise this power in favour of the Claimant. This is because an investor whose assets are unlawfully expropriated is entitled to receive remedies such as restitution and supplemental damages, as well as valuation based on the date of the award. 118 121. The full reparation standard requires that the investor also receive damages for consequential losses stemming from the unlawful conduct. 119 In Azurix v. Argentina,120 it was held Id. Pierre Bienvenu and Martin J. Valasek, ‘Compensation for Unlawful Expropriation, and Other Recent Manifestations of the Principle of Full Reparation in International Investment Law’, 50 Years of the New York Convention 231 at p.

235.

120 Azurix Corp v. Argentine Republic, ICSID Case No. ARB/01/12, Award, ¶ 432.

118 119

55

The Collection of the Best for IMAIL 2021

that costs of dispute resolution must be included in the damages awarded to an investor as these are costs that were only incurred because of the unlawful activities of the government.

122. In the present case, the government of Windiva has acted in a manner that is unlawful and contrary to its obligations under the BIT. Relying on the principles of customary international law and standard practice in investor-state dispute resolution, it must be made to bear the entire costs of these proceedings, which only arose due its misconduct, in fulfilment of the full reparation standard.

RELIEF REQUESTED

In view of the above submissions, the Claimant respectfully requests the Tribunal to: 1.

2.

3.

Hold that the present proceedings are maintainable, and the Tribunal has the jurisdiction to adjudicate in the current dispute, since: (a) The dispute has arisen out of a contract underlying the Bilateral Investment Treaty (b) The Respondent is a member of the ICSID Convention, and has consented to arbitrate its claims in front of this Tribunal. (c) The Claimant has acted in a bona fide manner, and pursued all its remedies before the domestic courts, as required under the BIT; Hold the Respondent accountable to reimburse the Claimant for the damage to its office buildings in Mekhli; Hold the Respondent liable for their act of sharing the UAVs with the indigenous manufacturer, since: (a) The same amounts to a breach of important confidential information of the Claimant. (b) The same amounts to losses amounting to millions of dollars for the Claimant; And hold the Respondent liable to pay damages for such actions.

56

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

4.

5.

Hold the Respondent responsible for attaching the bank accounts of the Claimant, and award damages for the same.

Order the Respondent to pay 670 million US Dollars as damages for the reasons mentioned above, and elucidated throughout this memorandum; Respectfully Submitted on 12th June, 2024 By: Team T-GCN-COLS-AV-C On behalf of the Claimant Aveeron Group

Best Memorial – Respondent Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur

Harshita Agarwal, Poulomi Sen, Charu Joshi, & Gayatri Joshi, Authors

57

The Collection of the Best for IMAIL 2021

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-<T-VXZ-TIKI-AL>-R INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP, Claimant, v.

THE GOVERNMENT OF WINDIVA, Respondent.

58

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

ICSID Case No. ARB/XZ/A RESPONDENT’S MEMORIAL 05 AUGUST 2021

SUMMARY OF ARGUMENTS 1. The contractual claims brought by Claimant arises from the pure breach of contract. The crux of the dispute is prefaced on a breach of the terms and conditions of the awarded contract. Claimant has improperly reformulated all claims as underlying contract claims to the BIT, but all claims are purely contractual in nature. Therefore, under Article 8 of the BIT, the Tribunal does not has the jurisdiction in the present dispute.

2. There is no concrete piece of evidence to prove that the Respondent had encouraged, fostered or contributed to the acts of the protestors.

Article 3 of the BIT explicitly mentions that “full protection and security” refers to a Party’s obligations relating to physical security of investors. In this case, the unprecedented event of civil unrest and violence which aroused all of a sudden due to the introduction of the Population Control Bill was not at all prejudicial to the physical security of the investors.

3. The after sale service clauses for the ‘software’ as well as ‘hardware’ of the aerial vehicles were specified in the contract. As per the investigations, the unmanned aerial vehicle crashed because the AI software in the unmanned aerial vehicle could not identify the algorithmic camouflage and miscalculated the landing trajectory. The Respondent was compelled to send the UAVs to an indigenous company to fix the problems related identifying algorithmic camouflage as the Claimant breached their obligations under aftersale service contract

59

The Collection of the Best for IMAIL 2021

4. The Claimant receives the consignment of UAV parts from his home country ‘Firel’ and the local manufacturing unit of the Claimant has been set up in the SEZ ‘AAY’ of the Windiva. The movement of goods to or from a SEZ to other States and provinces of Windiva is equivalent to “import”. All imports are considered as inter-State supplies. The IGST is imposed on the consignment of UAV parts received from Firel in 2024, thus, it will be 'import' and will be subject to IGST imposition. Thus, imposition of IGST on Claimant is in accordance with the tax laws of Windiva.

5. No damages should be awarded to Claimant on the basis that the quantum of their claims is theoretical, not supported by any evidence, and neglects to acknowledge the principles of causation.

Respondent seeks reimbursement for the costs of the entire arbitration proceedings as mentioned in the Article 38 of UNCITRAL Arbitration Rules.

ARGUMENTS FIRST ISSUE: THIS TRIBUNAL HAS NO JURISDICTION TO HEAR ANY OF THE CLAIMS AS THE VIOLATION IS A PURE BREACH OF CONTRACT THAT HAS TO BE SOLVED BEFORE DOMESTIC COURTS OF WINDIVA. 1. The Respondent contends that the ICSID Tribunal has no jurisdiction and competence as this is a pure contractual claim where the crux of the dispute is prefaced on a breach of the terms and conditions of the awarded contract. In SGS vs. Republic of Pakistan,1 the Arbitral Tribunal addressed the issue of whether it had the jurisdiction to resolve the contractual claims and observed that "...disputes arising from claims grounded on alleged violation of the BIT, and disputes arising from claims based wholly on supposed violations of the PSI Agreement, can both be described as "disputes with respect to investments," the phrase used in Article 9 of the BIT...from that description alone...no implication necessarily arises that both BIT and purely contractual claims are intended to be covered in Article 9."

Thus, it was held that the provisions of BIT cannot be read as vesting the ICSID Tribunal with jurisdiction over contractual claims.

1

ICSID Case No. ARB/01/13.

60

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

2. The Respondent submits that this Arbitral Tribunal should adopt a related approach as the scope of the Tribunal does not have jurisdiction to consider the Claimant's claims as they are contractual in nature[A]; and the umbrella clause in the BIT does not extend the scope of this ICSID's jurisdiction to incorporate Claimant's contractual claims[B].

[A] All claims submitted by Claimant are contractual in nature.

3. Respondent asserts that the Claimant's contentions that the ICSID has jurisdiction are unsubstantiated since all claims are contractual in nature and Claimant improperly reformulated them as underlying contract claims to the BIT. The threshold to demonstrate that a breach of contract indicates a breach of treaty is a very high one. 2 4. ICSID Tribunals have held on numerous occasions that breaches of contract are not automatically treated as breaches of international treaty by virtue of umbrella clauses despite the breadth of these clauses.3 Such a concept can be very disruptive of the distinction between national and international legal order 4 as every breach of contract does not significantly add up to breach of treaty. 5 5. As observed by the Annulment Committee in Vivendi vs. Argentina,6 "a treaty cause of action is not the same as a contractual cause of action, it requires a clear showing of conduct...in the circumstances contrary to the relevant treaty standard." Thus, the Committee observed that the treaty claims are lawfully different from contractual claims, even if they arise of the same facts.

6. The doctrine articulated by Cremades7 based on the judgments by the ICSID Tribunals has elaborated certain indicators that attempts to differentiate a treaty claim based on treaty rights, from a contract claim arising in the context of the same dispute. They are: (i) the source of the right; (ii) the parties of the claim; and (iii) the applicable law. (i) The source of the right.

Impregilo SpA vs. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3.

Joy Mining Machinery Ltd. vs. Egypt, ICSID Case No. ARB/03/11; Toto Costruzioni vs. Lebanon, ICSID Case No. ARB/07/12.

4 El Paso Energy International Company vs. Argentina, ICSID Case No. ARB/03/15.

5 Consortium Groupement LESI-DIPENTA vs. Algeria, ICSID Case No. ARB/03/08.

6 ICSID Case No. ARB/97/3.

7 B. M. Cremades and David J.A. Cairns, Contract and Treaty Claims and Choice of Forum in Foreign Investment Disputes, (Norbert Horn ed., Kluwer 2004).

2 3

61

The Collection of the Best for IMAIL 2021

7. The most underlying differentiation among treaty and contractual claims is the source of the right on which the claim is based. The cause of action arising from a treaty claim is a right defined and created in an investment treaty, while the cause of action of a contractual claim is a right defined and established in the contract. 8 8. In the present dispute, the cause of action of Claimant's claims is the awarded contract only. Claimant's assertions are based on the pure breach of contractual claims as when the contract was awarded to Claimant, the Host State, that is, Respondent, was acting just as a party to the contract and was not acting in its sovereign capacity.

This implies that the source of right in the present dispute is of purely contractual in nature and lies within the realm of awarded contract and is not at all linked with the BIT. (ii) The parties to the claim.

9. In treaty disputes, the parties involved are usually any qualifying investor and the host State, whereas, in the contractual disputes, the parties involved are only the parties that signed the agreement, which may or may not include the host State. 9 10. Wena Hotels vs. Arab Republic of Egypt,10 dealt with a dispute about commercial leases between investor and host State and a dispute regarding the treatment of foreign investors. The Annulment Committee held that the dispute arising under the leases had their fundamental basis in contract, because the leases "deal with questions that are by definition of a commercial nature."

11. In Pan American,11 the Arbitral Tribunal held that the umbrella clause in BIT "will not extend the treaty protection to breaches of an ordinary commercial contract entered into by the State or a State-owned entity."

12. Putting the same approach in the present dispute, though the parties to claim involves the host State, the source of right to the cause of action arises from the awarding contract and thus the Claimant's claims have their fundamental basis in the contract. No BIT obligations are triggered on the pure breach of contractual claims and therefore, the role of Respondent should be observed in the light of its obligations under the awarded contract and not under the BIT. (iii) The applicable law. ibid.

Tawil, G.S., The Distinction Between Contract Claims and Treaty Claims: An Overview, (Kluwer Law International 2007).

10 ICSID Case No. ARB/98/4.

11 ICSID case No. ARB/03/13.

8 9

62

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

13. The applicable law under the BIT is usually governed by the provisions of the BIT itself, the domestic law of the host State, and the general international law. In contrary, the contracts are governed by the domestic law of the host State.12 14. Similarly, in the present dispute, the awarded contract must be governed by the domestic law of the host State, that is, Windiva. As all claims submitted by Claimant has been improperly reformulated as treaty claims, Respondent humbly asserts that these claims should be recognized as a contractual claims and thus, Claimant may only resort to the remedies provided under the awarded contract which has to be resolved before the domestic courts of Windiva.

[B] The umbrella clause in the BIT does not extend the scope of this ICSID's jurisdiction to include Claimant's contractual claims.

15. Article 8 of Windiva-Firel BIT13 contains the provision which is commonly referred as an "umbrella clause". It states that "this Article shall also apply to a dispute...with respect of its investment, arising out of an alleged breach of contract, provided that the breach is not a pure breach of contract...All other forms of pure breaches of contracts shall only be resolved by domestic courts."

16. This clause provides that any disputes that might arise from the pure breach of contract should be adjudicated exclusively in the domestic courts of the host State. Respondent contends that (i) the object, and purpose of the umbrella clause supports a narrow interpretation of its scope; and (ii) the umbrella clause does not extend the scope over commercial or contractual acts. (i) The object and purpose of the umbrella clause supports a narrow interpretation of its scope.

17. The language of umbrella clause precludes the State from practicing sovereign authority to avoid obligations it has entered with respect to investments. 14 This is a constraint on sovereign power. The Contracting Parties cannot be presumed to have consented to more prominent limitations on its power than is necessary.

ibid.

Windiva-Firel BIT, art. 8.

14 John P. Gaffney, The-'Effective Ordinary-Meaning'-of-BITs-and-theJurisdiction-of-Treaty-Based-Tribunals-to-Hear-Contract-Claims, (The Journal-ofWorld-Investment-and-Trade, Vol. 8, No. 1, 2007).

12 13

63

The Collection of the Best for IMAIL 2021

18. Article 31 of the Vienna Convention 15 demands a treaty to be deciphered in good faith in compliance with ordinary meaning given to the terms of the treaty in their specific circumstances and considering their purpose. The Tribunal should analyze the text, object, and purpose of Article 8 in purview of the Vienna Convention and should infer that it does not have jurisdiction over Claimant's contractual claims.

19. The object and purpose of BIT, as indicated in its preamble, is to promote investment. Purpose must not be deciphered more expansively as signified by the Contracting Parties. BITs are never contemplated as an insurance policies which can be initiated against a State's ordinary breaches of contract, and accordingly they cannot transform mere contract claims into international law claims through umbrella clauses. Rather, such clauses only barred a State from breaching contractual rights through sovereign performances, whether through administrative decision, executive decree, legislation regulation or judicial verdict, or otherwise. The inability of a host State to perform a contract per se does not essentially gives rise to liability under an umbrella clause.16 20. The constructive definition of the umbrella clause is preserved by a narrow reading. Unfavorable legal outcomes will emerge from an unnecessarily broad interpretation of the umbrella clause. The potential adverserial consequences of a comprehensive interpretation were canvassed widely by SGS vs. Pakistan17 in resolving that an umbrella clause should be deciphered restrictively.

21. A broad view of the umbrella clause could lead to a tide of contractual lawsuits before treaty tribunals. It "would amount to incorporating by reference an unlimited number of State contracts, as well as other municipal law instruments."18 Further, the broad interpretation of umbrella clause would allow an investor to nullify any freely negotiated dispute settlement clause in an investor agreement. 19 (ii) The umbrella clause does not extend the scope over commercial acts.

Vienna Convention on the Law of Treaties, 1969, art. 31.

Carolyn Lamm, The Applicable Rules of Law to Disputes Between State Entities and private Companies – The Interaction Between Constract Arbitration and Treaty Arbitration, (21st Joint-Colloquium-on International-Arbitration, 2004).

17 ibid 1.

18 ibid 1.

19 ibid 1.

15 16

64

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

22. The Tribunal in Pan American20 and El Paso21 not only held that the scope of umbrella clause must be narrowly interpreted, thus, preventing tribunals from having jurisdiction over contractual claims, but also drew a further distinction between a State acting as a 'merchant' and a State acting as a 'sovereign'. In El Paso22, the Tribunal held that, "...purely commercial aspects of a contract might not be protected by the treaty in some situations, but the protection is likely to be available when there is significant interference by governments or public agencies with the rights of the investor."

23. From the mentioned case, it is crystal clear that if the host State is not acting as a sovereign but is acting as a merchant, the relevant BIT's umbrella clause cannot convert the contractual claims into a treaty claims "as this would necessarily imply that any commitments of the State in respect to investments, even the most minor ones, would be transformed into treaty claims."23 Only when the host State acting as a sovereign enters into the contract with the investors, the investors will be allowed to bring a contractual claims to the BIT tribunal through umbrella clause.24 24. As observed by the Tribunal in Impregilo25, "in order that the alleged breach of contract may constitute a violation of the BIT, it must be the result of behaviour going beyond that which an ordinary contracting party could adopt. Only the State in the exercise of its sovereign authority ('puissance publique'), and not as a contracting party, may breach the obligation assumed under the BIT." 25. In other words, to constitute an act to be a "sovereign" act, the host State must exercise its faculties and powers either through the administrative measures or in the international realm. All the cases mentioned observes the limited and restrictive scope of the umbrella clause. Thus, the treaty based arbitration should have the fundamental basis on acts performed by a host State in its sovereign capacity and not in its commercial or contractual capacity.

26. Following the same approach in the present case, since Respondent acted as a merchant, Claimant's claims should be recognized as a contractual claims and must not be transformed into a treaty claims ibid 3. ibid 2.

22 ibid 2.

23 ibid 2.

24 ibid 3; ibid 2.

25 ibid 1.

20 21

65

The Collection of the Best for IMAIL 2021

through the umbrella clause of the relevant BIT, and therefore, the present dispute must be resolved in the domestic courts of Windiva.

SECOND ISSUE: CLAIMANT IS INCORRECT IN CLAIMING VIOLATION OF DOCTRINE OF FULL PROTECTION AND SECURITY AS THE EVENT FALLS UNDER THE FORCE MAJEURE EXCEPTION. 27. Article 3 of the BIT,26 concluded between the Government of Windiva and the Government of Firel, outrightly stipulates that, "full protection and security only refers to a party's obligations limited to physical security of investors and also to investments made by the investors of the other Party and not to any other obligation whatsoever."

28. Respondent hereby contends that the Claimant has wrongly construed the standard of Full Protection and Security[A]; and the acts of violence and protest falls within the ambit of Force Majeure[B].

[A] The Claimant has wrongly construed the standard of Full Protection and Security.

29. For the purpose of proving that the standard of full protection and security has been violated, the investor must furnish adequate evidence that the host State encouraged, contributed or in another way failed to take appropriate steps and measures to safeguard the interests of a foreign investor 27. In several cases, tribunals have observed lack of concrete evidence in this regard and thus, the host State was not held liable28. In Tecmed v. Mexico29, the tribunal observed that there was inadequate evidence to establish that the Mexican authorities had encouraged, fostered or contributed to the acts of the demonstrators. (i) The Respondent did not violate its "due-diligence" obligation.

30. It remains uncontested that the standard of full protection and security does not impose strict liability on the host State but a duediligence obligation. 30The due diligence obligation is often considered as an "obligation of vigilance."31 This is critical where the damage at question took place due to actions which are not directly attributable to the host State itself. In this regard, the standard of Windiva-Firel, BIT, art. 3.

Aceris Law LLC, The Standard of Full Protection and Security for Foreign Investors (Aceris Law 2018).

28Técnicas MedioambientalesTecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11.

29ibid.

30Infinito Gold v. Costa Rica, ICSID Case No. ARB/14/5.

31 Mobil Exploration v. Argentina, ICSID Case No. ARB/04/16.

26 27

66

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

31.

32.

(ii) 33.

34.

“due diligence” does not require the host state to “prevent each and every injury” but the host state is required to exercise reasonable care and take reasonable measures within its authority and power to prevent destruction and injury of the investor. 32 In the Cutler case33, a citizen of America complained about the destruction of his property that happened due to a mob attack in Florence. Italy admitted that it had a responsibility of surveillance but not an obligation of preventing any harm. The United States accepted that, for the purpose of stating a claim, they have to establish that the Italian authorities 'had knowledge, or should have had knowledge, of the impending attack, or failed to take precautions to thwart it'34, to which the arbitrator agreed. In the case of Italy v. Venezuela35, the case's umpire declared that Venezuela cannot be held accountable for acts of uncontrolled revolutionists without any adequate evidence that the state had 'failed to exercise due diligence to prevent and mitigate destruction'.

A chamber of the International Court of Justice in the case of US vs.

Italy36, held that, "The reference to the provision of ‘constant protection and security’ cannot be interpreted as a guarantee that a property in any circumstances shall never be occupied or disturbed."

Article 3.1 of the BIT mentioning "physical security" is not violated.

The tribunal in the case of Asian Agricultural Products (AAPL) v Sri Lanka37scrutinized the FPS clause in a BIT between the UK and Sri Lanka and concluded that the phrase ‘full protection’ in a BIT did not indicate any standards higher than the minimum standard of treatment that is necessitated by general International Law. The tribunal in BG Group v. Argentina38 also held that protection and security was limited to physical violence and destruction.

The tribunal in Rumeli v. Kazakhstan39 held that: “the full protection and security standard obliges the State to provide a certain level of protection to foreign investment but only from physical damage”. The tribunals in Saluka v. Czech Gas Natural v. Colombia, ICSID Case No. UNCT/18/1.

58 F.3d 825 (2d Cir. 1995).

34 Krista Nadakavukaren Schefer, International Investment Law: Text, Cases and Materials (Edward Elgar Publishing, 2d edition, 2016, page 364).

35 10 R.I.A.A. 499 (1903), page 524.

36 1989 I.C.J. 15.

37 ICSID Case No ARB/87/3.

38 U.S. 12-138 (2014).

39 ICSID Case No. ARB/05/16.

32 33

67

The Collection of the Best for IMAIL 2021

Republic40 reiterated that the FPS standard is restricted to physical security.

35. The standard for FPS as per customary international law is “due diligence,” 41 not absolute liability. In ELSI42, the ICJ concluded that “the requirement for constant protection and security in the respective bi-lateral Friendship, Commerce and Navigation treaty was not a warranty to an investor that no disturbance under any circumstance would occur”. Similarly, ICSID tribunals in the case of AAPL v Sri Lanka 43, Wena v Egypt44 and Noble Ventures v Romania45, as well as Tecmed v Mexico46, reiterated that the obligation of full protection and security “is not absolute and does not impose strict liability upon the State that grants it”.

36. Taking the present case into context, there is no concrete piece of evidence to prove that the Respondent had encouraged, fostered or contributed to the acts of the protestors. Article 3 of the BIT explicitly mentions that “full protection and security” refers to a Party’s obligations relating to physical security of investors. In this case, the unprecedented event of civil unrest and violence which aroused all of a sudden due to the introduction of the Population Control Bill was not at all prejudicial to the physical security of the investors.

37. In addition to this, full protection and security standard does not impose an absolute liability on the Respondent but a duediligence obligation which means that the Respondent State is not required "to prevent each and every injury" but must exercise reasonable care to prevent the injury. The obligation of ‘full protection and security’ cannot be interpreted as a guarantee that a property in any situation shall be never occupied or disturbed. Therefore, in such an unprecedented event of civil unrest and violence which aroused all of a sudden due to the introduction of the Population Control Bill in the Parliament, causing havoc in Windiva, damaging the government owned property as well, the Respondent had no obligation whatsoever to render full protection and security to the Claimant. The Respondent neither had any knowledge nor could be IIC 210 (2006).

US-Mexican General Claims Commission Laura Janes Claim (1927) 4 UNRIAA 82, 86; ibid 7.

42 ibid 7.

43 ibid 7.

44 ibid 3.

45 ibid 6.

46 ibid 6.

40 41

68

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

expected to anticipate the impending protests thereby was unable to take any precautions to prevent the event beforehand. As a result, the claimant is incorrect in claiming violation of full protection and security.

[B] The acts of violence and protest fall within the ambit of Force Majeure.

38. Article 1.3 of the BIT defines the scope and ambit of Force majeure by stipulating that ""force majeure event" means an unforeseeable and uncontrollable natural disaster or man- made constraints which makes the performance of an obligation impossible."47 Further Article 3 of the BIT stipulates that “Force majeure events do not constitute a valid breach of the obligation of FPS and the Parties can be excluded from their obligations in case of occurrence of force majeure events”.

39. A Contract which incorporates a Force Majeure clause is governed by Section 32 of Indian Contract Act, 187248 which provides for enforcement of contracts contingent on an event happening whereas Section 56 of Indian Contract Act, 187249 deals with Doctrine of frustration.

40. Doctrine of frustration is applicable when50: (a) a force majeure clause is not included in a contract (b) force majeure clause is included but it does not cover the concerned act.

41. Taking the present case into context, Article 1.3 of the BIT includes "man- made constraints that make the performance of an obligation impossible" which is broad enough to encompass “violent protests and riots”.

The events in a force majeure clause includes Acts of God, war, belligerent action, hostilities, terrorist acts, governmental decisions, riot, civil commotion, strikes, fire, flood, earthquake, epidemic etc.51“Riot” is often incorporated in commercial contracts within a force majeure provision and may be even applicable in situations of protest and civil unrest. 52 42. Even if we consider that Article 1.3 is not broad enough to cover civil unrest and violent protests, Respondent has no obligation of rendering full protection and security by virtue of Section 56 of the Indian Contract Act which stipulates that “contract to do an act which, Windiva-Firel, BIT, art. 1.3.

Indian Contract Act, 1872, s. 32.

49 Indian Contract Act, 1872, s. 56.

50 Harold J. Berman, Excuse for Nonperformance in the Light of Contract Practices in International Trade (Columbia Law Review 1963).

51 Renjith Mathew, Force-Majeure under Contract Law in the Context of Covid-19 Pandemic (SSRN, 2020).

52 ibid.

47 48

69

The Collection of the Best for IMAIL 2021

43.

(i) 44.

45.

(ii) 46.

after the contract made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful53”. Since the protests and civil unrest broke out during the course of the operation of the contract, and because of the intervening event there was a change of circumstances so catastrophic and fundamental in nature that made the further performance impossible, therefore, the contract is frustrated and the Respondent is discharged from their obligation of full protection and security.

Respondent contends that the acts of protest and violence: (i) were "unforeseen"; (ii) were "uncontrollable"; and (iii) rendered the performance of the obligation impossible, 54 and therefore, falls within the force majeure exception.

The act of protest was "unforeseen".

In the case of Taylor vs. Caldwell55, it was declared that if some unforeseen event takes place in the course of the performance of a contract which makes it impossible of performance, such that the fundamental basis of the contract is affected, there is no need to further perform, owing to the reason that such performance would be unjust.

In this case, it was not at all possible for the Respondents to contemplate and anticipate that a mere introduction of a Bill in the Parliament would lead to such civil unrest and violent protests. In this digital era, protests and riots takes place in just hours and sometimes minutes of the communications on social media, with participation of thousands of people. Therefore, the Respondent could not have foreseen the happening of protests and civil unrest that took place all of a sudden.

The act of protest was "uncontrollable".

In the case of Entertain Video Limited &Ors v Sony DADC Europe Limited56, even though the Court held that Sony failed to put in place reasonable security measures and fire precautions but agreed to the fact that the riots were unforeseen and Sony could not have prevented the riot itself from occurring.

ibid 9.

Responsibility of States for Internationally Wrongful Acts, 2001, art. 23.

55 (1861-73) All ER Rep 24.

56 [2020] EWHC 972 (TCC).

53 54

70

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

47. The citizens’ right to protest is a pillar of democracy. Article 19 of the Indian Constitution 57 grants freedom of speech and further grants the citizens the right “to assemble peacefully without arms.” Also, since the protests were sudden, unprecedented and unforeseen they were beyond the reasonable control of the Respondent. (iii) The act of protests rendered the performance of the obligation impossible.

48. In the case of Satyabrata Ghosh vs Mungeneeram58it was held that, “impossibility does not mean literal impossibility to perform but refers to those cases where a supervening event beyond the contemplation and control of the parties (like the change of circumstances) destroys the very foundation upon which the contract rests, thereby rendering the contract 'impracticable' to perform, and substantially 'useless' in view of the object and purpose which the parties intended to achieve through the contract”.

49. In this case, the sudden outbreak of violent protest was something which was beyond the control and contemplation of the Respondent and therefore it was impossible for the Respondent to fulfill its obligation of FPS. 50. From the above submissions, it is quite evident that the happening of violent protests and civil unrest falls within the purview of Article 1.3 of the BIT and thus by virtue of Article 3 of the BIT, the Respondent is discharged from their obligation.

THIRD ISSUE: CLAIMANT IS BOUND TO PROVIDE AFTER-SALE SERVICE TO THE RESPONDENT AND THE RESPONDENT HAS NOT BREACHED THE CONFIDENTIALITY CLAUSE. 51. The Respondent contends that the crash the crash occurred due to miscalculation on the part of the Artificial Intelligence (AI) software deployed in the UAV and the Claimant is bound to provide after sale service as clauses related to the ‘software’ and ‘hardware’ were included in the after-sale service clause[A].

52. The Respondent contends that the Claimant’s refusal to fulfill their obligations under the after-sale service clause defeats their claim for breach of confidentiality. The decision of the Respondent to send the UAV to an indegineous company was consequential to the

57 58

Constitution of India, 1950, art. 19.

1954 AIR 44.

71

The Collection of the Best for IMAIL 2021

breach on the part of the Claimant and was made within its permitted margin of appreciation[B].

[A] The Claimant is bound to provide after sale service to the Respondent with respect to the UAV. (i) The crash occurred due to failure of the AI software to calculate trajectory.

53. The after sale service clauses for the ‘software’ as well as ‘hardware’ of the aerial vehicles were specified in the contract. As per the investigations, the unmanned aerial vehicle crashed because the AI software in the unmanned aerial vehicle could not identify the algorithmic camouflage and miscalculated the landing trajectory. The problem thus did not arise due to algorithmic camouflage of the tank but miscalculation on the part of the AI software in the UAV and its inability to detect it.

54. The drones in military have collision avoidance systems which work usually on a hybrid of reactive or deliberative planning approach.

The reactive systems under AI gather information using local sensors and react based on the information. This allows for a rapid response to sudden obstructions in the environment. Under the deliberative planning approach, the AI makes an environment map to calculate an obstruction free path 59. The crashing of the UAV is an instance of failure of the algorithm deployed in the AI of the UAV that is linked to trajectory of the UAV and anti-collision systems deployed in drones.

55. It is further an example of inaccurate surveillance sensors and delayed execution of commanded collision avoidance manuevers 60 deployed in AI drones . Therefore, the crash of UAV is due to a problem arising in the AI Software of UAV. (ii) The Claimant is in Breach of the BIT and underlying after-sale service contract.

56. Since, the After Sale service clauses include ‘software’, the Claimant is obligated to provide the after sale services. Further, the damage caused to the Hardware of the UAV due to its crash is also included in the After-Sale service clause. The claimant is merely trying to Jawad N. Yasin, Sherif A. S. Mohamed, Mohammad-Hashem Haghbayan, JukkaHeikkonen, HannuTenhunen, JuhaPlosila, Unmanned Aerial Vehicles (UAVs): Collision Avoidance Systems and Approaches, (Department of Future Technologies).

60 Eric Mueller, Mykel J. Kochenderfer, Simulation Comparison of Collision Avoidance Algorithms for Multi-Rotor Aircraft (Stanford University).

59

72

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

57.

58.

59.

60.

escape liability by bringing algorithmic camouflage under the ambit of a counter measure technology and for the aforementioned reasons, it is not justified in doing so.

It was only after a due process, the Claimant was awarded the contract by the Respondent owing to the fact that the Claimant had significant experience in manufacturing Artificial Intelligence enabled UAV. However, the subsequent crash of the UAV due to miscalculations of the deployed AI led to a loss borne by the Respondent. Consequently, the Claimant’s refusal to provide the After-Sale service to the Respondent is in Breach of : • Article 5 (Compensation for losses) of the BIT, • Article 6 (Investor’s obligation) of the BIT for not complying with the contractual laws and principles; and the underlying after-sale service clause of the BIT. Non-Performance of the underlying after sale-contract on the part of the claimant amounts to a material breach of the treaty under the principles enshrined in the Vienna Convention on laws of treaty (VCLT) as it a violation of a provision essential to accomplishment of the object or purpose of the treaty 61. Pacta Sunt Servanda is the core of any contract. A failure to meet obligations arising out of the contract dismantles the entire foundation of the contract and risks the operation of businesses 62.

Further, in the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG), in its Chapter II, titled ‘Obligations of seller’, under its Section III, titled ‘Remedies for Breach of contract by the seller’, it is provisioned that upon the failure to perform any obligations under the contract, the buyer can cause the seller to perform his obligations.

Even in the case of Sgs Société Générale De Surveillance S.A. And The Republic Of Paraguay,63it was noted that when a party fails to observe its contractual commitments, it breaches the treaty. The tribunal was of the view that if a party has breached its contractual obligation, the aggrieved party can seek damages for harm suffered.

Vienna Convention on Laws of Treaties, 1969, art. 60(3).

Humphrey Waldock, Second Report, (Yearbook of the International Law Commission (‘YILC’), 1963, vol II, 73).

63 ICSID Case No. ARB/07/29 at ,Para 95, 101,121.

61 62

73

The Collection of the Best for IMAIL 2021

61. Besides, an investor is duty bound to act in good faith as a general principle of law which is not necessarily tied to a specific provision of a treaty64.

[B] Claimant’s own actions defeat their claim and the decision of the Respondent was within its permitted margin of appreciation. (i) The claimant’s contractual rights were extinguished by its own breaches.

62. In the case of Impregilo v. Pakistan65, it was said that the investment protection treaty only provides a remedy to the investor where the investor proves that the alleged damages were a consequence of the behaviour of the Host State acting in breach of the obligations it had assumed under the treaty.

63. However in the present case, it was the Respondent (host state), who was compelled to send the UAVs to an indigenous company to fix the problems related identifying algorithmic camouflage as the Claimant breached their obligations under after-sale service contract.

The actions and decisions taken by the Respondent as a consequence of breach on part of the claimant cannot incur a liability on the respondent as it is against the principle of non estadimplendum66.

Hence, the action of the respondent to give the UAV to indigenous company to fix the problems was, under the prevailing circumstances, an appropriately rational measure. (ii) The decision of the Respondent to dispatch UAV to an indigenous company was consequential to Claimant’s breaches within its permitted margin of appreciation 64. Investment treaties should not be used to attack the host state. The public interest regulations promulgated by host states have been particularly vulnerable to attacks from the investors 67. Mere negative effect on a foreign investor’s bottom line cannot render a state action unfair and inequitable. States have considerable authority to regulate its matter for public interest. This authority comes irrespective of their treaty obligations. Legitimate regulatory measures may reduce Inceysa v. El Salvador, Case No. ARB/03/26. ibid 1.

66Appeal Relating to the Jurisdiction of the ICAO Council (India v Pakistan) (Separate Opinion of Judge De Castro) [1972] ICJ Rep 46, 128.

67Chaudhury Barnali, Recapturing Public Power: Is Investment Arbitration's Engagement of the Public Interest Contributing to the Democratic Deficit?, (Vanderbilt Journal of Transnational Law, 2008).

64 65

74

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

the value of an investment without entailing any violation of investor’s rights.68 The state is entitled to a certain "space for maneuver," within which its conduct is exempt from fullfledged review. To put it differently, when state’s action do not violate a certain minimum threshold of protection, the Courts are to respect the state’s determinations that it’s action complies with the convention even if the Court might have come to a different conclusion itself, faced with the issue de novo 69.

65. The margin of appreciation has been invoked by the tribunal in many awards including -Award in Continental Casualty vs Argentina 70; the Award in Frontier Petroleum vs. Cxecb Republic71; and the Decision on Liability in Electrabel vs. Hungary72; and the Decision on Jurisdiction in Micula vs. Romania73 (2008) where respondent state(s) was/were entitled to a margin of appreciation, requiring the arbitrators to treat certain decisions by the national authorities with a degree of deference. States enjoy a certain margin of appreciation in determining what their own conception of international public policy is74.

66. In the case of Electrabel S.A. Claimant vs. Hungary75,where the tribunal addressed whether Hungary (host state) took arbitrary measures or wrongfully frustrated Electrabel’s (investor’s) reasonable expectations with respect to the legal framework in Hungary, it was said that : “the Tribunal’s task is not here to sit retrospectively in judgment upon Hungary’s discretionary exercise of a sovereign power, not made irrationally and not exercised in bad faith towards Dunamenti (investor) at the relevant time.”

67. The Respondent state cannot compromise with its defence capabilities; the promotion and expansion of which is its sovereign exercise. The UAVs were dispatched to the indigenous company with the sole purpose to fix the problem arising in the artificially

Julian Arato, The Margin of Appreciation in International Investment Law, (Journal of International Law, 2013-2014).

69 ibid.

70 ICSID Case No. ARB/03/9.

71 UNCITRAL, Final Award (Nov. 12, 2010).

72 ICSID Case No. ARB/07/19.

73 ICSID Case No. ARB/05/20.

74 E. Gaillard, Fouchard, Gaillard, Goldman on International Commercial Arbitration (1999), 1712.

75 ibid 14.

68

75

The Collection of the Best for IMAIL 2021

intelligent UAV, this decision was rational and not exercised in bad faith. (iii) The decision to send the UAV to indigenous company did not cause any proved compensable harm to the claimant.

68. Even if it is assumed that there was a breach of confidentiality, Claimant has failed to prove that the alleged breach of ‘confidentiality’ has caused compensable harm. In the case of Pope & Talbot76, NAFTA tribunal opined that “measures affecting property interests” need to have a considerable “magnitude or severity” to qualify as a claim that incurs liability. Even as per the Ecuador case77 the claimant has to prove an ‘irreparable harm’ by such breach and existence of a situation of necessity and urgency relative to these rights.

69. In the case of Biwater Gauff (Tanzania) Ltd., Claimant V. United Republic Of Tanzania78, Respondent the tribunal was of the view that in order to qualify as ‘expropriation’ which includes "deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in 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 State"79 - a cumulative effects of acts of parties has to be seen in so far as such cumulative effect might be to deprive the investor of the economic benefit of its assets.

70. In the present case, the UAV were sent to the indigenous company for the sole objective to fix the problems arising in the UAV and NOT to deprive the claimant of the economic benefit of its asset.

Hence, Government of Windiva, that is, the Respondent did not breach business-related confidential information while dispatching few unmanned aerial vehicles (UAVs) to an indigenous company specializing in defence technology.

FOURTH ISSUE: THE CLAIM OF THE RESPONDENT IS CORRECT IN INTERPRETING THE WITHDRAWAL OF TAX EXEMPTION AS AN EVENT WHICH PREEXISTS THE BIT. 41 ILM 1347 (2002).

ICSID Case No. ARB/03/6.

78 ICSID CASE NO. ARB/05/22.

79 Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1, para.

103.

76 77

76

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

71. Claimant is an “investor of a Party,” Firel, within the meaning of Article 1.580 of the BIT, whereas the Windivan subsidiary of Claimant is an “enterprise” and an “investment of an investor of a Party” for purposes of Articles 1.281 and 1.482 of the BIT since the subsidiary is owned by the Claimant.

72. The Claimant receives the consignment of UAV parts from his home country ‘Firel’ and the local manufacturing unit of the Claimant has been set up in the Special Economic Zone ‘AAY’ of the Windiva. Supply of goods or services or both to or by a Special Economic Zone developer or a unit is treated as inter-State supply. 83 The movement of goods to or from a Special Economic Zone to other States and provinces of Windiva is equivalent to “import”. All imports are considered as inter-State supplies84 and accordingly integrated tax (IGST) is applicable to them in addition to the relevant Custom duties. The IGST is imposed on the consignment of UAV parts received from Firel in 2024, thus, it is 'import' and is subject to IGST imposition. Thus, imposition of IGST on Claimant is in accordance with the tax laws of Windiva.

73. The Respondent contends that there is no indirect tax as such because whatever tax is imposed, it is in line with the tax laws of Windiva. Hence, the Claimant becomes liable to pay Integrated Goods and Services Tax (IGST) on the UAVs consignments that the Claimant receives.

[A] The Respondent is correct in interpreting the withdrawal of tax exemption as an event which pre-exists the BIT. 74. A notification is a form of delegated or subordinate legislation having the force of law when passed by a body having authority to promulgate it. The exemption in IGST (“IGST exemption”) was conveyed through a notification (“IGST notification”) issued in 2019. Authorities had explicitly mentioned the tenure of IGST exemption in the IGST notification itself, which was from the year 2019 to 2023. Pertaining to the exact reference about the tenure of exemption, it had to cease by the end of the year 2023. Notification w.e.f January 01, 2024 issued by the Central Government was basically a notification indicating the end of the validity of tax Windiva-Firel BIT, art. 1.5.

Windiva-Firel BIT, art. 1.2.

82 Windiva-Firel BIT, art. 1.4.

83 IGST Act, 2017, s. 7(5)(b).

84 ibid 16.

80 81

77

The Collection of the Best for IMAIL 2021

(i) 75.

76.

77.

(ii) 78.

exemption issued in 2019 and not an arbitrary reversal of the said exemption. Therefore, consequently the Claimant received a notice from GST authorities regarding payment of IGST on the consignment received by them in 2024.

The Respondent's measures are not de jure discriminatory.

Article 28 of the Vienna Convention on the Law of Treaties 1969 85 (“Vienna Convention”) is as follows: “Non-retroactivity of treaties Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party.”

The basis of the principle of non-retroactivity is the principle that a liability cannot be incurred on an individual for an act that was not forbidden at the time when it was committed by that individual.

Although it has been basically originated from a principle of criminal law, nullum crimen sine lege praevia (the principle that an individual cannot be held criminally liable for an act which was not prohibited at the time when he committed it); it has now become a general rule of all legal systems. The non-retroactivity of a treaty can further be construed as a compliance to a particular provision of the treaty can neither be violated by an act before it enters into force, nor by an act after it is no longer in force. 86 Further, Article 2 of the BIT87 while describing the scope of the BIT, tells that the BIT is not to be construed in relation to any preinvestment activity. Article 2.3 of the BIT clearly states that: “This Treaty shall not apply to claims arising out of events which occurred, or claims which have been raised prior to the entry into force of this Treaty.”

The Respondent has provided the Claimant with 'no less' favourable treatment.

Windiva and Firel have entered into BIT in 2022 only after which the Claimant had set up its Windivan subsidiary hence, the issuance of the IGST Exemption becomes an incidence that took place before the date when BIT came into force. Hence, going by the interpretation of Article 28 of the Vienna Convention and Article Vienna Convention on the Law of Treaties, 1969, art. 28.

Gallus, Nick, Article 28 of the Vienna Convention on the Law of Treaties and Investment Treaty Decisions, (ICSID Review-Foreign Investment Law Journal 31, no. 2 (2016): 290-313).

87 Windiva-Firel BIT, art. 2.

85 86

78

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

2.3 of the BIT (which are mentioned above), the Respondent was not bound to give the IGST exemption to the Claimant. In other words, ideally, the Claimant was not entitled to get the IGST exemption since it has been issued prior to the enforcement of the BIT. But according to the Article 4 of the BIT88, a party should give no less favorable treatment to the investors of the other party than its own investors. Hence the IGST exemption was given to the Claimant as well, within the period of its tenure i.e. till the end of 2023. Thus, the Respondent has rightfully followed the principle of national treatment within the period of validity of the IGST exemption. This clearly shows the legitimate compliance to the provisions of BIT by the Respondent. (iii) The Claimant is liable to pay IGST. 79. Article 6 of the BIT89 makes provisions for the investor obligations.

Investors and their investments are obligated for conformity with the laws, regulations, guidelines and policies of a Party concerning the establishment, acquisition, management, operation and disposition of investments by virtue of Article 6(i) 90. Further, Article 6(iii) of the BIT categorically underscores the compliance of the investors and investments with the provisions of taxation laws of the concerned parties, which involves payment of appropriate taxes on time.91 As the IGST exemption is no longer valid in 2024, and in order to comply with the Article 6 of the BIT the Claimant is bound to pay the requisite taxes for the consignment that they received in the year 2024. In a nutshell, the Claimant is liable to pay IGST on the UAVs consignment received in January, 2024.

80. Thus, nothing has happened to the contrary of the provisions of the BIT and the Respondent has correctly interpreted and implemented the IGST exemption.

[B] There is no breach of Fair and Equitable standard.

81. As mentioned earlier, the imposition of IGST on the Claimant is in accordance with the tax laws in Windiva and nowhere amounts to any indirect tax imposition. Thus, the Respondent contends that (i) The Respondent's measures were not arbitrary; (ii) The Respondent's measures were not discriminatory; and (iii) The Windiva-Firel BIT, art. 4.

Windiva-Firel BIT, art. 6.

90 ibid.

91 ibid 18.

88 89

79

The Collection of the Best for IMAIL 2021

Respondent acted in accordance with the principles of reasonableness, non-discrimination, consistency, transparency and due process, and hence there is no breach of Fair and Equitable Standard. (i) The Respondent's measures were not arbitrary.

82. The Respondent had exempted Central Goods and Services Tax (“CGST”) and State Goods and Services Tax (“SGST”) for indigenous manufacturers of defence equipment under the Windivan Nirbharta Scheme in April, 2023. This was one of the steps taken by the Respondent to improve the quality standards of products manufactured under the Windivan Nirbharta Scheme, to make Windiva self-reliant in various sectors and to fortify the Windivan economy. It is pertinent to note that the exemption given by the Windivan Government to indigenous manufacturers of defence equipment, in 2023, is for CGST and SGST i.e. for intrastate trade and NOT for the inter-state trade. Thus, this exemption is a completely different scheme than the IGST exemption issued in 2019 and has altogether different objective. Hence it will be erroneous at the part of the Claimant if he tries to compare the IGST exemption (which ended in 2023 and enjoyed by the Claimant till 2023) with the CGST and SGST exemption given to indigenous manufacturers of defence equipment in 2023. In other words, the Claimant is trying to rely on the scheme for the sake of argument which is basically not applicable to the Claimant in the present scenario.

83. Any government tends to take and implement a variety of policy initiatives in different sectors including defense 92 to build and strengthen a nation. The CGST and SGST exemption given by the Respondent to a particular class of investors (i.e. indigenous manufacturers of defence equipment) has some definite purpose of encouraging and supporting indigenous production of defense equipments. Even the Constitution of India, while ensuring equality before the law and equal protection of laws, allows classification, under Article 1493 if it is based on the intelligible differentia and such differentiation has a reasonable nexus with the objective which is to be achieved by the state action. Thus, the CGST and SGST

Ministry of Defence : Encouragement to Indigenous Production of Defence Equipment, (PIB Delhi, 2020).

93 The Constitution of India, art. 14.

92

80

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

exemption given to indigenous manufacturers of defence equipment is justifiable within the legal framework as well. (ii) The Respondent's measures were not discriminatory.

84. Every Government takes suitable steps to protect the interests of indigenous investors and it can do so within its sovereign powers.

The situation demanding the balance of rights of indigenous manufacturers against imports was experienced by India in preindependence era as well which involved issues regarding differential duty in the steel tariff and protection against the imported steel. By 1921, the Indian Company-Tata Iron & Steel Company (“TISCO”) was into serious fiscal difficulties when there was extensive dumping of continental steel in the Indian market post World War I. Pertaining to nationalism associated with the industrialization, there was a harmony on the note of achieving protection for the Indian steel against the imports of steel. Finally a negotiated scheme was adopted by the then government which ensured that the government did not object over the height of the tariff against continental imports, thereby ascertaining TISCO of the protection that it was in quest of.94 This was one of those rare incidences when the preference was given to protect the interests of Indian investors and industry than that of the British investors although India was under British Rule at that instance of time. If such thing can happen in preindependence India, then it can very well happen in modern era in a sovereign nation. (iii) The Respondent acted in accordance with the principles of Fair and Equitable Standard.

85. To check the subsistence of the fair and equitable standard, in the situations under disputes, adjudicating tribunals check the conformity of the host state with the principles of reasonableness, non-discrimination, consistency, transparency and due process.

Respondent is the host state in the present dispute. While checking the reasonableness of the act of a host state, a tribunal does not inspect the act of the host state for the faults of policy or judgment, but checks whether the act is irrational or arbitrary. In case of Genin v. Estonia95 the tribunal noted that breach of the fair and equitable treatment standard, is indicated by “a willful neglect of duty, an insufficiency of action falling far below international standards, or even subjective Wagle, D.M.(1981). Imperial Preference and the Indian Steel Industry, 1924-39, (The Economic History review, 34(1), 120-131).

95 ICSID Case No. ARB/99/2.

94

81

The Collection of the Best for IMAIL 2021

86.

87.

88.

89.

bad faith.” Moreover, the fair and equitable treatment standard prohibits only unjustifiable discriminations. The principle of consistency allows the discretion of the host state with respect to their policies, as long as they are not contrary to the commitments between the parties and assurances on which a covered investment or investor reasonably has relied; thus in a way supports the principle of reasonableness. The principle of transparency demands unambiguous disclosure of the substantive and procedural rules by the host state whereas the principle of due process underscores the importance of legitimate process of law and tries to prohibit denial of justice.96 Thus, perusal of the facts of the present dispute makes it clear that none of these principles has been violated by the conduct of the Respondent. The Respondent’s conduct with respect to imposition of IGST on the Claimant in 2024 as well as CGST and SGST exemption to indigenous manufacturers of defence equipment was reasonable as it was free from the abovementioned indications of the breach of fair and equitable treatment standard as given in Genin v. Estonia97. It was non-discriminatory pertaining to logical reasoning and explanation behind it. It was consistent, transparent and as per the due process of law. Hence, there is no breach of fair and equitable standard by the Respondent.

Preamble of the BIT between Windiva and Firel 98 states that:“…..Reaffirming the right of Parties to regulate investments in their territory in accordance with their law and policy objectives…”.

Here, the attention has to be given to the terms ‘in accordance with their law and policy objectives’. It is clear from the above discussion that the Respondent’s acts are totally consistent with its tax laws, relevant notification and appropriate policy objectives.

Therefore, the claim of the Respondent is correct in interpreting the withdrawal of tax exemption as an event which pre- exists the BIT. FIFTH ISSUE: CLAIMANT IS NOT ENTITLED TO THE DAMAGES, AND THE COSTS OF THE ENTIRE ARBITRATION PROCEEDING. Respondent argues that no damages should be awarded to Claimant on the basis that the quantum of their claims is theoretical, not supported by any evidence, and neglects to acknowledge the VANDEVELDE, Kenneth, A UNIFIED THEORY OF FAIR AND EQUITABLE TREATMENT. 97 ibid.

98 Windiva-Firel BIT, Preamble.

96

82

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

principles of causation. Respondent further contends that it seeks reimbursement for the costs of the entire arbitration proceedings as mentioned in the Article 38 of UNCITRAL Arbitration Rules. 99 90. Respondent once again emphasizes the fact that they are free from wrongfulness as stated by Claimant and that they do not have any kind of obligation to reimburse the amount, as the Claimant have failed to show causation[A]; Claimant's reliance on the DCF method is unjustified in the absence of sufficient evidence[B]; and, Claimant is not entitled to the costs of the entire arbitration proceeding[C].

[A] Claimant have the burden of proof for any damages and they have failed to show causation.

91. Respondent attests that in order to award damages to Claimant (a) there should be a loss; (b) the loss should be endured by a Claimant or its enterprise; and (c) the loss should be caused by the alleged breach. 100 Respondent argues that the burden of proof lies on the Claimant to prove each of these components. Also, Claimant must prove damages with a reasonable level of certainty, and subsequently, it should not be speculative, unforeseen, or merely possible. 101 92. Respondent rejects the Claimant's damages claim on the grounds that no evidence for the alleged breaches have been provided by the Claimant. Respondent argues that the Claimant's damages claims and computations are not backed by any evidence: there is no significant documentary support to show the premise of the estimations and further, for the asserted outcomes.

93. Respondent points out that the Claimant - while disputing that the Respondent should remunerate them for financially assessable harm - depended on authorities requiring that damages has to be proven with a reasonable level of certainty to be recoverable 102 however, Claimant has not proven the claimed damages.

94. Based on the abovementioned, Respondent contends that the Claimant's allegations are failing short and lacking the burden inflicted on them. The claimant neglected to distinguish the casual connection between the claimed damages and alleged breaches.

Regardless, Respondent specifically refutes each source of damages: UNCITRAL Arbitration Rules, art. 38.

UNCITRAL Arbitration Rules, art. 27.

101 Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1.

102 ibid 16.

99

100

83

The Collection of the Best for IMAIL 2021

(i) loss due to significant damage to Claimant's Indian branch office; (ii) loss due to breach of confidentiality clause; and (iii) loss due to imposition of indirect tax. (i) The loss due to significant damage to Claimant's Indian branch office.

95. The Respondent holds that the Claimant is not entitled to the damages caused to the Claimant's Indian branch office due to the civil unrest and violent protests by the protestors. The Respondent argues that claiming these damages are speculative in nature as no source of evidence has been provided by the Claimant which proves that Respondent had encouraged, fostered or contributed to the acts of the protestors.

96. In any event, Respondent contends that the Tribunal should not grant the damages claimed due to the destruction of the Claimant's Indian branch office. (ii) The loss due to breach of confidentiality clause.

97. Regarding the breach of confidentiality clause, the Respondent contends that it was compelled to send the UAVs to an indigenous company to fix the problems related identifying algorithmic camouflage as the Claimant breached their obligations under aftersale service contract. The actions and decisions taken by the Respondent as a consequence of breach on part of the Claimant cannot incur a liability on the Respondent as it is against the principle of non estadimplendum103.

98. Thus, the action of the Respondent to give the UAV to indigenous company to fix the problems was, under the prevailing circumstances, an appropriately rational measure and therefore, Respondent asserts that the Tribunal should not grant the damages as claimed by the Claimant. (iii) The loss due to imposition of indirect tax.

99. The Respondent argues that Claimant has failed to demonstrate the existence of foreigners or nationals in a situation similar to that of the Claimant, such that Respondent's treatment of them can be compared. More specifically, the Respondent rejects the Claimant’s suggestion that the indigenous manufacturers referred to in its submissions was in a similar situation as the Claimant because as per

103

ibid 13.

84

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Windivan law, movement of goods from a SEZ to other states and provinces of Windiva tantamount to 'import'.

100. In addition, the Respondent rejects the Claimant’s proposition that the Respondent discriminated against Claimant. Thus, Respondent contends that the Tribunal should not grant the damages claimed due to the imposition of indirect tax.

[B] In the absence of sufficient evidence by Claimant, the DCF method should be rejected as the results are speculative in nature.

101. For the application of the DCF method, there have to be sufficient evidence. Respondent submits that (i) full compensation standard does not allow speculative damages; and (ii) the DCF method cannot be applied when it leads to speculative results; (i) The full compensation standard does not allow speculative damages.

102. Under the standard norm of full reparation, upheld in Chorzów Factory,104 an investor should be placed in the similar economic position it would have been in, but for the unlawful act. Thus, there has to be no space for under-remuneration and over-remuneration.

103. Consistently, the Tribunals have denied to award speculative damages as it would result in over remuneration. As observed by the ADM vs. Mexico Tribunal, "the award for damages which are speculative would...run afoul of 'full reparation'".105 104. Also, in the Lauder case, the Tribunal found that the Czech Republic had violated the relevant investment treaty in 1993. However, it also observed that the direct cause of the loss that was suffered by the investor was in 1999 due to the action of a private party, a Mr. Zelezny, and that the breach that occurred in 1993 was not the direct and proximate cause of the loss, because of which the Tribunal dismissed the investor’s claims.106 (ii) The DCF method cannot be applied when it leads to speculative results.

105. Claimant employs the DCF method which comprises of two steps: estimating future income source and limiting it to the current value to represent for potential risks. As it depends on the future projections, the DCF method is exceptionally delicate to

ICGJ 247 (PCIJ 1927).

ICSID Case No. ARB (AF)/04/5.

106 Ronald S. Lauder v. the Czech Republic, IIC 205 (2001).

104 105

85

The Collection of the Best for IMAIL 2021

questionable sources of inputs: if the fundamental assumptions are speculative, the complete model will be weak.

106. In Awdi case, Tribunal dismissed the DCF method when the presumptions considered excessively speculative. It held that, "the application of DCF method...is not justified, since there are uncertainties regarding future income and costs".107 107. According to Respondent, DCF is certifiably not an suitable method for evaluating the quantum damages because it "can yield an unreliable conclusion as to value when key assumptions are not well-reasoned or properly supported".108 Respondent puts forward that Tribunals generally disgrace the utilization of DCF when there is no principled reason for a lost profit assessment.

108. Based on the abovementioned, Respondent request the Tribunal to reject the application of DCF method in the present dispute as it is too speculative and provides no justification for the calculative results.

[C] Claimant is not entitled to the costs of the entire arbitration proceeding.

109. Article 61(2) of the ICSID Convention grants the Tribunal discretion to allocate the costs of the arbitration, 109 and ICSID Arbitration Rule 47(1)(j) provides that the Award should contain any decision regarding the costs of the proceeding. 110 110. An award of costs as claimed by the Claimant is not at all justified as the Claimant's characterization of the proceedings amounts to outright speculation rather than backing the claims with appropriate evidence. As Claimant has failed to provide any evidence, the Respondent seeks the reimbursement of entire arbitration proceedings. Numerous investment treaty tribunals have upheld the principle of "costs follow the event," or "loser pays" and have awarded the successful party all or a portion of its costs. 111 In Lemire v. Ukraine, the tribunal observed that "there should be an allocation of costs that reflects in some measure the principle that the losing party should contribute

ICSID Case No. ARB/10/13.

Neal Mizrahi, Compensation in Complex Construction Disputes, (Global Arbitration Review, 2011).

109 ICSID Convention Rules and Regulation, art. 61.

110 ICSID Convention Arbitration Rule, art. 47(1)(j).

111 Best Practices in International Arbitration (ASA Conference-Zurich 2006).

107 108

86

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

111.

112.

113.

114.

115.

in a significant, if not necessarily exhaustive, fashion to the fees, costs and expenses of the arbitration of the prevailing party."112 Respondent notes that, while Article 40(1) of the UNCITRAL Rules113 states that the costs referred to in Article 38(a) to (d) and (f) should “in principle be borne by the unsuccessful party,” it gives the Tribunal the discretion to “apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.”114 Respondent contends that Article 40(2) grants the Tribunal “complete discretion” in its apportionment of the Parties’ costs of legal representation.

Respondent argues that the following factors should inform the exercise of the Tribunal’s discretion 115: (a) the novelty and complexity of the dispute in hand; (b) the parties' conduct; (c) the reasonableness of the position of the parties; (d) the reasonableness of the costs claimed by the successful party; and (e) the relative success of the party.

Further as observed by the Tribunal in GEA Group vs. Ukraine: "in circumstances where no part of the Claimant’s endeavour in commencing these proceedings has been successful… the Respondent ought to recover its reasonable costs."116 Finally, Respondent requests that all the Claimant's claims should be dismissed and Claimant should bear the costs of the entire proceeding as it is unfair for the Respondent to bear the costs of defending itself from the claims that should have never been brought to this Tribunal in the first place.

Therefore, Respondent respectfully requests that the Tribunal should order Claimant to bear all costs incurred by Respondent concerning with this arbitration117, which also includes the fees of its expert witnesses, the fees of its counsel, travel, translation costs, and other costs linked with the hearings, the expenses and fees of the Tribunal members, and the charges for using the facilities of the Centre.

ICSID Case No. ARB/06/18. ibid 22.

114 ibid 22.

115 Power, J., Investment Arbitration – Determination of Costs in ICSID Arbitration (Austrian Yearbook on International Arbitration 2010).

116 ICSID Case No. ARB/08/16.

117 ibid 22.

112 113

87

The Collection of the Best for IMAIL 2021

RELIEF REQUESTED For the aforementioned reasons, Respondent respectfully requests the Tribunal to: 1. Find that this ICSID Tribunal does not have jurisdiction over Claimant's claims; 2. Declare that Respondent has not the violated its obligations under the Windiva-Firel BIT; 3. Find that Claimant is not justified for not providing AfterSale Service to Respondent; 4. Declare that Respondent has not breached the confidentiality clause; 5. Declare that the enactment of Notification w.e.f. 01st January, 2024 related to IGST and its implementation and other related acts of Respondent does not amounts to violation of principle of national treatment and breach of fair and equitable standard; 6. Declare that Claimant's claims are inadmissible; 7. Find that Respondent is entitled to all costs associated with these proceedings, including all legal and other professional fees and disbursements; and 8. Grant such further relief as counsel may advise and that the Tribunal deems appropriate.

RESPECTFULLY SUBMITTED ON JULY 11, 2021 by TEAM T-<T-VXZ-TIKI-AL>-R On behalf of Respondent, THE GOVERNMENT OF WINDIVA

88

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Respondent Memorial Winning Team

–

Hidayatullah National Law University, Raipur

Amrutha Desikan, Vijay Kumar Chawla, Amrita Soni, & Anushka Choudhary, Authors

89

The Collection of the Best for IMAIL 2021

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-GCN-COLS-AV-R INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP, Claimant, v.

GOVERNMENT OF WINDIVA, Respondent.

ICSID Case No. ARB/XZ/A RESPONDENT’S MEMORIAL August 5-8, 2021

90

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

SUMMARY OF ARGUMENTS ISSUE 1: The Respondent submits that the Claimant's case regarding the breach of confidentiality is fully contractual and is not admissible before this Tribunal. The property at Mekhli is not protected as an investment under the BIT. Any dispute regarding this matter must must first be submitted to the domestic courts in the Respondent state, in any case. Finally, the withdrawal tax exemption is a subject that is outside the scope of the treaty rationae materiae.

ISSUE 2: The Respondent submits that the damage caused to the branch office of Aveeron Group is not a violation of Full Protection and Security Clause because the Government of Windiva had fulfilled their due diligence obligation. Further, the government of Windiva has the right to invoke the Force Majeure exception in the present case as the civil unrest and riots were unforeseeable, uncontrollable and irresistible.

ISSUE 3: The Respondent submits that algorithmic camouflage is not countermeasure technology, since the UAVs were already trained against it and the Claimant by not providing after-sale service has breached the terms of the Contract. The Respondent also submits that the act of dispatching a few UAVs to the indigenous company was a not breach of confidential information or the BIT as it was in order to protect public interest and the environment ISSUE 4: The Respondent submits that the claims for breach of legitimate expectations are unfounded, as the Respondent only took affirmative actions in furtherance of pre-existing legislative decisions. Moreover, the Respondent acted in furtherance of its rights under the BIT, and its responsibilities as a sovereign State.

Thus, there was no breach of the National Treatment standard, and the imputation of a Fair and Equitable Treatment Standard does not arise as the same has not been provided under the BIT. ISSUE 5: The Respondent submits that in light of the fact that it has substantially proved before this Tribunal that the Claimants submissions are baseless, the Tribunal should not provide the Claimants any damages, and order the Claimants to pay the full costs of the proceedings.

91

The Collection of the Best for IMAIL 2021

ARGUMENTS ADVANCED

1. The Dispute at hand does not arise from the claimant’s rights under the BIT. 1.

2.

3.

The Respondent submits that the breach of a contract between a government and an investor does not ipso facto translate to a breach of the BIT. 238 Only when the dispute in question pertains to the rights of the investor under the BIT can a breach of the treaty be alleged. In order to make the distinction between treaty-claims and contract-claims, the ICSID Tribunal in Toto Costruzioni v. Lebanon239 lay down a decisive test—if the act in question is an act carried out by the state as a public authority, the claim is treaty-based. If it acts merely in the role of a commercial player, the claim is contract-based.

In the present case, owing to the coincidental subsistence of a BIT between the Claimant’s host state and the Respondent, the present arbitration was requested by the Claimant under the ICSID Convention Rules.240 However, Article 25 of the Convention clearly restricts the scope of such a tribunal to legal disputes arising out of an investment. Therefore, this Tribunal only has the power to hear disputes that pertain to a right arising from the investment under the BIT. In this light, the Claimant has been burdened with showing that there exists an apparent violation of its rights under the BIT, for its case to be maintainable. However, no such violation has occurred in fact. This is because: The issue concerning the damage to property at Mekhli is not an investment dispute under the BIT (1.1); the nature of algorithmic camouflage as a countermeasure technology in UAVs and any breach of confidentiality thereof, if at all, are purely contractual questions (1.2); and the Respondent’s

Parkerings-Compagniet v. Lithuania Toto Costruzioni vs. The Republic of Lebanon Commentary on the Decision on Jurisdiction of 11 September 2009 240 BIT § 8.7 238 239

92

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

actions with respect to the withdrawal for tax exemptions in the import of defence equipment are outside the temporal jurisdiction of this Tribunal (1.3).

4.

(1.1) The issue with respect to the damage TO PROPERTY AT MEKHLI IS NOT AN INVESTMENT DISPUTE The Claimant tries to assert that the damage to its property in Mekhli is a violation of Article 3.1 of the BIT (i.e.) the full protection and security clause. This claim is unfounded because: the damage to property at Mekhli does not constitute a breach of a right under the BIT (a). In any case, the Claimant has not exhausted all its available local remedies (b).

(1.1.a) The property at Mekhli cannot be considered an investment that is protected under the BIT.

5.

Article 3(1) of the BIT reads: “Full protection and security” only refers to a Party’s obligations relating to physical security of investors and to investments made by the investors of the other Party and not to any other obligation whatsoever. However, the Respondent submits that the property at Mekhli is not an investment in the sense of the BIT, because, it does not meet the definition of an investment under the BIT (i), nor does it have any of the elements necessary (ii). (i) The definition of an investment under the BIT does not encompass the branch office.

6.

7.

“Investment” as defined under Article 1.4 of the BIT refers only to an “enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made, taken together with the assets of the enterprise”.

Article 1.4 (iii) of the BIT specifically excludes from the ambit of investments, “any pre-operational expenditure relating to admission, establishment, acquisition or expansion of the enterprise incurred before the commencement of substantial business operations of the enterprise in the territory of the Party where the investment is made”.

The Claimant would like this Tribunal to believe that the branch office at Mekhli is a part of the “investment”.

However, this is decidedly untrue. The office at Mekhli is

93

The Collection of the Best for IMAIL 2021

merely an Indian branch of the Aveeron Group. 241 It does not form a part of the Indian subsidiary set up under the investment, nor does it form a part of the assets of the subsidiary.242 It is therefore, neither the enterprise, nor the assets thereof. The office at Mekhli was set up before the commencement of business operations, and all expenses incurred in its construction were pre-operational. The Claimant clearly attempts to drag all its disputes with the Government of Windiva to this Tribunal, even though the buildings in question are not protected by the BIT. (ii) The branch office at Mekhli does not have the elements of an investment.

8.

9.

10.

Article 1.4 of the BIT further defines four elements to an investment in this regard, namely: “commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made”. In international investment arbitration practice, the case of Salini v. Morrocco243 is of particular importance, as it lays down the same features listed under Article 1.4 of the BIT to be the deciding factors for what is an investment.

However, in the present case, the office at Mekhli was not constructed for a certain duration. It is a branch office of the Aveeron Group and its duration is not capped or limited. The office will continue operations as long as the Aveeron Group deems fit. The functioning of the branch office is of no significance for the development of Windiva either. It merely exists as an administrative entity belonging to the Aveeron Group to enable the smooth functioning of the corporation.

It adds no value to Windiva.

For the abovementioned reasons, the damage to property at Mekhli must be treated as a domestic matter to be heard by a local court or tribunal in Windiva. However, the Claimant has not even attempted to resort to these remedies.

Moot Problem, ¶ 2.

Id. 243 Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, 6 ICSID Rep. 400.

241 242

94

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(1.1.b) The Claimant has not exhausted its local remedies 11.

12.

13.

14.

The Respondent submits that in any case, the Claimant’s case with respect to the property at Mekhli is inadmissible as it has not exhausted any local remedy as is required under the BIT and customary international law.

The jurisdiction of this Tribunal arises from the consent of both parties to submit investment disputes to it under the BIT.244 At the same time, under Article 26 of the ICSID Convention, “a Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration”. In the present case, the Respondent has specifically reserved this condition under Article 8.7 of the BIT. In international customary law, the rule of exhaustion of domestic remedies gains its importance from the sovereignty of the host state.245 The only manner of exemption from this rule is when the host state itself makes such a concession by waiving it through the BIT.246 Under Article 14 of the International Law Commission’s Draft Rules on Diplomatic Protection (2006), an international resolution of dispute must only be initiated when the foreign national in question has attempted to resort to domestic remedies of the respondent State. The only exceptions to this are when the domestic remedies are deliberately made unavailable, are inefficient or simply do not exist.247 In the present case, Article 3.2 of the BIT reads: “In considering an alleged breach of this article, a Tribunal shall take account of whether the investor or, as appropriate, the locally-established enterprise, pursued action for remedies before domestic courts or tribunals prior to initiating a claim under this Treaty.” This follows from the mandate on the

ICSID Convention, Article 25.

Introduction, IISD Best Practices Series—January 2017, International Institute for Sustainable Development, accessible at https://www.iisd.org/system/files/publications/best-practices-exhaustion-localremedies-law-investment-en.pdf.

246 Text of the Draft Articles on Diplomatic Protection, [2006] 2 Y.B. Int’l L. Comm’n 24, U.N. Doc. A/CN.4/SER.A/2006/Add.l (Part 2), Article 14, comments 12-14.

247 Article 15, International Law Commission’s Draft Articles on Diplomatic Protection (2006).

244 245

95

The Collection of the Best for IMAIL 2021

15.

16.

Claimant to first exhaust domestic remedies before initiating arbitration, under Article 8.3 of the BIT. Given the specification of this precondition, the Respondent is entitled to withhold its consent to these proceedings if it is not met.

In the present case, the Respondent’s domestic judicial system is neither attacked as non-existent, nor as inefficient or biased.

The Claimant was not obstructed in any way from approaching the local judicial authorities. However, it has not pursued any such action before a domestic court or tribunal.

It simply made applications to the Government of Windiva, and when these were turned down, it immediately turned to this Tribunal.248 The present claim is therefore inadmissible and the Claimant must be directed to adopt domestic measures before claiming a non-existent violation of its rights under the BIT. (1.2) THE BREACH OF CONFIDENTIALITY AND THE NATURE OF AFTER-SALES SERVICES ARE PURELY CONTRACTUAL QUESTIONS

17.

18.

For a claim to be valid before an ICSID tribunal, it must be one pertaining to legal rights and obligations arising from the BIT. Purely commercial or political claims are outside the purview of the ICSID Convention.249 According to Article 25 of the ICSID Convention, the matter must pertain to a legal dispute arising directly from an investment.

According to Black’s Law Dictionary, a dispute is “a conflict or controversy, esp. one that has given rise to a particular lawsuit”.250 Article 25 requires the dispute to be of a legal nature. In the Mavrommatis Palestine Concessions case, the Permanent Court of International Justice defined a legal dispute as “a disagreement on a point of law or fact, a conflict of legal views or of interests between two persons”.251 In the ICJ’s Advisory Opinion on the Peace Treaties with Bulgaria, Hungary and Romania, a legal dispute is “a situation in which the two sides held clearly opposite views concerning the question of the performance or non-performance of certain

Moot Problem, ¶ 6.

UNCTAD, Requirements Rationae Materiae at p. 10.

250 Black’s Law Dictionary (1999).

251 Mavrommatis Palestine Concessions (Greece v. Great Britain), Judgment of 30 August 1924, 1924 PCIJ (Ser. A) No. 2, at 11.

248 249

96

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

treaty obligations”.252 Professor Christoph Schreuer notes 19.

20.

21.

22.

that these views have been adapted into consistent practice by various ICSID tribunals.253 The ambit of this Tribunal’s jurisdiction is restricted to legal disputes arising from the investment. Therefore, the dispute must pertain to a violation of obligations under the treaty.

Professor Scheuer further notes that a “dispute will only qualify as legal if legal rules contained, for example, in treaties or legislation are relied upon”.254 In Texaco v. Libya255, it was observed by an ICSID tribunal that an admissible dispute is present in the “opposition of legal views”.

A merely technical problem relating to the meaning of words used or the commercial aspects of a transaction are not admissible. The Report of the Executive Directors on the ICSID Convention states: “The expression ‘legal dispute’ has been used to make clear that while conflicts of rights are within the jurisdiction of the Centre, mere conflicts of interests are not. The dispute must concern the existence or scope of a legal right or obligation, or the nature or extent of the reparation to be made for breach of a legal obligation”.256 In its third issue, the Claimant raises a two-fold crisis: on the one hand, it refuses to acknowledge that algorithmic camouflage is not a countermeasure technology and on the other, it alleges a breach of confidentiality on part of the government.

The issue of the algorithmic camouflage being a countermeasure technology does not pertain to any legal right under the treaty. It is a purely technical matter that depends entirely on the terms of the contract and their interpretation,

Interpretation of the Peace Treaties with Bulgaria, Hungary and Romania, Advisory Opinion of 30 March 1950 (first phase), 1950 ICJ Rep. 65, at 74.

253 Christoph Schreuer, I. Buffard et. al. (eds.), International Law between Universalism and Fragmentation. Festschrift in Honour of Gerhard Hafner (2008, Koninklijke Brill NV) at Chapter 46 “What is a legal dispute” p.960.

254 Ibid at p. 966.

255 Texaco Overseas Petroleum Company and California Asiatic Oil Company v.

Libyan Arab Republic, Preliminary Award of 27 November 1975, 53 ILR 389, at 416 (1979).

256 Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (18 March 1965), Resolution No. 214 of the Board of Governors of the International Bank for Reconstruction and Development on 10 September 1964, 1 ICSID Rep. 23 (1993) at p. 28 ¶ 26.

252

97

The Collection of the Best for IMAIL 2021

23.

which is not the subject matter of the ICSID Convention. 257 The question of whether an after-sales service is to be provided is not a legal question relating to the legal rights and obligations that stem from the BIT. In fact, no right of the Claimant under the BIT is affected by this issue. It is clearly a commercial dispute and not a legal one under the BIT. Similarly, while there has not been any breach of confidentiality except in the Claimant’s imagination, any such hypothetical confidentiality breach would not lead to a violation of the BIT. Of all eleven articles of the BIT, there is not a single provision requiring the host state to protect the investor’s confidential information. Such a hypothetical breach would be a breach of contract, depending on its terms, not a breach of the investor’s rights under the BIT. (1.3) THE WITHDRAWAL OF TAX EXEMPTION IS OUTSIDE THE TEMPORAL SCOPE OF THE BIT.

24.

25.

Article 28 of the Vienna Convention on the Law of Treaties places a rule against retroactivity of treaties, which states: “Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place … before the date of the entry into force of the treaty with respect to that party”. Accordingly, a certain state can choose to withhold events pre-dating the BIT, notwithstanding any effects it may continue to have later, from the jurisdiction of an ICSID tribunal.258 Article 13 of the Draft Articles for the Responsibility of States for Internationally Wrongful Act (2001) states that “an act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time the act occurs”, reflecting a principle in equity. The 1976 Report of the International Law Commission clarifies that a BIT creates

See, Lanco v. Argentina, Decision on Jurisdiction of 8 December 1998, at ¶ 47; Gas Natural SDG, S.A. v. Argentina, Decision on Jurisdiction of 17 June 2005, at ¶¶ 20-23.

258 See, Sadie Blanchard, State Consent, Temporal Jurisdiction, and the Importation of Continuing Circumstances Analysis into International Investment Arbitration, 10 WASH. U. GLOBAL STUD. L. REV. 419 (2011) at p. 429 https://openscholarship.wustl.edu/law_globalstudies/vol10/iss3/2.

257

98

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

26.

27.

prospective obligations and is directed at future conduct of the state.259 In the present case, the Respondent state has very clearly precluded claims arising out of events pre-dating the BIT. Article 2.3 of the BIT reads: “This Treaty shall not apply to claims arising out of events which occurred, or claims which have been raised prior to the entry into force of this Treaty”. The notification exempting the export of defense items was issued very clearly for the period between 2019-2023.260 The Claimant’s challenge of this supposed “withdrawal” of exemptions is misguided, as the expiration of the concerned period was decided prior to the BIT itself.

By virtue of Article 25 of the ICSID Convention, this Tribunal only has jurisdiction over legal disputes arising from the scope of the BIT and not beyond that. For the reasons stated in the preceding paragraphs, the withdrawal of tax exemption is a matter that is outside the temporal jurisdiction of this Tribunal (i.e.) it is inadmissible, rationae temporis. Therefore, the Respondent most respectfully submits that this Tribunal cannot exert its jurisdiction retrospectively, making the present issue prima facie inadmissible.

2. Windivan Government is correct in using the Force Majeure Exception.

28.

The Government of Windiva submits that the doctrine of full protection and security as had been provided under the Article 3.1 of the BIT between the Government of Windiva & Government of Firel has not been breached and the exception of Force Majeure events provided under Article 3.3 excludes the obligation of the Respondent in the present case.

Therefore, the Windivan Government is correct in invoking the Force Majeure exception because the Respondent had fulfilled their due diligence obligation (1) and that the disputed

Report of the International Law Commission on the work of its twenty-eighth session, [1976] 2 Y.B. Int‘l L. Comm‘n 1, 90, U.N. Doc. A/CN.4/SER.A/1976/Add.1 (Part 2).

260 Moot Problem, ¶ 9.

259

99

The Collection of the Best for IMAIL 2021

event of riot and civil unrest qualifies as a force majeure event (2).

(2.1) RESPONDENT HAD FULFILLED THEIR DUE DILIGENCE OBLIGATION. 29.

30.

31.

32.

The respondent submits that while in September 2023, civil unrest and violent protests took place in the city of Mekhli, 261 the same cannot form the basis of a breach of full protection and security provision of the BIT as the Government of Windiva had exercised appropriate diligence in handling the internal issues.

It is virtually undisputed that the full protection and security standard does not impose strict liability on the host State but a due-diligence obligation. 262 The

Government of Windiva had observed all necessary particulars and aspects so as to provide for appropriate security to the investments as well as regular citizens. Issues such as riotous mobs turning out from protesters cannot be in any manner said to be of a predictable or preventable nature.

Such situations are by definition, emergency situations and thus need to be looked ta from that very perspective. For that matter, the due diligence obligation is sometimes referred to as an "obligation of vigilance."263 The above understanding is critical where the injury at issue was caused by actions which are not directly attributable to the State itself. In this context, “due diligence” means that the host State is not required “to prevent each and every injury” but must exercise reasonable care and take reasonable actions within its power to prevent injury of the investor. 264 In general, the host State must take all measures to prevent the injury which are possible under the specific circumstances and

Para 6, Moot Proposition.

Para 627, Infinito Gold v. Costa Rica (2021), ICSID Case No. ARB/14/5, Award; Also see, Para 243, 249, Allard v. Barbados (2016), PCA Case No. 2012-06; Para 430 Tulip Real Estate v. Turkey (2010), ICSID Case No. ARB/11/28.

263 Para 999, Mobil Exploration v. Argentina (2010), ICSID Case No. ARB/04/16.

Also see, Para 272, Ulysseas v. Ecuador (20120, [PCA Case No. 2009-19].

264 Para 353 - 355, Oxus Gold v. Uzbekistan (2015) [ Final Award, 17 Dec 2015 ].

Also see, Para 367, Cervin and Rhone v. Costa Rica (2014), ICSID Case No. ARB/13/2.

261 262

100

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

33.

34.

with due regard to its capacities. 265 In the current factual scenario as well it can clearly be observed that the Government of Windiva had been handling all issues as per appropriate due diligence, however, instances of rioting are ipso facto unpredictable. They are force majeure events of such nature that the state cannot guarantee absolute protection in that regard.

In a catena of disputes, it has been seen that just because

the investor’s interests could not be protected does not ipso facto mean that the full protection and security had not been given and the standard of diligence required had not been met.266 In fact, the Final Award in Öztaş Construction v. Libya 267 is categorically relevant here. The Para 162 states, “There is, so far as we are aware, no case in which an arbitral tribunal constituted pursuant to an investment treaty has found that an investment treaty was breached by a failure to avoid a revolution or civil war.

As a matter of international law, the condition of civil war or uprising, if existent, constitutes an extraordinary situation that negates any negligence or lack of due diligence against the State of Libya, and Claimant has not shown, let alone compellingly demonstrated, that the State of Libya has taken measures that directly aggravated or triggered the civil war and resulted in Claimant's alleged losses.”

Even further, in Olin v. Libya, 268 the observations relevant to us were on the following lines, “Having reviewed the legal authorities submitted by the Parties in this arbitration, the Tribunal refers to the decision in Saluka Investments BV v. The Czech Republic) in which the tribunal found: "The full protection and security’ standard applies essentially when the foreign investment has been

Para 261, Frontier v. Czech Republic (2010) [UNCITRAL, Final Award, 12 Nov 2010].

266 Vannessa Ventures v. Venezuela (2013), ICSID Case No. ARB(AF)04/6, ¶ 223.

267 Öztaş Construction v. Libya (2018), ICC Arbitration No. 21603/ZF/AYZ, ¶ 162.

268 Olin v. Libya (2018), ICC Case No. 20355/MCP, ¶ 364 – 366.

265

101

The Collection of the Best for IMAIL 2021

35.

36.

269

affected by civil strife and physical violence.... the full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force."

“The Tribunal concurs with the approach of the tribunal in Saluka Investments BV v. The Czech Republic and notes that in the context of Olin’s investment, the physical integrity and the use of force were not directly at stake here. Olin’s factory continued to function albeit at a slower pace.

The Tribunal therefore considers that the evidence on record does not allow it to conclude that there was a violation of the FPS standard.”

Even in Al Warraq v. Indonesia 269 the observations went along the following lines, “As a final point, the Tribunal notes that the standard of protection and security required by Article 3 of the UK Indonesia BIT (applicable by virtue of the MFN clause in Article 8 of the OIC Agreement) is full protection and security'. The Tribunal considers that full protection and security is not a higher standard than adequate protection and security. As the Tribunal has found there has been no violation of the adequate protection and security standard, its follows that nor has there been any violation of the full protection and security standard.”

Based on the above contentions, it can clearly be established that the Government of Windiva had taken all necessary and appropriate action for full protection and security of Aveeron Group’s investment interests. The riotous sabotage of the branch office of Aveeron Group was one such unpredictable incident which could not have been prevented despite appropriate diligence. Thus, the respondent submits that the same does not qualify for an instance amounting to the breach of full protection and security liability of Government of Windiva against Aveeron Group as under the BIT Provisions.

Al Warraq v. Indonesia (2014) [UNCITRAL, Final Award, 15 Dec 2014 ].

102

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

37.

38.

39.

40.

(2.2) THE DISPUTED EVENT OF RIOT AND CIVIL UNREST QUALIFIES AS A FORCE MAJEURE EVENT .

According to Article 9(e) of the BIT, the host country is liable to compensate for those losses which were foreseeable and directly caused by the breach.270 Article 3.1 of the BIT mandates each party to “accord in its territory to investments of the other Party and to investors with respect to their investments full protection and security.”271 Article 3.3 provides that “the Parties can be excluded from their obligations in case of occurrence of force majeure events.”272 The Respondent submits that the civil unrest and violent protests in the city of Mekhli in which the protestors caused damage to the Claimant’s Indian branch office was unforeseeable, uncontrollable and irresistible. 273 The same argument is based on the following understandings.

A force majeure event has three basic elements that need to be fulfilled in order for it to qualify as a force majeure event. a. UNFORESEEABILITY - An event is unforeseeable when it could not be foreseen at the time the agreement laying down the obligation breached was concluded. The same has been upheld by the ICSID in a catena of awards. In Niko Resources v. BAPEX & Petrobangla, 274 the element highlighted was that a force majeure event is one that cannot be foreseen. The acts of the unruly mob that went on to damage the branch office premises of the Aveeron Group were undoubtedly unforeseeable. The nature and mindset of a mob is inherently in a flux and constantly swayed by speech, thus leaving minimal scope for the state to intervene at short notice. b. UNCONTROLLABILITY (OR “EXTERNALITY”) - The event must have been “beyond the control” of, 275 or

Windiva-Firel Bilateral Investment Treaty, 2022, Article 9.2 subclause (e).

Ibid.

272 Windiva-Firel Bilateral Investment Treaty, 2022, Article 3.

273 Moot Problem p. 5, ¶ 7.

274 Niko Resources v. BAPEX & Petrobangla (20140, ICSID Case No. ARB/10/18, ¶ 200.

275 Huntington Ingalls v. Venezuela (2018). [Case No. 1:18-cv-00469, Final Award, 19 févr. 2018 ], ¶ 236.

270 271

103

The Collection of the Best for IMAIL 2021

41.

“external” – non-attributable – to, 276 the party asserting force majeure. The party must not have caused or induced the event.277 In the current case, not only were the protests not controlled or induced in any manner by the Government of Windiva, but also beyond the circumstantial control of the Government. c. IMPOSSIBILITY (AND/OR “IRRESISTIBILITY”) - The event must render the obligation impossible to perform.278 The full protection from physical harm that was guaranteed to the Aveeron Group was rendered impossible to perform in light of the unruly nature of the protesting mob. Even more so, such ground level situations are matters of exercise of extreme executive deliberation and precision as such situations can turn overtly volatile and cause collateral damage.

Thus, based upon the above contentions it can be clearly seen that the Government of Windiva took all necessary actions and exercised due diligence to accord full protection and security to the Aveeron Group’s Assets. However, unpredictable and volatile situations cannot be made the sole basis for affixing liability upon the Government.

3.

AVEERON GROUP IS NOT JUSTIFIED IN TREATING ALGORITHMIC CAMOUFLAGE AS A COUNTERMEASURE TECHNIQUE SO AS TO NOT PROVIDE AFTER-SALE SERVICES TO THE GOVERNMENT OF WINDIVA AND THE GOVERNMENT OF WINDIVA DID NOT BREACH ANY BUSINESS-RELATED CONFIDENTIAL INFORMATION WHILE DISPATCHING

RSM v. Central African Republic (2010 ICSID Case No. ARB/07/2, Award, ¶ 184.

277 Unión Fenosa Gas v. Egypt (2018) ICSID Case No. ARB/14/4, ¶ 9.74.

278Bureau Veritas v. Paraguay (2009) ICSID Case No. ARB/07/9 Also see, Para 108, Aucoven v. Venezuela (2003) ICSID Case No. ARB/00/5, ¶ 153.

276

104

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

FEW UAVS TO AN INDIGENOUS COMPANY.

42.

43.

44.

45.

It is most humbly submitted that the Claimant acted in utmost disregard of the representations made by the Government of Windiva, before the matter reached this Hon’ble Tribunal.

(3.1) ALGORITHMIC CAMOUFLAGE CANNOT BE TREATED AS A COUNTERMEASURE TECHNOLOGY , SINCE THE UAVS WERE ALREADY TRAINED TO DETECT ALGORITHMIC CAMOUFLAGE .

A countermeasure refers to “a safeguard prescribed for an information system or an organization designed to protect the confidentiality, integrity, and availability of its information and to meet a set of defined security requirements.” 279 On the other hand, in algorithmically generated camouflages, algorithms establish the coordinates of the composing elements of camouflage patterns which are supposed to function as a counter-surveillance technique by facilitating concealment, deception or producing mimicry effect, ultimately making the object undetectable.

Artificial Intelligence (“AI”), by its virtue, is a technology which is trained to produce a particular prediction with each cycle, by feeding data into the computer system. AI is trained through machine learning and deep learning to gather insights from data and automate tasks at scale. The machines learn how to analyse and make predictions — to “think” as much like humans as possible, depending on the information they are fed.

In the current factual matrix, while testing multiple UAVs, one of such UAVs crashed into a military tank while landing, as the UAV could not identify the presence of algorithmic camouflage on the military tank and thus, miscalculated the landing trajectory.280 The instance clearly indicates how the other UAVs, being tested carefully identified, and calculated

‘Security and Privacy Controls for Information Systems and Organizations’, NIST Special Publication 800-53 Revision 5, National Institute of Standards and Technology, U.S. Department of Commerce, September 2020. https://doi.org/10.6028/NIST.SP.800-53r5 280 Moot Problem, p. 4, ¶ 5.

279

105

The Collection of the Best for IMAIL 2021

46.

the presence of algorithmic camouflage and avoided crashing into the same. Therefore, these UAVs had no inherent defects in them, unlike the UAV that crashed.

As has already been explained in the above paragraph, the UAVs were trained against algorithmic camouflage, ultimately rendering the algorithmic camouflage as a futile technology in meeting the set defined security requirements, and failing in its purpose to serve as countermeasure technique by being easy to bypass via the use of the UAVs. (3.2)THE UAVS WERE NOT FIT FOR THE PURPOSE FOR WHICH MACHINERIES OF THE SAME DESCRIPTION WOULD ORDINARILY BE USED.

47.

48.

49.

50.

It is further submitted that the UAVs were unfit for being used for the purpose of Defense and the Government of Windiva’s has been substantially deprived of what it was entitled to receive under the contract.

Section 16 of the Sale of Goods Act281 lays down certain implied conditions as to quality or fitness or a good. It has been clearly established that- “Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose.”

A similar provision can be seen in the Convention relating to a Uniform Law on the International Sale of Goods (“ULIS”), under UNIDROIT. It has been laid down that the seller shall not have fulfilled his obligation to deliver the goods where he has handed over a good that lacks conformity. 282 In the given factual matrix, the UAVs were to be used for the purpose of defense for it Air Forse. 283 The Respondent was under the impression that the UAVs would be competent against algorithmic camouflage and the same was covered

Section 16 of the Sale of Goods Act, 1930 (India).

Article 33, Convention relating to a Uniform Law on the International Sale of Goods, The Hague, July 1, 1964.

283 Moot Problem, p. 3, ¶ 3.

281 282

106

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

under implied conditions of the contract. The Claimant was well aware of the same and also trained the UAVs in identifying and calculating the presence of algorithmic camouflage. However, due technical and software errors, a UAV crashed into the military tank. The Respondent compromised with the quality of the UAV, furnishing it unfit and ineffectual in its purpose to serve the military requirements.

51.

52.

3.2.a The Government of Windiva was entitled to get after-sale services.

As per the terms of the contract entered into by Claimant and the Respondent, after-sale service clause comprised of problems pertaining to artificial intelligence software as well as the hardware of the UAVs. It is submitted that the problem in the UAV is not arising due to presence of any countermeasure technology, but due the presence of technical and software defects in the UAVs, as has already been established earlier (3.1). The incidental crashing of the UAV into the algorithmically camouflaged military vehicles clearly indicates that the UAVs were not up to the standard and thus, the defects were required to be resolved the Claimant as a part of its after-sale service.

(3.3)

NO BUSINESS-RELATED CONFIDENTIAL INFORMATION WAS BREACHED WHILE DISPATCHING FEW UAVS TO AN INDIGENOUS COMPANY. 53.

It is humbly submitted that while dispatching few UAVs to the indigenous company, no business-related confidential information was breached as the act was done by the Respondent in order to safeguard public interest (3.3.1). It is further submitted that since the UAVs were not handed over to the indigenous company in its capacity as a competitor of the Claimant, the Claimant and the indigenous company are not in ‘like circumstances’ (3.3.2) 3.3.a The Respondent’s act of the dispatching the UAVs was in public interest and in consonance with ‘honest commercial practices.’

107

The Collection of the Best for IMAIL 2021

54.

55.

56.

57.

58.

Article 10 of the BIT enunciates that nothing in the Treaty shall be construed to present the adoption or enforcement by a Party of measures of general applicability applied on a nondiscriminatory basis that are necessary to protect human, animal or plant life or health, 284 and to protect and conserve the environment, including all living and non-living natural resources.285 Additionally, Article 39.3 of the TRIPS Agreement obliges members to “protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”286 Thus, as a general rule the party should “protect any confidential information from any disclosure that would prejudice the competitive position of the investor or the covered investment”, however, the Host State is not prevented from obtaining or disclosing information in connection with the equitable application of its laws, good faith and to protect the public. 287 In the present case, the Respondent shall not be made liable for disclosure of information as it was done for the purpose of protection. Even after buying the UAVs at an exorbitant price and making various representations before the Claimant, the Claimant clearly denied the Respondent from providing any after-sale service for the software and technical malfunctioning in the UAVs, leaving the respondent with no other alternative but to reach out to a third-party, having its expertise in defense technology, to look into the malfunctioning of the UAVs and fix the same.

It is important to mention that the threat involved in using the UAVs was foreseeable. Had the UAVs not been transferred to the indigenous company for reparations, the use of the same would have resulted in accidents leading to mass destruction.

Thus, the act was purely undertaken so as to protect public

Windiva-Firel Bilateral Investment Treaty, 2022, Article 10 (i).

Windiva-Firel Bilateral Investment Treaty, 2022, Article 10 (ii).

286 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Article 39.3 of Section 7 in Part II, [1994] Marrakesh Agreement Establishing the World Trade Organization.

287 Chapter 8, The Canada-Columbia FTA, Article 813, http://www.international.gc.ca/tradeagreements-accordscommerciaux/agracc/colombia-colombie/chapter8-chapitre8.aspx?lang=eng 284 285

108

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

interest as well as the environment while also saving the Respondent from incurring huge losses due to the Claimant’s neglectful conduct.

3.3.b The Claimant and the indigenous company were not in ‘Like circumstances.’

59.

60.

61.

62.

For the purpose of breach of the National Treatment Standard, the Investor and the Favored Party must be in ‘Like Circumstances.’288 In the landmark case of S.D. Myers289, it was unequivocally stated that “… only if the investments or the investors are truly comparable… is ‘the treatment no less favourable’ or ‘national treatment’ required.”

The tribunal in Apotex Holdings v. United States of America290 case rejected the claim that investors are in like circumstances merely because they have possibly competing interests. A similar view was further expressed in Occidental v. Ecuador291, where the tribunal while referring to local producers in general stated that a Breach of National Treatment cannot be claimed by addressing exclusively the sector in which that particular activity is undertaken.

Following this, the arbitral tribunal acknowledged the importance of the legal and factual context in determining likeness. In the tribunal’s opinion “treatment will presumptively violate article 1102(2) (National Treatment), unless [there] is a reasonable nexus to rational government policies that do not distinguish, on their face or de facto, between foreign-owned and domestic companies”. 292

Windiva-Firel Bilateral Investment Treaty, 2022, Article 4.

S.D. Myers Inc. v. Canada, UNCITRAL, Partial Award (Nov. 13, 2000).

290 Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARD (AF)/12/1, Award (25 August, 2014).

291 Occidental Exploration and Production Company v. Ecuador, Award, (July 1, 2004).

292 Pope & Talbot Incorporated v. Canada, Interim award, Ad Hoc Tribunal UNCITRAL, IIC 192 (2000), (26 June, 2000).

288 289

109

The Collection of the Best for IMAIL 2021

63.

64.

65.

66.

Lastly, in ADF v. United States of America 293 it was clearly established that objectives are necessarily cast in terms of a high level of generality and abstraction.

Thus, it is submitted that the Claimant and the indigenous company cannot be considered to be in ‘like circumstances.’

The UAVs were dispatched to the indigenous company out of compulsion and only for the purpose of reparations. Though the Claimant and the indigenous company are both experts in the field of defence technology, the indigenous company was never acting in its capacity as a competitor or to derive any undue benefits.

In light of the above discussion, the Respondent most humbly submits that the Claimant’s conduct of not providing any after sale services under the Terms of the Agreement, by treating algorithmic camouflage as a countermeasure technique was utterly neglectful and unjustified. Furthermore, the Respondent did not breach any business-related confidential information while dispatching few UAVs to the indigenous company as it was an act out of compulsion so as protect the public and the environment from the anticipated harms that may have been caused by the usage of defective UAVs. Lastly, the Claimant and the indigenous company were not in like circumstances, for the Claimant to claim protection under National Treatment Standards. The Respondent, thus, did not deviate from or vary any provisions in the application of the BIT. 4. AVEERON GROUP IS INCORRECT IN ARGUING THE VIOLATION OF PRINCIPLE OF NATIONAL TREATMENT AND BREACH OF LEGITIMATE EXPECTATION ON THE FAIR AND EQUITABLE STANDARD IN RESPECT OF THE DIFFERENTIAL TREATMENT GIVEN IN IMPOSITION OF INDIRECT TAX.

ADF v. United States of America, ICSID Case No. ARB (AF)/00/1, Award, ¶ 147 (9 January, 2013).

293

110

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

67.

The Government of Windiva categorically denies any instance of breach of the doctrine of national treatment or the breach of any legitimate expectations on the fair and equitable standard in respect of the differential treatment given with respect to the imposition of indirect tax upon the Aveeron Group. The same is contended upon multiple grounds, which have been deliberated upon herein.

(4.1) THERE WAS NO BREACH OF LEGITIMATE EXPECTATION AND CONSEQUENTIALLY NO BREACH OF FAIR & EQUITABLE STANDARD

68.

4.1.a Non-Drastic or Reasonable Modifications in Regulatory Framework cannot be deemed to be a Breach of Legitimate Expectation.

With respect to the contention of breach of legitimate expectations on the fair and equitable standard treatment of the Aveeron Group by the Government of Windiva, it is submitted that the breach of a legitimate expectation can occur only as a consequence of drastic 294 or unreasonable modifications 295 to a regulatory framework relied on by an investor. This does not mean that the State is not allowed to make changes with respect to regulatory regimes at all. There is no immutability with respect to such legislative measures.

For that matter, the observations in the Decision on Jurisdiction, Liability and Directions on Quantum in the dispute between Cavalum SGPS v. Kingdom of Spain296 are relevant to be considered. It was held, “In sum, considering the context, object and purpose of the ECT, the Tribunal concludes that the obligation under Article 10(1) of the ECT to provide FET to protected investments comprises an obligation to afford fundamental stability in the essential characteristics of the legal regime

Silver Ridge v. Italy, ICSID Case No. Arb/15/37. ¶ 437 – 438. Also see, AES Solar and others (PV Investors) v. Spain. PCA Case No. 2012-14, ¶ 580 – 582.; Electrabel v. Hungary , Decision on Jurisdiction, ICSID Case No. Arb 07/19, ¶ 7.77.; El Paso Energy International Company v. Argentina,ICSID Case No. Arb 03/15, ¶400 & Impregilo s.P.a. v. Argentina , Award, ICSID Case No. Arb 07/17, ¶ 291.

296 Cavalum SGPS v. Kingdom of Spain, ICSID Case No. Arb 15/34, ¶ 406, (2020).

294 295

111

The Collection of the Best for IMAIL 2021

relied upon by the investors in making long-term investments. This does not mean that the legal framework cannot evolve or that a State Party to the ECT is precluded from exercising its regulatory powers to adapt the regime to the changing circumstances in the public interest.

It rather means that a regulatory regime specifically created to induce investments in the energy sector cannot be radically altered —i.e., stripped of its key features— as applied to existing investments in ways that affect investors who invested in reliance on those regimes.”

4.1.b Taxation Regime Changes are not Drastic or Unreasonable Modifications in regulatory Framework.

69.

70.

It is submitted that taxation measures with respect to import and export are in no way drastic changes in the regulatory mechanisms. Moreover, it is reiterated that the change in taxation, as claimed by the Claimant was an enforcement of a pre-existing policy decision, rather than a change in the regulatory regime of the Respondent.

On the issue of the aspect that any such change should also be unreasonable, in order to breach legitimate expectation, reference can be drawn of the recent award

AES Solar and others (PV Investors) v. Spain, 297 wherein the Permanent Court of Arbitration observed that,

“Second, it is not sufficient that a change in the regulatory framework is detrimental to the investors’ interests in order to entail State responsibility…The change must also be "unreasonable", and that: [T]he legitimate expectations of any investor [...] [have] to include the real possibility of reasonable changes and amendments in the legal framework, made by the competent authorities within the limits of the powers conferred on them by the law.”

297

Supra Note 2.

112

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

71.

Similarly, the tribunal in Impregilo v. Argentina 298 noted that, “The legitimate expectations of foreign investors cannot be that the State will never modify the legal framework, especially in times of crisis, but certainly investors must be protected from unreasonable modifications of that legal framework.” It is also pertinent to present before this Tribunal the views of the Tribunal in the Electrabel Case: “the application of the ECT’s FET standard allows for a balancing exercise by the host State in appropriate circumstances. The host State is not required to elevate unconditionally the interests of the foreign investor above all other considerations in every circumstance.”299

72.

It is submitted that neither was the taxation regime change unreasonable nor arbitrary on any account. The Government of Windia had been undertaking a Windivan Nirbharta Scheme for the betterment of indigenous development expertise in the defence sector. The defence sector being one of the most prominent as well as sensitive aspects of growth for a nation.

The same was thus in no way unreasonable but was a legitimate expression of the state’s aims of advancing and protesting its domestic interests in the regard.

4.1.c No Specific promise Made with respect to uniformity of the taxation Regime

73.

Furthermore, there is no specific clause guaranteeing that no future changes will be made in respect of the taxation regimes which would lead to the Aveeron Group claiming that such legitimate expectations on its part have been breached. The Government of Windiva has a right to regulate, and investors must expect that the legislation will change. 300 There can be no legitimate expectation that the legal framework on any issue won’t evolve during the lifetime of the investments, and for that matter there is a relatively high threshold for such

Impregilo s.P.a. v. Argentina , Award, ICSID Case No. Arb 07/17, ¶ 291.

Supra note 2.

300 Micula v. Romania, Final Award, ICSID Case No. Arb 05/20, ¶ 666.

298 299

113

The Collection of the Best for IMAIL 2021

74.

obligations to manifest such that a state is prevented from making regulatory changes.301 For that matter, in the dispute between Toto v. Lebanon, 302 the aspects of a tax regime change were under consideration.

The observations were as follows: “For Lebanon, Article I-I3 CCJA only aimed at making clear that Toto had to pay all taxes or duties prescribed by Lebanese law. Under Article III-4 CCJA, the submitted unit prices could be adjusted with time, but a change in taxes or duties as such was not included in the formula to amend the prices. Moreover, the Contract neither contained a stabilisation clause, nor provided that custom duties and taxes would not be changed. Lebanon’s position is that, under such circumstances, Toto could not have legitimate expectations to be compensated for price increases beyond what the Contract provided for.

The Tribunal considers that fair and equitable treatment does not, in the circumstances prevailing in Lebanon at the time, entail a guarantee to the investor that tax laws and customs duties would not be changed.”

75.

76.

Thus, there exists no reasonable basis for the Claimant to have such a legitimate expectation, as claimed by the Claimant could have arisen with respect to stability of the taxation regulatory regime. Moreover, the BIT clearly asks, in multiple instances, the respectful compliance with the taxation structure of the Host State. Therefore, there exists no question of breach of any legitimate expectation of the Claimant.

As an obvious consequence of the above, it can be seen that there is no breach of legitimate expectation as, i. There was no objective conduct of the State that might have given rise to legitimate expectations on the part of the investor.

Hydro Energy 1 and Hydroxana v. Spain, Decision on Jurisdiction, Liability and Directions on Quantum, ICSID Case No. Arb 15/42, ¶ 553 – 555. Also see, Para 262, RREEF Infrastructure Limited v. Spain, Decision on Responsibility and Principles of Quantum, ICSID Case No. Arb 13/30.

302 Toto v. Lebanon, Award, ICSID Case No. Arb/07/12, ¶ 241 – 242.

301

114

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

ii. The investor’s expectations were neither “legitimate” nor “reasonable” nor “fair” and was based on the investor’s subjective considerations.303 iii. The investor did not rely on such expectations when deciding to invest in the host State.304 (4.2) THERE WAS NO BREACH OF THE NATIONAL TREATMENT STANDARD AS THE REGULATORY CHANGES WERE ON ACCOUNT OF LEGITIMATE GOVERNMENT POLICY 77.

78.

Even further, it is contended with respect to breach of appropriate national treatment being meted out to Aveeron group that, there have been multiple instances wherein breach of national treatment has been successfully refuted on the grounds of demonstration of legitimate government policy rationally explaining and justifying the different treatment. 305 Most important in the regard is GAMI v. Mexico, 306 where it was observed that “a reason exists for the measure which was not itself discriminatory. That measure was plausibly connected with a legitimate goal of policy (ensuring that the sugar industry was in the hands of solvent enterprises) and was applied neither in a discriminatory manner nor as a disguised barrier to equal opportunity.”

Similarly, under the Windivian Nirbharta Scheme, multiple such policy measures have been taken up by the Government of Windiva. Greater self-sufficiency in matters of defence equipment is also a necessary aspect of the same and hence purely a policy measure which warranted the tax exemption to the indigenous manufacturers.307 4.2.a Changes in Taxation Regime are Legitimate Government Policy of Sovereign State

Cube Infrastructure v. Spain, Decision on Jurisdiction, Liability and a Partial Decision on Quantum, ICSID Case No. Arb/15/20, ¶ 393. Also see, Ekosol v. Italy, Award, ICSID Case No. Arb/15/50, ¶ 452.

304 RWE Innogy v. Spain, Decision on Jurisdiction, Liability, and Certain Issues of Quantum, ICSID Case No. Arb/14/34, ¶ 482.

305 UPS v. Canada, Award on the Merits, Separate Statement of Dean Ronald A. Cass (Award on the Merits), ICSID Case No. INCT/02/1, ¶ 124 – 132.

306 GAMI v. Mexico, Final Award, UNCITRAL, ¶ 114 – 115.

307 Genin v. Estonia, Award, ICSID Case No. ARB/99/2, ¶ 370. & Myers v. Canada, Partial Award (Merits), UNCITRAL, ¶ 250.

303

115

The Collection of the Best for IMAIL 2021

79.

Upon the particular issue of taxation, it is also contended that, a. b.

80.

Multiple tribunals have emphasised on the State’s sovereign right to tax establishes a presumption of legitimacy.308 Further, it has also been established that States do not have “a duty to adapt its tax regime to the best interests of foreign investors.”309

Thus, the Government of Windiva reserves its sovereign rights with respect to taxation measures and there exists no aspect of breach of any obligation under the BIT as against the Aveeron group.

4.2.b National Treatment standards are applicable under the BIT and not Fair & Equitable Treatment

81.

It is pertinent to note that with respect to the contentions of the Claimant demanding fair and equitable treatment, the host State never agreed to provide fair and equitable treatment as a means of protection of the investment. The Windivan and Firelian Governments categorically decided on providing National Treatment as the standard of protection for the investments, rather than the Fair and Equitable Standard. It is relevant to bring to the Tribunal’s attention a UNCTAD Study,310 which cautioned Tribunals and States against such an approach. The Study stated: “If States and investors believe that the fair and equitable standard is entirely interchangeable with the international minimum standard, they could indicate this clearly in their investment instruments; but most investment instruments do not make an explicit link between the two standards. Therefore, it

Mobil Exploration v. Argentina, Decision on Jurisdiction and Liability, ICSID Arb Case No. 04/16 ¶ 53; Quasar de Valores SICAV and others v. Russia, Award, SCC Case No. 24/2007, ¶ 181; & El Paso v. Argentina, Supra Note 2, ¶ 290.

309 Supra Note 2, ¶ 295.

310 “Fair and equitable treatment”, UNCTAD series on issues in international investment agreements, 1999.

308

116

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

cannot be readily argued that most States and investors believe fair and equitable treatment is implicitly the same as the international minimum standard. Attempts to equate the two standards may be perceived as paying insufficient regard to the substantial debate in international law concerning the international minimum standard. More specifically, while the international minimum standard has strong support among developed countries, a number of developing countries have traditionally held reservations as to whether this standard is a part of customary international law.”

82.

Therefore, the attempts of the investor to somehow claim advantage of the fair and equitable treatment standard are unfounded, and should be dismissed as the same is beyond the ambit of the present BIT. (4.3) INSTANCES OF REGULATORY CHANGES DEEMED NOT TO BE IN BREACH OF FAIR & EQUITABLE TREATMENT STANDARD

83.

With respect to the contentions upon the aspect of breach of fair and equitable treatment, while above contentions clearly establish that no legitimate expectations have been breached or that no breach of national treatment has occurred; it is further submitted that, there have been multiple instances wherein states have successfully justified their measures which had earlier been contended by investing parties to be in breach of the fair and equitable treatment standard. Most notable in the regard being Silver Ridge v. Italy, 311 “Against this background, the Tribunal concludes that the changes brought about by the Respondent's adoption of the Spalma-incentivi Decree (notably the 8 % FIT reduction applied to the Claimant's PV plants from 1 January 2015 on) were, considering all relevant elements of the case, reasonable, foreseeable and proportionate and did therefore not constitute a fundamental or radical

311

¶ 474 - 475, at Supra Note 1.

117

The Collection of the Best for IMAIL 2021

alteration of the applicable legal framework to the detriment of the investor. Thus, the corresponding legitimate expectation of the Claimant was not frustrated and the fair and equitable treatment claim based on the Spalma-incentivi Decree must be rejected.

Having found that the fair and equitable treatment standard, as enshrined in Article 10(1), second sentence, of the ECT, has not been violated in the present case, the question remains whether the guarantee in Article 10(1), first sentence, according to which each ant any additional protection with respect to its claim based on the Spalmaincentivi Decree (see para. 394). The Tribunal respondsECT Contracting Party shall "encourage and create stable, equitable, favourable and transparent conditions" offers the Claim to this question in the negative as all relevant arguments regarding maintaining an appropriate degree of stability of the existing legal framework as well as regarding the necessary measure of transparency when modifying this legal framework have already been addressed above.”

84.

Thus, there are multiple such elemental considerations which have to be taken into account before it can be said that Windiva breached the fair and equitable treatment standard.312 5. THE AVEERON GROUP IS NEITHER ENTITLED TO DAMAGES NOR COSTS OF THE ENTIRE ARBITRATION PROCEEDINGS

85.

For the reasons submitted above, the Respondent submits that the Claimant is not entitled to any compensation (1) nor is it within its rights to demand that the Respondent bear the costs of the whole proceedings (2).

Also see, , JSW Solar v. Czech Republic, Final Award, PCA Case No. 14-03, ¶ 346 – 348, 442; Agility v. Iraq, Final Award, ICSID Case Arb No. 17/7, ¶ 173; & National Grid plc v. Argentina, Award, UNCITRAL Case, ¶ 76 – 78, 163.

312

118

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(5.1) THE CLAIMANT IS NOT ENTITLED TO ANY COMPENSATION

86.

87.

The Respondent submits that the Claimant is not entitled to any component of its hefty claim of USD 670 million in compensation. It seeks to fabricate claims that hold no validity to inflate a figure which simply does not add up. As the Respondent has shown in the preceding issues, there has been no violation of the BIT outside the Claimant’s imagination.

It is true that in cases of actual violations of rights under investment treaties, compensation is due. The standard for compensation in cases of investor-state disputes was set down in the Chorzow Factory case313. The award in question adopted a “full reparation” standard which has now become the standard for all calculations of compensation for wrongful acts of states under customary international law. In this case, the Permanent Court of International Justice categorically stated in its Award on the Merits: “The essential principle contained in the actual notion of an illegal act – a principle which seems to be established by international practice and in particular by the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe out all the consequences of the illegal act and re-

establish the situation which would, in all probability, have existed if that act had not been committed. Restitution in kind, or, if this is not possible,

payment of a sum corresponding to the value which a restitution in kind would bear; the award, if need be, of damages for loss sustained which would not be covered by restitution in kind or payment in place of it.”

88.

89.

Likewise, Article 31 of the Convention on Responsibility of States for Internationally Wrongful Acts (2001) also requires that a state committing a wrongful act must ensure full reparation to an aggrieved investor.

However, the Respondent draws the Tribunal’s attention to the premise on which the full reparation principle rests: that there must first be a wrongful act committed by a state. It is

Factory at Chorzów (Germany v. Poland), Merits, 1928 PCIJ (Ser. A) No. 17 (13 September).

313

119

The Collection of the Best for IMAIL 2021

humbly submitted that this Tribunal cannot award compensation where there is no violation of a right under the BIT. The Respondent has illustrated that: i. ii. iii.

90.

91.

92.

The dispute between the two parties is one that emerges from a contract, and does not pertain to the rights under the BIT. The damage to property at Mekhli was a force majeure event for which no liability can be attributed to the Respondent.

The change in taxation was prior to the creation of the rights under the BIT, and in the absence of stabilisation clause, the decision is outside the purview of this Tribunal.

The full reparation standard requires that the investor who has suffered a legal injury due to the actions of the host state must be put in the same economic standing it held, should the breach of treaty not have occurred.

The basis of an investor’s claim to compensation is the protections afforded under the BIT between the investor’s home state and host state. Therefore, if no breach of treaty occurs, no damage is caused to the investor. The investor has in no way been obstructed from the full enjoyment of their rights under the BIT and therefore cannot demand compensation for it.

In the present case as well, in the absence of any breach of the treaty, the Claimant is not owed any compensation.

(5.2) THE RESPONDENT MUST NOT BE MADE TO BEAR THE FULL COSTS OF THESE PROCEEDINGS

93.

94.

Article 11 of the BIT reads: “ The disputing parties shall share the costs of the arbitration, ... The Tribunal may, however, in its discretion direct that the entire costs or a higher proportion of costs shall be borne by one of the two disputing parties and this determination shall be final and binding on both disputing parties.”

The BIT clearly requires the parties to share the costs of the arbitration. Since the Respondent has given sufficient factual and legal reasons to prove that the demands and allegations of the Claimant are unfounded, it is sufficient to say that the Claimant is not entitled to demand the any costs of the

120

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

proceedings from the Respondent. On the other hand, the Respondent should be awarded the full costs of the proceedings, as it has been made party to a proceeding wherein the Claimant has no justified basis to present its arguments.

121

The Collection of the Best for IMAIL 2021

Relief Requested

In view of the above submissions, the Respondent respectfully requests the Tribunal to: i.

ii. iii.

iv. v.

Find that the instant dispute is inadmissible for a lack of violation of rights under the Bilateral Investment Treaty and direct the Claimant to approach an appropriate adjudicatory body; Hold that the damage to the property situated in Mekhli was the result of a force majeure event, and therefore did not lead to any violation of the Bilateral Investment Treaty; Declare that the Respondent is entitled to after-sales services in repairing the faulty UAV, as algorithmic camouflage is not a countermeasure technology, and that there has been no breach of confidentiality in the Respondent’s conduct; Dismiss the Claimant’s allegation of the Respondent’s breach of the National Treatment Clause with regard to the expiration of the tax exemption; Dismiss the Claimant’s baseless demand of USD 670 million in damages for the reasons stated herein.

Respectfully Submitted on 29th July, 2024 By: Team T-GCN-COLS-AV On behalf of the Respondent The Government of Windiva

122

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

The Claimant Memorial Runners-Up Team Rajiv Gandhi National University of Law, Punjab

Tamanna Gupta, Deeksha Bhatia, & Aditi Dubey, Authors

123

–

The Collection of the Best for IMAIL 2021

1ST INDIAN MOOT ON ARTIFICAL INTELLIGENCE AND LAW, 2021 Before the

THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP OF COMPANIES (CLAIMANT) V. GOVERNMENT OF WINDIVA (RESPONDENT) MEMORIAL for CLAIMANT

124

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

SUMMARY OF ARGUMENTS

Jurisdiction: The case is admissible as the provisions of BIT vests jurisdiction before ICSID. Further the claimant have complied with all provisions and obligation of BIT before approaching this tribunal.

Further it is contended that exhausting domestic remedied before approaching other redress forum is not an obligation over the claimant. As the doctrine of exhaustion of alternate remedy is a general principle in international law.

Merits (Full Protection and Security): The claimant contends the breach of doctrine of full protection and security on the part of the respondent by violating the BIT obligations. It is the duty of host state to provide a secure environment to the investors pertaining to his investment. The respondent can take defense of force majeure for the Mekhli incident as the circumstances of the events were not unforeseeable and uncontrollable.

Merits (Countermeasures and Confidentiality): the algorithmic camouflage for UAVs is categorized as countermeasure. As the particular algorithm does not perform a principal function in the asset rather can be used as a preventive or extra feature in the asset.

Therefore, the claimant is not bound to render after sale service for that. Further, disclosing the AI technology to a native company tantamounts to the breach of confidentiality under contractual whilst BIT obligations.

Merits (National Treatment and FET): The respondent has violated the principle of national treatment under BIT obligations.

There was a likeness of situation between the native industry and the Aveeron Group. However, the respondent has discriminated on the basis of nationality. There was no valid purpose to change the tax policy. Furthermore, the respondent also breached the legitimate expectation of the claimant.

Remedy: The claimant is entitled to damages of USD 670 Million for the loss incurred due to the respondents uncalled actions and

125

The Collection of the Best for IMAIL 2021

costs of the entire arbitration proceedings by undermining the assetbased approach and speculative value indication approach.

126

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

ARGUMENTS ADVANCED

[Issue I] Whether Aveeron Group’s Cause Of Action Before The International Centre For Settlement Of Investment Disputes Has Arisen Out Of An Underlying Contract To The Bit/ Violation Of Contract Leading To Violation Of Bit Or Is It A Pure Breach Of Contract To Be Solved Before Domestic Courts Of Windiva?

1. It is humbly submitted before the Hon’ble Court that Aveeron Group’s Cause of Action before the International Centre for Settlement of Investment Disputes (Hereinafter, ICSID) has arisen out of an underlying contract to the BIT/ violation of contract leading to violation of BIT & thus must be resolved before the International Centre for Settlement of Investment Disputes, rather than the domestic courts of Windiva.

[1.1] The provisions of the Bilateral Investment Treaty vests jurisdiction before ICSID 2. Article 8 of the BIT lays down provisions with respect to settlement of disputes.

Article 8.3 of the BIT clearly states 1“In respect of a claim that the defending party has breached an obligation under this Treaty, a disputing investor must first submit its claim before the relevant domestic courts or administrative bodies within 6 months from the alleged breach.”

3. Furthermore, Article 8.4 of the Bilateral Investment Treaty2 states that after exhausting remedies before relevant domestic courts or administrative bodies for at least one year from the date of alleged breach, and on the point that no resolution could be satisfactorily reached, must the “notice of dispute” by International Centre for Settlement of Investment Disputes be sent to the opposing party. 3 Bilateral Investment Treat (Windiva–Firel) (2022) art 8.3 Ibid, art 8.4 3 Ibid 1 2

127

The Collection of the Best for IMAIL 2021

4. In the current matrix, Aveeron sent “notice of dispute” to the Windivan Government in consonance with the requirements under Article 8.3 & Article 8.4 of the Bilateral Investment Treaty.

Furthermore, both Government of Firel & Government of Windiva ratified the ICSID Convention, in the year of 1983 & 2022, respectively. 4 Thus, International Centre for Settlement of Investment Disputes has the requisite jurisdiction to resolve the dispute.

[1.2] Aveeron Group complied with provisions of the Bilateral Investment Treaty before approaching ICSID. 5. Article 8.4 of the Bilateral Investment Treaty states that only after exhausting remedies before relevant domestic courts or administrative bodies for at least one year from the date of alleged breach, and on the point that no resolution could be satisfactorily reached, must the “notice of dispute” by International Centre for Settlement of Investment Disputes be sent to the opposing party.5 6. In the present case, Aveeron sent “notice of dispute” to the Windivan Government under Article 8.4 of the Bilateral Investment Treaty, after a failed domestic dispute resolution process for 1 year. 6 It was further stated that no fruitful results emanated from the attempts for amicable resolution of the dispute 7.

[1.3] Exhausting Domestic Remedies before approaching other redress platforms is not a Mandatory Legal Requirement.

7. It is humbly contended that the doctrine of exhaustion of alternate remedies is a general principle of law, with no binding value whatsoever. Compliance with the doctrine of exhaustion of alternate remedies is a prerogative of the judiciary, as stated in the case of State of Uttar Pradesh v. M. Noor8, and reiterated in various judgments9, and a requirement created by the judicial echelons, and such a requirement does not confer it a legal standing.

Moot Proposition, 2 BIT (n 2) 6 Moot Proposition, 8 7 Ibid 8 State of Uttar Pradesh v Mohammad Noor (1958) AIR 86 (SC) 9 Maharashtra Chess Assn. v Union of India (2019) SCC OnLine 932 (SC 4 5

128

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

8. Furthermore, albeit erring on the facet of warning, this Hon’ble Court has expressly held the sanctity of the fundamental right guaranteed under Article 32 and has no relation whatsoever with respect of Doctrine of Exhaustion of Alternative Domestic Remedies.

9. The Hon’ble Court under Article 32, in Romesh Thapar v. State of Madras10 further reiterated in Daryao v. State of Uttar Pradesh11, held that there exists no burden of proof at the petitioner to establish the exhaustion of Alternative Domestic Remedies, in order for him to approach the Hon’ble Apex Court under Article 32.

[Issue II] Whether Aveeron Group is correct in claiming violation of doctrine of full protection and security or is the Windivan Government correct in using the Force Majeure exception?

10. It is humbly contended that Aveeron Group is correct in claiming violation of doctrine of full protection and security, as the present circumstances warrant the application of doctrine of full protection and security, and fall within the scope of the same. Furthermore, the current event does not fall under an event of Force Majeure, and hence the Windivan Government is not correct in using the Force Majeure exception.

[2.1.] The provision of Bilateral Investment Treaty (Hereinafter, BIT) claiming violation of doctrine of full protection and security stands valid and is applicable.

11. In general parlance, the doctrine of full protection and security states that the host state is under an obligation to take active measures to protect the investment from adverse effects. The adverse effects may stem from private parties such as demonstrators, employees or business partners or from actions of the host State and its organs including its armed forces.

10 11

Romesh Thappar v The State Of Madras (1958) AIR 124 (SC) Daryao And Others v The State Of U P And Others (1961) AIR 1457 (SC)

129

The Collection of the Best for IMAIL 2021

[2.1.1] Scope of Doctrine of Full Protection and Security 12. In Vivendi v Argentina12, the respondent had argued that the standard of protection and full security was limited in its applicability to physical interference. The Tribunal rejected this contention.

Futhermore, in Azurix v Argentina13, the Tribunal confirmed that ‘full protection and security may be breached even if no physical violence or damage occurs’.

13. In National Grid v Argentina14, the Tribunal stated categorically that the phrase ‘protection and constant security’ as related to the subject matter of the Treaty does not carry with it the implication that this protection is inherently limited to protection and security of physical assets. Thus, in the present case, Aveeron is rightly entitled to damages due to significant damages suffered by Aveeron Group’s Indian Branch Office.15 [2.1.2] Doctrine of Full Protection and Security is applicable in the present circumstances 14. The host state is under an obligation to provide some measure of protection against forcible interference by private persons such as employees, business partners or demonstrators. In addition, the standard of full protection and security is also directed against forcible interference by State organs such as police and the armed forces. 16 15. In Saluka v Czech Republic17 it was stated that the ‘full protection and security’ standard applies essentially when the foreign investment has been affected by civil strife and physical violence…. the ‘full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force.

12

[2003] ICSID 97 [2005] 8 ICSID Rep 489

[2006] ICSID 1 [2006] 10 ICSID Rep 412 [2008] ICSID 5 [2008] IIC 361 15 Moot Proposition, 5 16 Christoph Schreuer, Full Protection & Security [2010] Journal of International Dispute Settlement 1-17 17 [2006] PCA 18 [2006] ICGJ 368 13 14

130

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

16. In Eastern Sugar v Czech Republic18 the Tribunal suggested that the standard protected investors against violence stemming from third parties.

17. Furthermore, In AMT v Zaire19, a case with similar factual milieu, the investment had been subject to looting by elements of Zaire’s armed forces. The Tribunal found that the treaty provision imposed upon Zaire a duty of vigilance which would not be inferior to the minimum standard of international law. Zaire breached this obligation by taking no measure that would ensure the protection and security of the investment. It followed that Zaire was in breach of the treaty’s obligation, and the investment had the right to full protection & security.

18. In Youmans (US v. Mexico)20, the US–Mexican mixed claims commission held that a state may be responsible for damage caused by mob violence where the state failed to punish the persons implicated in the crime.

19. In a case with similar factual milieu, Pantechniki v. Albania21, the claimant, a contractor selected for infrastructure works in Albania, complained that violent riots taking place over several days had damaged its investment, and that Albania had breached its full protection and security obligation by failing to prevent the damage.

The sole arbitrator held that the state's full protection and security obligations depend on the state's ability to accord protection.

20. It can be averred that full security and protection should be accorded to Aveeron Group, since the Government of Windiva did not take adequate measures for the protection of its investors, and the Government of Windiva must be made liable for the damages accrued.

[2.2.] The Respondent cannot take the plea of Force Majeure Exception owing to circumstances at Mekhli, Windiva.

21. The Counsel humbly submits that the Respondent should be not allowed to take the plea of Force Majeure in view of the circumstances that diminished their ability to discharge a stipulation in the BIT. It is humbly contended that, Firstly, the present circumstances do not [2004] SCC 88 [2007] IIC 310 [1997] ICSID 93 [2002] 5 ICSID Rep 11 20 (1926) 4 RIAA 110 21 Pantechniki v Albania (2009) IIC 383 71–84 18 19

131

The Collection of the Best for IMAIL 2021

meet the condition of “impossibility” of performance as stipulated under the definition of Force Majeure. Furthermore, circumstances arisen due to the Population Control Bill falls does not under a situation of Force Majeure, and Secondly, The terms stipulated under BIT provide for invocation of full protection & security in the present factual circumstances.

[2.2.1] The Circumstances do not fall under a situation of Force Majeure 22. Force Majeure event has been defined by Article 1.3 of the BIT, stating that, “Force Majeure event means an unforeseeable & uncontrollable natural disaster or manmade constraints which make the performance of an obligation impossible”.22 23. Force majeure is governed by the Indian Contract Act, 1872. In so far as it is relatable to an express or implied clause in a contract, it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. Section 32 of the Indian Contract Act 23 states that contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.

24. Invocation of the doctrine of frustration under Section 56 of the Indian Contract Act, 187224, cannot be pleaded by the Government of Windiva. In order to invoke the same, parties must show that the performance of a contract has become impossible, and the arrangements and conditions have become fundamentally different from those envisaged in the contract. In the present scenario, neither Section 32 nor Section 56 of the Indian Contract Act, 1872 can be applied.

25. In England, in the celebrated Sea Angel case25, the modern approach to frustration is well put, stating that the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties' knowledge, expectations, assumptions Bilateral Investment Treat (Windiva–Firel) (2022), art 1 The Indian Contracts Act 1872, s 32 24 The Indian Contracts Act 1872, s 56 25 Edwinton Commercial Corporation & Anor v Tsavliris Russ Ltd [2007] EWCA Civ 547[2007] Lloyds Law Report 569 22 23

132

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.

26. It has also been held that applying the doctrine of frustration must always be within narrow limits. In an instructive English judgment namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH26, despite the closure of the Suez Canal, and despite the fact that the customary route for shipping the goods was only through the Suez canal, it was held that the contract of sale of groundnuts, in that case, was not frustrated. House of Lords held that even though the contract had become more onerous to perform, it was not fundamentally altered.

[2.2.2] The Terms Stipulated under BIT provide for invocation of full protection & security 27. Article 3 of the Bilateral Investment Treaty states that each party is obligated to provide full protection & security to the other party, with relation to physical security of the investors. 27 Furthermore, Article 5 states that investors must be extended non-discriminatory treatment with respect to indemnification & compensation, for losses suffered on investments in its property, excluding events of Force Majeure.28 The applicable standard of protection in investment treaties is clarified in comparative perspective, with a view to developing general principles of law. 29 28. It was stated in the case of Asian Agricultural Products Ltd (AAPL) v.

Sri Lanka (1990)30, that a promise to provide full protection and security can mean an absolute standard imposing strict liability.

Furthermore, on the basis of the full protection and security clause in the United Kingdom–Sri Lanka BIT, the tribunal held that Sri Lanka had violated its obligation by not taking “all” possible measures to prevent the killings and destruction of investment. The tribunal held that an independent treaty standard was applicable and

[1962] AC 93 [1961] 1 Lloyd’s Rep 329 BIT (n 1) art 3 28ibid art 5 29 Stephan W Schill, International Investment Law & Comparative Public Law (Oxford Scholarship Online, 2011) 30 [1990] ICSID 87 [1997] 4 ICSID Rep 245 26 27

133

The Collection of the Best for IMAIL 2021

found Sri Lanka liable for its failure to take precautionary measures to prevent harm to the investment.

29. In the Saluka Investments v. Czech Republic31 , reiterated in BG Group v.

Argentina32 & Eastern Sugar v. Czech Republic33 the court stated that the “full protection and security” standard applies essentially when the foreign investment has been affected by civil strife and physical violence. The state of Windiva also witnessed civil unrest and violent protests owing to the Population Control Bill, & hence it is the obligation of the Government of Windiva to extend its protection to all affected entities.

6. [ISSUE III] WHETHER AVEERON GROUP IS JUSTIFIED IN TREATING ALGORITHMIC CAMOUFLAGE AS COUNTERMEASURE TECHNOLOGY SO AS TO NOT PROVIDE AFTER SALE SERVICE TO THE GOVERNMENT OF WINDIVA AND WHETHER THE GOVERNMENT OF WINDIVA BREACHED BUSINESSRELATED CONFIDENTIAL INFORMATION WHILE DISPATCHING FEW UNMANNED AERIAL VEHICLES (UAVS) TO AN INDIGENOUS COMPANY SPECIALIZING IN DEFENSE TECHNOLOGY?

30. It is humbly submitted that firstly, [1] Algorithm camouflage comes under the ambit of countermeasures and the claimant is not bound to provide after-sale services about it. Secondly, [2] the respondent has breached the confidentiality under contractual obligations and BIT clauses. It is further submitted that lastly, [3] such actions of the respondent has violated the claimant's IPR.

Saluka Investment Case (n 17) [2012] US App DC 138 [2012] ILDC 2150 33 J. Chalker, ‘Case Note: Eastern Sugar B.V. v. The Czech Republic’ (TDM 2009) <https://www.transnational-dispute-management.com/article.asp?key=1391> accessed 29 June 21 31 32

134

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

[3.1] ALGORITHMIC CAMOUFLAGE IS A COUNTERMEASURE TECHNOLOGY AND THE CLAIMANT IS NOT LIABLE TO RENDER SERVICE FOR THIS. 31. It is contended that the algorithmic camouflage comes under the ambit of countermeasure technology only as conveyed by the claimant earlier to the respondent. 34 Claimants asserts: firstly, [3.1.1] the algorithmic camouflage as countermeasure technology; Secondly, [3.1.2] claimant is under no obligation to render after sale service for this.

[3.1.1] The algorithmic camouflage as countermeasure technology 32. A countermeasure is defined as a course of action taken to protect against something that is considered bad or dangerous.35 As in the current factual matrix, the application countermeasures to incorporate in the original UAVs holds relevance only when these deliberately specified prior to the sale agreement.

33. A wide diversity of air missions can be completed by UAVs.36 The types of missions include countermeasure in defence (missile launching drones, bomb-dropping drones, flying camouflaged drones).37 Further, such modification to the UAVs is articulated as countermeasures.

34. Information security experts have recently articulated such countermeasures to "camouflage" these identifiable patterns to mitigate against reverse-engineering.38 Hence the algorithmic camouflage is articulated as a countermeasure in the present application of UAVs bad can not be anticipated by its nature [3.1.2] The claimant is under obligation to render its service for a countermeasure application

Moot Proposition, 4 Bryan A Garner, A Dictionary of Modern Legal Usage (3rd edn, OUP 2011) 36‘Great UAV Applications Areas for Drones.’ <http://air-vid.com/wp/20-greatuavapplications-areas-drones/> accessed 2 July 2021 37 Jin Li and Youngnam Han, ‘Optimal Resource Allocation for Packet Delay Minimization in Multi-Layer UAV Networks’ (2017) 21 IEEE Communications Letters 580.

38 ‘Preventing AI From Divulging Its Own Secrets’ (Computer Engineering) <https://comp-eng.binus.ac.id/2020/06/06/preventing-ai-from-divulging-itsown-secrets/> accessed 3 July 2021.

34 35

135

The Collection of the Best for IMAIL 2021

35. As stated above, the algorithmic camouflage is articulated as a countermeasure technology, and as per the terms of the contract, the claimant is not bound to serve for such measures. 39 36. The Saipem S.p.A. v People’s Republic of Bangladesh40 tribunal has stressed upon the difference between an overall investment operation and its individual components, including claims arising from a relevant contract. Therefore the respondent cannot make the claimant liable and moreover mandatory to perform an extra, not specified41 clause under the ambit of an agreement.

[3.2] THE RESPONDENT HAS BREACHED THE CONFIDENTIALITY CLAUSE UNDER CONTRACTUAL AND BIT OBLIGATIONS

37. It is contended that the respondent has breached the confidentiality clause, defined under article 1.1 of BIT. The respondent is accused of violating article 1.1 of BIT defines the ambit of confidential information further covers, firstly, [3.2.1] the scope of artificial intelligence manned technical information as confidential information. Secondly, [3.2.2] the respondent breached confidentiality under contractual claims. Lastly, [3.2.3] The breach of confidentiality comes under umbrella clause of BIT. [3.2.1] The scope of AI manned technical information as confidential information 38. As per article 1.1 of BIT, confidential information in a commercial transaction further covers the information pertaining to the technology used in the asset.42 It is contended before the tribunal the respondent has breached the business related confidential information by sending artificial intelligence manned UAVs to a native company. 43 39. Artificial Intelligence technology is subject of a sensitive technical information. It could be used to develop new verification and validation system that can automatically test software known cyber

Moot Proposition, 4 [2007] 5 ICSID [2007] ICSID Rep 44 41 Moot Proposition, 5 42 BIT (n 1) art 1.1 43 Moot Proposition, 8 39 40

136

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

vulnerability before the new software is operationally deployed. 44 Further it offers the potential to learn from detecting a dataset in one jurisdiction and then move its algorithm to different jurisdiction without changing the underlying data itself. 45 They can be capable of adversarial reasoning, and of mindful deception of trade secrets.46 40. AI technology, carrying a valuable algorithms, holds the potential to be “reverse-engineered”, contains a provision of "reasonable steps" test in their field. The rigid scope of trade secrets may not eradicate all rights for legal protection (due to the wide doctrine of breach of confidence), portrays the need of "reasonable steps" to be taken in cross-border trade secret actions. 47 41. The involvement of third party on the side of the respondent does not comes under the ambit of reasonable steps as defined above, further violating it’s confidential obligation pertaining to the reasoning of asset, violates the BIT clause of confidentiality not only in monetary terms but such actions ought to incur the claimant material loss or jeopardize the investor’s competitive position, and information that is privileged or otherwise protected from disclosure under the law of a Party.48 [3.2.1] The respondent breached confidentiality under contractual claims 42. An embodied confidentiality clause in an agreement is self explanatory principle about the process of the asset in a business.

However the respondent didn’t follow the contractual obligations agreed on his part, and sent the assets to a native company. 49 43. As stated in Saltman Engineering Coy Ltd. Ferotec Ltd Monarch Engineering Coy (MITCHAM) Ltd. V. Campbell Engineering Coy Ltd., if Atul Pant, ‘Aerial Drone Swarms: The Next Generation Military Weapon | Manohar Parrikar Institute for Defence Studies and Analyses’ <https://idsa.in/issuebrief/aerial-drone-swarms-the-next-generation-militaryweapon-apant-150218> accessed 3 July 2021 45 Ibid 46 Nicolas Papernot and others, ‘The Limitations of Deep Learning in Adversarial Settings’, Proceedings - 2016 IEEE European Symposium on Security and Privacy, EURO S and P 2016 (Institute of Electrical and Electronics Engineers Inc 2016) <https://pennstate.pure.elsevier.com/en/publications/the-limitations-of-deeplearning-in-adversarial-settings> accessed 3 July 2021 47 Trailfinders Limited v Traveller Counsellors Limited & Ors [2020] EWHC 591 48 BIT (n 1) art 1.1 49 Moot Proposition, 8 44

137

The Collection of the Best for IMAIL 2021

two parties make contract terms, information to confidential must be apprehend.50 44. The respondent in present scenario has violated the contractual obligations of maintaining the confidentiality further divulged the technical information to a indigenous company.

[3.2.3] The breach of confidentiality comes under umbrella clause of BIT 45. Requirement fulfillment provisions, often known as "umbrella clauses," are intended to raise contractual and other commitments of host governments under the protective cover of an investment treaty.51 Contractual obligations pertaining to the confidentiality of the business related procedure future technical information in present case comes under the shade of umbrella clauses, by the application of article 1.1 of BIT.52As umbrella clauses enables foreign investors with the option of elevating their breach of contract claims to a violation of international investment treaties. 53 46. In Noble Ventures Inc. v. Romania54 the Tribunal discussed the scope and application of the umbrella clause of the BIT, a breach of contract at the state level resulted in a violation of the states' investment treaty, triggering the host state's international responsibilities.

47. As a further approach, in Eureko v. Poland55, The Tribunal concluded that Poland's breach of contract may be interpreted as a violation of the BIT's umbrella clause, which requires Poland to honour whatever obligations it may have made in connection with the Claimant's investments. Accordingly, the tribunals, placing emphasis on the full The effect of the umbrella provisions had elevated the degree of contractual breach to investment treaty violation. 56

50[1948]

65 RPC 203 Rudolf Dolzer And Christoph Schreuer, Principles of International Investment Law ( 2nd edn, OUP 2012) 166 52 BIT (n 1) art 1.1 53 Shotaro Hamamoto, ‘Parties to the “Obligations” in the Obligations Observance (“Umbrella”) Clause’ (2015) 30 ICSID Review - Foreign Investment Law Journal 449 54 [2005] ICSID 1 [2005] ICSID Rep 55 55 IIC 98 (2005) Ad Hoc Tribunal UNCITRAL 56 Ibid 51

138

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

48. It is contended that the respondent has violated contractual obligations whist BIT clauses by its action of involving third party without even informing the claimant. 57 [3.3] THE RESPONDENT HAS VIOLATED CLAIMANTS INTELLECTUAL PROPERTY RIGHTS OF THE ASSET. 49. It is humbly contended that respondent has infringed claimant's intellectual property rights by sending it’s artificial intelligence manned UAVs to an indigenous company to make correction to an patented asset.58 Due to such actions, the respondent is liable for, firstly, [3.3.1] violation claimant’s patent rights for the asset; Secondly, [3.3.2] making changes to a patented asset.

[3.3.1] The respondent has violated claimants patent rights pertaining to UAVs 50. Patents are extremely valuable objects of IP rights as first, creating an invention is a very time-consuming and costly process. Second, cross-border patent prosecution through international (e.g., Patent Cooperation Treaty59) prosecution mechanisms remain lengthy and costly. The claimant holds a patent under the Patent Corporation Treaty (PCT) process for the artificially intelligence manned UAVs in Firel and has also claimed its benefit successfully in Windiva.60 51. Only if a patent holder expressly states otherwise at the time of sale, the customer is granted an implicit licence to use and dispose of the copyrighted products as they see fit.61 The Court has made clear that modifications that go beyond mere repair and instead ‘remake’ or ‘repurpose’ the product will infringe the underlying patent.62 52. Incorporating new algorithm in the artificial intelligence manned UAVs63 further amount to a major change in the originally designed asset.

[3.3.2] The respondent has made modification to the originally delivered technology.

Moot Proposition, 8 Moot Clarification 59 Patent Cooperation Treaty’ <https://www.wipo.int/pct/en/texts/articles/atoc.html> accessed 3 July 2021 60 Moot Clarification 61 Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 4 62 Ibid 63 Moot Proposition, 5 57 58

139

The Collection of the Best for IMAIL 2021

53. The blatant attempt of the respondent, trying to modify the originally delivered UAVs, tantamount to not only infringement of claimant's patent rights but a portrays a vicious attempt on the part of the respondent to seek patent of addition over the assets, produced by claimant.

54. A variation, whether by addition, omission, or alteration to secure a better performance while retaining some characteristic part, is referred to as a modification, and an improvement is referred to as a variation, whether by addition, omission, or alteration to secure a better performance while retaining some characteristic part. 64 Whether or whether an improvement to a patented machine by addition, deletion, or change provides the same or better outcomes, the improvement infringes on the copyrighted machine's monopoly claims.65 55. As the ulterior attempts of the respondent to make changes to the originally designed asset, amounts to an attempt nullify the granted patent over the asset.

7. [ISSUE IV] WINDIVA VIOLATED THE PRINCIPLE OF NATIONAL TREATMENT AND BREACHED THE LEGITIMATE EXPECTATION ON THE FAIR AND EQUITABLE STANDARDS IN RESPECT OF THE DIFFERENTIAL TREATMENT GIVEN IN THE IMPOSITION OF INDIRECT TAX.

56. It is humbly submitted that the Windiva violated the principle of National Treatment and breached the legitimate expectation on the fair and equitable standards in respect of the differential treatment by giving tax exemption only to it indigenous companies. The said submission is based upon the following grounds:

64 65

P Narayanan, Patent Law (3rd edn, Eastern Law House 1998) Linotype & Machinery Ltd. v Hopkins [1908] 25 RPC 665

140

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

4.1. THE RESPONDENT VIOLATED THE PRINCIPLE OF NATIONAL TREATMENT AS THE ACTIONS OF THE RESPONDENT BREACHED THE ARTICLE 4 OF BILATERAL INVESTMENT TREATY

57. It is contended that the respondent violated the principle of national treatment as given under article 4 of BIT. All the four requirements given in the article 4 of the BIT are satisfied by the claimant as Firstly, [4.1.1] there was a likeness of situation between the indigenous industry and the Aveeron Group. Secondly, [4.1.2] Windiva discriminated on the basis of nationality. Thirdly, [4.1.3] there was no valid purpose for the change in tax policy. Lastly, [4.1.4] Aveeron group suffered huge loss due to the policy change.

[4.1.1] There was a likeness of situation between the indigenous industry and the claimant 58. Article 4 of BIT says that the party shall not apply measures that accord less favourable treatment to the other party than it accords, “in like circumstances”, to its own investors.66 The “likeness” test denotes that the allegedly discriminatory measures adopted vis-à-vis a foreign investor or investment should be compared with those adopted towards a similarly situated national or foreign investor or investment (i.e. a comparator).67 To determine whether the two companies are in the like situation or not, examination of certain particulars are to be done. Firstly, the domestic entities "in like circumstances" whose treatment should be compared are those firms operating in the same ‘economic sector’ or ‘business sector’.68 In our case, the indigenous manufacturers who were granted the central goods and services tax (for brevity CGST) and state goods and services tax (for brevity SGST) exemption were involved in the production of defence equipment, same business sector as the claimant’s.

59. Secondly, the domestic producers will be considered “in like circumstances” as the investors if they are in competition with each other. To win the tender floated by the Windiva’s ministry of defence, the claimant competed with its Windivan counterparts.69

BIT (n 1) art 4 Chartered Bank (Hong Kong) v Tanzania [2019] ICSID 15 [2019] IIC 1625 68 S D Myers v The Government of Canada [2004] FC 38 [2005] IIC 252 69 Moot Proposition, 3 66

67Standard

141

The Collection of the Best for IMAIL 2021

Thus it may be concluded that the claimant was in competition with the domestic companies.

60. As, both the requirements are fulfilled, it can be concluded that the domestic companies and the claimant were in like circumstances.

[4.1.2] Windiva discriminated on the basis of nationality 61. Under article 4.1 of BIT discrimination occurs when investors or investments, in like circumstance, are given “less favourable treatment” than domestic investors or investments.70 This disparity in treatment is not based on any intelligible differentia but based only on the nationality of the party.71 Non-discrimination is a well-established standard of protection in international law 72.

62. In January 2024, the Integrated Goods and Sevices Tax (For brevity IGST) exemption granted to the import of defence equipment was revoked by the central government whereas CGST and SGST exemptions given to the indigenous manufacturers under Nirbhata Scheme were kept intact. This differential treatment in indirect tax exemption is not based on any peculiar character of the domestic companies. Both the claimant and the concerned domestic companies are involved in the same business sector, manufacturing similar equipment. The only difference between the two categories is their nationality, one belonging to the home country and the other belonging to the foreign country. Therefore, In the absence of any logical distinguishing factor, the arbitrary tax exemption policy of the respondent can be called as a discriminating one.

[4.1.3] There was not a valid purpose for the change in tax policy.

63. Governments have the right to prescribe, within the limits of their Constitution, reasonable regulations necessary to protect the lives, health and welfare of the community, preserve good order and public morals and restrain and punish crime. This right of government can secure it from the liability only when the measure taken is not an arbitrary one. 73 If the measure adopted by the government is arbitrary and offers protection to domestic goods and

70BIT

(n 1) art 4.1 John B. Houck, ‘Restatement of the Foreign Relations Law of the United States (Revised): Issues and Resolutions’ (1986) 20 The International Lawyer 1375 72 BP Exploration Company (Libya) Limited v Libya [1983] 2 AC 352 [1983] 1 WLR 232 73Brazil and Venezuela v United States [1996] WTO 2 [1996] ITL 013 71

142

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

investors in detriment to their foreign counterparts, the government will be held liable for breaching the principle of national treatment.

64. Article 10 of BIT74 enumerates certain circumstances during which the government can take any drastic step even if it is detrimental to its investors. To attract this article, two essentials are needed to be fulfilled. Firstly, it must be shown that one of the circumstances given in article 10 has made it absolute necessary for the government to take a drastic step. Secondly, a nexus needs to be shown between the step taken and the objective which is to be achieved through it. 75 65. The arbitrary changes done by the respondent in its indirect tax policy on January 2024 were not necessitated by any of extraordinary or perilous situations given in article 10. Indeed, a civil unrest and violent protests broke out in the city of Mekhli against the Population Control Bill but it occurred three months before the policy change i.e. on September, 2023. Further, no nexus can be found between the civil unrest and the change in the indirect tax.

[4.1.4] Aveeron group suffered huge loss due to the policy change.

66. The breach of national treatment principle requires the existence of a nexus between the measure enacted and the negative effects that are produced. According to the sole effect doctrine, the assessment of indirect expropriation claims should primarily or exclusively be based on the effect that the disputed measure had on the investment. 76 Additional factors, such as the intention of the government or the purpose of the disputed measure, should not be considered77 or are less important 78 in the assessment of an indirect expropriation claim. Due to the IGST exemption done by the respondent, the claimant faced USD 70 million losses in its revenue.

[4.2] THERE EXISTED A LEGITIMATE EXPECTATION ON THE PART OF THE CLAIMANT AND THE RESPONDENT BREACHED IT.

74BIT

(n 1) art 10 Amit Kumar Sinha, ‘Non-Precluded Measures Provisions in Bilateral Investment Treaties of South Asian Countries’ (2017) 7 ASIAN J. INT. L. < https://doi.org/10.1017/S2044251316000023> accessed 30 June 30, 2021 76 García Armas and García Gruber v Venezuela [2013] PCA 15 [2013] IACL 54 77 R Dolzer and C Schreuer, Principles of International Investment Law (2nd ed., Oxford University Press, 2012) 112-114 78 Burlington v Ecuador [2017] ICSID 8 [2017] 4 JDIA 35 75

143

The Collection of the Best for IMAIL 2021

67. The respondent breached the legitimate expectation of the Aveeron group as firstly, [4.2.1] Previous representation of the Windiva supports the presence of legitimate expectation on the fair and equitable standards; Secondly, [4.2.2] Article 31 and 32 of the Vienna Convention on the Law of Treaties (for brevity VCLT); Thirdly, [4.2.3] The change in tax policy was arbitrary and unforeseeable and caused huge loss to the Aveeron group.

[4.2.1] Previous representation of the respondent supports the presence of legitimate expectation on the fair and equitable standards 68. Legitimate expectation, one of the most important functions of the fair and equitable standards79, originates from specific commitments and host state’s legislative background. It is the duty of the host state not to take any action that may affect the basic expectation of the investor at the time the investor made investment. 80 69. The parties had very strong economic, military and strategic diplomatic relations with each other since the year of 1992. Pursuant to this cordial and amiable relationship, both the parties made huge investments in each other’s country across various sectors of development. Keeping in mind the reciprocity of cordial environment, both the parties entered into a Bilateral Investment Treaty (BIT). After relying on the treaty, the claimant set up their Windivan subsidiary and opened a local manufacturing unit under the “Make in Windiva” scheme. The claimant also set up its Indian branch office in Windiva’s capital city of Mekhli. Through “Make in Windiva” scheme the respondent implemented a number of tax incentives to attract investment from foreign countries.

70. The claimant relied on representations made by the respondent by way of BIT and “Make in Windiva” scheme which gave rise to legitimate expectations that they will be fulfilled. The claimant invested in the respondent’s economy after taking into account the previous relationships and representations expecting consistent and non-arbitrary behaviour from the respondent’s side. Those expectations were held to have been frustrated when the respondent decided to revoke the tax exemption.

Electrabel v Hungary [2012] ICSID 19 [2014] 15 JWIT 273 Técnicas Medioambientales Tecmed SA v. United Mexican States [2003] ICSID 2 [2006] 10 ICSID Rep 154 79 80

144

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

[4.2.2] The interpretation of BIT as Article 31 and 32 of the Vienna Convention on the Law of Treaties supports the presence of legitimate expectation 71. In the absence of any specific provision in relation to FET standards, tribunals like Eiser Tribunal relied heavily on Article 31 of the Vienna Convention on Law of Treaties (VCLT) to interpret the FET standards.81 Article 31(1) of VCLT says “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.”82 Article 31(2) further says that the context of the treaty should be interpreted in the light of its preamble and annexures. 83 72. The preamble of the BIT signed between the respondent and the Firel explicitly lays down the context and objectives of the treaty.

Para 3 of the preamble recognises the parties’ duty to promote and protect the investments of investors of one Party in the territory of the other Part84 These lines of para 3, if interpreted in good faith, created a legitimate expectation of the parties that their investment would be secured from any arbitrary and reckless changes in tax policy.

[4.2.3] The change in tax policy was arbitrary and unforeseeable and caused huge loss to the Aveeron group.

73. The rule of law theory says that expectations are a central aspect of legal certainty and therefore of individual autonomy. 85 Legal certainty and the individuals’ capability to foresee the consequences of their actions are a prerequisite for rational enterprise in a capitalist economy. 86 While making long term investments, the investor relies on the duty of the host state to provide fundamental stability in its legal regime.87 If any changes are done by the host state in its legal regime, the same has to be predictable, transparent, fair/nonarbitrary/non, retroactive, proportional, and in public interest.

Eiser v Spain [2017] ICSID 13 [2020] 18 ICSID 158 Vienna Convention on the Law of Treaties (adopted May 23, 1969, entered into January 27, 1980) 1155 UNTS 331(treaty on treaties) art 31(1) 83 ibid art 31(2) 84 BIT (n 1) 85 Total S.A. v Argentina [2010] ICSID IIC 484 86 Suez et al. v Argentina [2010] ICSID 3 [2010] ICSID Rep 12 87 Luxembourg v Spain (n 7) 382, 383.

81 82

145

The Collection of the Best for IMAIL 2021

Ambiguous, or non-committal, state conduct can breach these legitimate expectations and can cause huge loss to the investor.

74. In the present case, the tax exemption was revoked by the respondent with an utter lack of transparency, consistency, predictability, and good faith. The change in policy ripped off the investor of the subsidy and investment amounting to 'total' change in the regime.88 Due to this, the claimant suffered USD 70 million losses in its revenue.

8. [ISSUE V] WHETHER AVEERON GROUP IS ENTITLED TO DAMAGES OF USD 670 MILLION AND COSTS OF THE ENTIRE ARBITRATION PROCEEDINGS AND WHAT IS THE MODE OF CALCULATION OF THESE DAMAGES?

75. It is humbly requested that tribunal should grant claimant the compensation of USD 670 million as the respondent must be held liable to compensate for the direct and speculative loses incurred during the course of action further for the violation national treatment.89 Claimant submits that due to default in payment by the respondent and breach of contractual confidentiality, claimant has suffered a substantial loss in it’s manufacturing unit as the second install was not paid by the respondent, 90 76. In addition to that an unannounced taxation liability was also imposed on the claimant 91 amounting to discriminatory nature in accordance with the Windivia- Firel BIT. Furthermore claimant's artificial intelligence UAV holds a patent under Patent Corporation Treaty (PCT) process in Firel.92 Hence by including a native company specialized in the same technology, the respondent has also infringed intellectual property rights of claimant.

77. However Article 5 of the BIT describes compensation for loses in a more general concern. It would be irrational to decide the reparation

Luxembourg v Spain (n 7) 363, 370, 393.

Moot Proposition, Issues 90 Moot Proposition, 8 91 Ibid 92 Moot Clarifications 88 89

146

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

provided in imprecise manner.93 Article 31 ILC, embodying the Chorzow Dictom94 stipulates that responsible state in under an obligation to fully repair the injury and party's damages.95 78. Claimant humbly submits requests the tribunal to grant the compensation on the basis of aforementioned adversities caused by the respondent undermining various sets of quantification methods under pertaining to investment arbitration. The type of asset being evaluated and the information available determine which valuation technique is used. 96 In practice, tribunals have often relied on the “Multiple Valuation methods” in determining damages:97 a. Asset Based Approaches 98 b. Valuation indicating and speculation based approach99 79. Claimant’s submits its claims and incurred loses as first [1] contractual breaches including BIT violation [2] speculative damages ensued on the part of the respondent [5.1] THE RESPONDENT VIOLATED THE CONTRACTUAL VIS-ÀVIS BIT OBLIGATIONS. 80. Direct losses suffered by the claimant as Firstly, [5.1.1] the default occurred in the payment of second trance and further the remaining trances were not reimbursed. Secondly, [5.1.2] the respondent violated BIT obligations. Lastly, [5.1.3] significant damages suffered by claimant due to civil unrest in Mekhli.

ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary [2006] ICSID 03[2006] ICSID Rep 65 94 Case concerning Factory at Chorzów (Germany v. Poland) [1928] PCIJ 13 [1928] PCIJ (ser A) No 17 95 Statute of the International Law Commission 1947 art 31 96 Christina L. Beharry, Elisa Méndez Bräutigam, ‘Damages and Valuation in International Investment Arbitration’ in J. Chaisse , L. Choukroune and S. Jusoh, Handbook of International Investment Law and Policy (Springer Nature Singapore Pte Ltd. 2020) 97 Crystallex International Corporation v Venezuela [2016] ICSID 11 [2020] 02 ICSID Rep 197; Rusoro Mining v Venezuela, [2016] ICSID 12 [2016] 05 ICSID Rep 787 98 Metalclad Corporation v Mexico [2002] ICSID 5 [2002] ICSID Rep 212 ; Wena Hotels v Egypt [2004] ICSID 6 [2004] ICSID Rep 89 99 Crystallex (n 98) 889–895; Rusoro (n 98) 767–769, 789 93

147

The Collection of the Best for IMAIL 2021

[5.1.1] The default occurred in payment as prescribed by the contract 81. When an investment isn't a going business or doesn't have a track record of profitability, the asset-based technique is generally used.100 A per recommended by the World Bank Guidelines on Investment if the book value was recently appraised prior to the valuation date.. 101 84. In the current factual matrix, the default that occurred in the payment of installment was uncalled and foreseeable. Due to such incautious and negligence, the claimant has incurred a direct loss of USD 150 million on the net value of the asset, which is the remaining amount to be paid in installments by the respondent. Therefore it is concluded that the respondent must compensate for aforementioned direct losses by violating essential contractual obligation.

[5.1.2] The respondent has violated BIT obligations 82. When other treaty breaches have resulted in the same effect , tribunals have applied the Fair Market Value (FMV) standard and asset-based approach102 for the valuation of the compensation.

83. When calculating damages, the tribunal has condemned the duty on investors account to take mitigating steps, however, held they “such an obligation is not so broad and all-encompassing as to require the Claimants to accept an unsuitable alternative” to develop the project, which was not even contemplated by the parties in their under-lying agreement.103 [5.1.3] The claimant has suffered significant damages due to civil unrest in Mekhli.

84. As per the BIT obligations, the host country owes the duty of protecting the foreign investors and their properties. 104 The Mekhli incident has portrayed an unlike circumstance for the claimant pursuant to which the respondent is deemed to be liable for violation of BIT Article 3, stating “Full protection and security”.105

Metalclad (n 99) 121–122 World Bank Guidelines on Investment, Guideline IV.6(iii) 102 Metalclad (n 99) 121–122 103 Southern Pacific Properties v Egypt [1992] ICSID 3 [1995] ICSID Rep 172 104 BIT (n 1) art.1 105 Ibid 100 101

148

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

85. Full reparations are interpreted as an investment’s fair market value.106 This includes compensation for the direct losses suffered by an investor.107 The respondent should compensate for the fair market value of the damaged assets in Mekhli is USD 1.5 Million. 108 [5.2] THE RESPONDENT SHOULD COMPENSATE FOR THE SPECULATIVE DAMAGES

86. Breach of contractual whilst BIT obligations was not only limited to patent violation of the asset but claimant has suffered vast amount of loss due to the discriminatory national treatment on the part.

Firstly, [5.2.1] the respondent has infringed intellectual property rights of the claimant. Secondly, [5.2.2] Due to the discriminatory treatment, the claimant has suffered a substantial amount of loss on its taxation liability. Lastly, [5.2.3] cost of arbitration proceeding should be incurred by the respondent.

[5.2.1] The respondent has infringed intellectual property rights of the claimant 87. The fact of loss or damage occurred due to IPR infringement, its quantification in monetary terms and the necessary causal link between the loss or damage to the investment and the treaty breach. 109 88. WIPO outlined that in WIPO alternative dispute resolution cases have varied in terms of awarded amount from US$15,000 to US$1 billion.110 Patent arbitration continues to attract high-value disputes pertaining the no. Of asset sold per year while the estimated amount of patent granted. The tribunals awarded compensation speculatively estimated at US$218 million annually for use of patented asset. 111 Friedland, Paul and Eleanor Wong, ‘Measuring Damages for the Deprivation of Income-Producing Assets: ICSID Case Studies’ (1991) 6 ICSID Rev 400 – 402; Marboe, Irmgard, ‘Calculation of Compensation and Damages’ in International Investment Law (OUP, 2009) 186 107 Joshua Simmons, ‘Valuation in Investor-State Arbitration: Toward a More Exact Science’ (2012) 30 Berkeley Journal of International Law 196 108 Moot Clarification 109 Rompetrol Group v. Romania [2013] ICSID 6 [2013] ICSID Rep 190 110 ‘WIPO Caseload Summary’ <https://www.wipo.int/amc/en/center/caseload.html> accessed 5 July 2021 111 Mihir Chattopadhyay, ‘Recent Event: The Case for Arbitration of Patent Disputes’ (Kluwer Arbitration Blog, 25 February 2016) 106

149

The Collection of the Best for IMAIL 2021

89. The estimated value of the patent for the artificially intelligent Unmanned Aerial Vehicles held by the claimant is USD 320 Million. 112 Furthermore, the claimant also contended it’s loss over the sale of patented assets, as the number of Unmanned Aerial Vehicles sold on average per annum worldwide by the claimant is 450.113 The tribunals have been persistent in award in damages using a Discounted Cash Flow (DCF) analysis for non-operating assets or businesses with a limited history of operations. 114 90. To apply DCF analysis, the tribunals have ensured that the “enterprise is active” in a sector of, its scope and effects must be “predictable”: with a minimum of confidence, the impact of legislation on future cash flows should be determined.. 115 91. Due to the enormous sale record in host state of claimant116, the claimant requests the tribunal to consider the compensation by undermining the proven record of the asset sale and its value indication on technological patented assets.

[5.2.2] The claimant has suffered a speculative loss due to revocation of IGST exemption 92. Article 4.1 of the BIT states the circumstances under the less favorable treatment provided to the foreign investor as compared to the native investors.117 93. The tribunal should conduct a fact-based investigation to determine the extent of the injury caused by the treaty breach. 118 This distinction is critical because the losses caused by non-expropriatory breaches will not always be economically equal to the injuries caused

<http://arbitrationblog.kluwerarbitration.com/2016/02/25/recent-event-thecase-for-arbitration-of-patent-disputes/> accessed 5 July 2021 112 Moot Clarification 113 Moot Clarification 114 NextEra Energy v. Spain [2019] ICSID 14 [2019] ICSID Rep 172 115 Rusoro (n 100) 759.

116 Moot Proposition 4 117 BIT (n 1) art 4.1 118 M Kinnear, ‘Damages in investment treaty arbitration in K. Yannaca-Small (ed), Arbitration under international investment agreements: a guide to the key issues (OUP 2010) 561–562; Cohen Smutny, ‘Some observations on the principles relating to compensation in the investment treaty context’ (2007) <compensation_in_inv_treaties-_abbey_cohen_smutny.pdf> accessed 5 July 2021

150

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

by expropriatory breaches, however entail an economic value but of a different nature.119 94. A blatant violation such nature is reflected from respondent’s side in this contextfurther costing a projected loss of USD 70 million, 120 in addition to the speculated damages incurred by the claimant due to inevitable taxation liabilities.

[5.2.3] The Respondent should incur the entire arbitration proceedings cost 95. Article 61(2) of the ICSID Convention provides: 121 “In the case of arbitration proceedings the Tribunal shall, except as the parties otherwise agree, assess the expenses incurred by the parties in connection with the proceedings, and shall decide how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid. Such decision shall form part of the award.”

96. As per BIT Article 11122 portrays a criterion of discretionary power of the tribunal. The Tribunal has the wide discretion to allocate all costs of the arbitration, including attorney’s fees and other costs, between the parties as it deems appropriate. 123 100. The practice of ICSID tribunals also demonstrates that, in order to exercise such discretion in a rational way, they have taken into account a number of factor, 124 the question whether claims are brought in good faith or reflect harassing litigation, but also whether claims are fraudulently instituted125 or whether investments are structured for the sole purpose of instituting investment arbitration.126 97. The respondent has violated not only contractual obligation about the investment but BIT obligations as well whilst the infringement

119PSEG

Global and Konya Ilgin Elektrik Üretimve Ticaret Limited Sirketi v. Turkey [2007] ICSID 02 [2007] ICSID Rep 308 120 Moot Clarification 121 International Convention on Settlement of Investment Dispute (adopted 18 March 1965) 575 UNTS 159 art 61(2) 122 Bit (n 1) Article 11 123 GEA Group Aktiengesellschaft v Ukraine [2011] ICSID 08 [2011] ICSID Rep 34 124 Burlington Resources Inc v Republic of Ecuador [2017] ICSID 08 [2017] ICSID Rep 124 125 Europe Cement Investment & Trade SA v Republic of Turkey [2009] ICSID 07 [2009] ICSID Rep 76 126 Phoenix Action Ltd. v. Czech Republic [2009] ICSID 06 [2009] ICSID Rep 89

151

The Collection of the Best for IMAIL 2021

of claimant’s IPR. The claimant requests the tribunal to abide the respondent to incur the entire arbitration proceeding cost. 127

127

Moot Proposition, Issues

152

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

RELIEF REQUEST

WHEREFORE IN THE LIGHT OF ISSUES RAISED , ARGUMENTS ADVANCED & AUTHORITIES CITED, IT IS HUMBLY PRAYED THAT THIS HON’BLE COURT MAY BE PLEASED TO: • Declare that the cause of action at ICSID has arisen due to the violation of contract leading to violation of BIT. • Declare that the claimant is correct in claiming the violation of doctrine of full protection and security.

• Declare that the claimant is justified in treating algorithmic camouflage as countermeasure technology so as to not provide after sale service to the Government of Windiva.

• Declare that the respondent breached business-related confidential information while dispatching few unmanned aerial vehicles (UAVs) to an indigenous company specializing in defense technology.

• Declare that the respondent violated the principle of national treatment and breached the legitimate expectation on the fair and equitable standard in respect of the differential treatment given in imposition of indirect tax.

• Declare that the claimant is entitled to damages of USD 670 Million and costs of the entire arbitration proceedings.

AND/OR PASS ANY OTHER ORDER, DIRECTION, OR RELIEF THAT THIS HON’BLE COURT MAY DEEM FIT IN THE INTERESTS OF JUSTICE, EQUITY AND GOOD CONSCIENCE All of which is humbly prayed, Sd/Date: --/--/202X On behalf of Aveeron Group Counsel for Claimant

153

The Collection of the Best for IMAIL 2021

The Respondent Memorial – Runners-Up Team Rajiv Gandhi National University of Law, Punjab

Tamanna Gupta, Deeksha Bhatia, & Aditi Dubey, Authors

154

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

1ST INDIAN MOOT ON ARTIFICAL INTELLIGENCE AND LAW, 2021 Before

THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP OF COMPANIES (CLAIMANT) V.

GOVERNMENT OF WINDIVA (RESPONDENT) CASE CONCERNING THE CONTRACT BETWEEN AVEERON GROUP AND CO. PVT. LTD AND THE GOVERNMENT OF WINDIVA

MEMORIAL for RESPONDENT

155

The Collection of the Best for IMAIL 2021

SUMMARY OF ARGUMENTS

Jurisdiction: The case is not admissible in this tribunal. The claimant has not complied with all provisions and obligation of BIT before approaching this tribunal. The grant of tender does not come under the purview of BIT. Further it is contended that exhausting domestic remedied before approaching other redress forum is an obligation over the claimant as per BIT. The claimant did not exhaust those remedies in domestic courts.

Merits (Full Protection and Security): The respondent contends that there is no breach of doctrine of full protection and security on the part of the respondent complying with BIT obligations. As the civil unrest situation in Mekhli comes in the ambit of force majeure events. The circumstances of the events were unforeseeable and uncontrollable. Therefore claimant can not exhaust remedies for such events as per BIT Article 3.3.

Merits (Countermeasures and Confidentiality): The algorithmic camouflage for UAVs is not a countermeasure technology. As the particular algorithm is a necessity for the military purposes.

Therefore, the claimant is bound to render after sale service for that.

Further, sending the AI manned asset to a native company does not amount to the breach of confidentiality under contractual whilst BIT obligations, in addition to that there is no infringement of claimant’s patent rights.

Merits (National Treatment and FET): The respondent has not violated the principle of national treatment under BIT obligations.

Legislature has right to mold policies in economic matters. The notification was not discriminatory as there exist an intelligible differentia. Furthermore, the respondent does not breached the legitimate expectation of the claimant. The claimant has neglected in doing proper due diligence in matter of taxation liabilities.

Remedy: The claimant is not entitled to damages of USD 670 Million. As in damages must be calculated on the bases of cost-based approaches. The investment of claimant in the assigned project was USD 200 Million only. Further claimant can not claim compensation on speculative costs as it does not satisfy the necessary requirments.

156

The Collection of the Best for IMAIL 2021

ARGUMENTS ADVANCED 9. [ISSUE I] WHETHER AVEERON GROUP’S CAUSE OF ACTION BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES HAS ARISEN OUT OF AN UNDERLYING CONTRACT TO THE BIT/ VIOLATION OF CONTRACT LEADING TO VIOLATION OF BIT OR IS IT A PURE BREACH OF CONTRACT TO BE SOLVED BEFORE DOMESTIC COURTS OF WINDIVA?

1.

It is a humble contention before the International Centre for Settlement of Disputes (Hereinafter, ICSID) that in the present case, there is a pure breach of contract to be solved before domestic courts of Windiva. Firstly, the grant of tender by Government of Windiva does not fall under the purview of the Bilateral Investment Treaty, Secondly, Aveeron Group did not make representation regarding Cause of Action before domestic court in consonance with Article 8.3 of the BIT, and Thirdly, Aveeron Group had not exhausted alternate remedies before Domestic Courts in consonance with Article 8.4 of the BIT. [1.1] THE GRANT OF TENDER BY GOVERNMENT OF WINDIVA DOES NOT FALL UNDER THE PURVIEW OF THE BILATERAL INVESTMENT TREATY (HEREINAFTER, “BIT”)

2. Windiva & Firel share strong economic, military & strategic relations with each other since the year of 1992, which has resulted in mutual investments by both sides, across various sectors of development. In the year of 2022, Windiva & Firel

157

The Collection of the Best for IMAIL 2021

enter into a Bilateral Investment Treaty (BIT). 1 In consonance with the same, Aveeron Group set up a local manufacturing unit in Special Economic Zone “AAY” of Windiva, under the “Make in Windiva” scheme.2 3. However, the Ministry of Defence, Government of Windiva floated a tender applicable to both eligible Indian Companies as well as Indian Subsidiaries of Foreign Companies, for the manufacturing and delivery of 100 AI vehicles. The present tender was not issued under the purview of performing obligations under Bilateral Investment Treaty, but was independent in nature. Hence, the present cause of action must be argued before the domestic courts.

[1.2] AVEERON GROUP DID NOT MAKE REPRESENTATION REGARDING CAUSE OF ACTION BEFORE DOMESTIC COURT IN CONSONANCE WITH ARTICLE 8.3 OF THE BIT. 4. It is humbly contended before the Hon’ble Court that Aveeron did not make any representation before any domestic court with respect to the issue concerning counter-measure technology, or regarding compensation sought for damages caused to Aveeron’s Head Office. The only domestic recourse that Aveeron group took is with respect to the notice Aveeron received from Goods & Services Tax authorities, stating that the exemption granted to import of defence equipment has been reversed by a notification w.e.f 01st January, 2024.3 5. Article 8 of the BIT lays down provisions with respect to settlement of disputes.

Article 8.3 of the BIT clearly states 4“In respect of a claim that the defending party has breached an obligation under this Treaty, a disputing investor must first submit its claim before the relevant domestic courts or administrative bodies within 6 months from the alleged breach.”

6. In the present case, Aveeron did not make any representation before any domestic court with respect to the issue concerning Moot Proposition, 3 Ibid 3 Moot Proposition, 6 4 Bilateral Investment Treat (Windiva–Firel) (2022) art 8.3 1 2

158

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

counter-measure technology, or regarding compensation sought for damages caused to Aveeron’s Head Office, which were governed under the provisions of the BIT, and were cause of actions to be adjudicated before domestic courts. Instead, Aveeron proceeded against the notice received from Goods & Services Tax authorities, which is an independent government authority, not privy to the contractual obligations between Government of Windiva and Aveeron, nor an authority formally regulated under the provisions of the BIT. 7. It has been held in a recent judgment 5 that if the cause of action, no matter how small it is in the whole scheme of causes, lies within the territorial jurisdiction of the High Court, it is maintainable before the said court. In arguendo, in the present case, the territorial jurisdiction of all cause of actions lie before the domestic courts of Windiva itself and must thus be argued before the domestic courts.

8. Thus, Aveeron did not proceed with any cause of action before the Domestic Courts, and cannot seek recourse of the International Centre for Settlement of Investment Disputes, since it did not proceed against the Government of Windiva in Domestic Courts in consonance with Article 8.3 of the Bilateral Investment Treaty (BIT).

[1.3] AVEERON GROUP HAD NOT EXHAUSTED ALTERNATE REMEDIES BEFORE DOMESTIC COURTS IN CONSONANCE WITH ARTICLE 8.4 OF THE BIT. 9. Article 8.4 of the Bilateral Investment Treaty states that only after exhausting remedies before relevant domestic courts or administrative bodies for at least one year from the date of alleged breach, and on the point that no resolution could be satisfactorily reached, must the “notice of dispute” by International Centre for Settlement of Investment Disputes be sent to the opposing party.6 10. It has been held in various judgments, such as P.N. Kumar v Municipal Corporation of Delhi7, that the Apex Court must not exercise its jurisdiction vested with it, if there exists an equally Alchemist Limited v State Bank of Sikkim (2007) 11 SCC 23 BIT (n 4) art 8.4 7 P.N. Kumar v Municipal Corporation of Delhi (1988) SCR 732 5 6

159

The Collection of the Best for IMAIL 2021

or substantially adequate alternate remedy, that is yet to be exhausted by the appellants. This principle was further reiterated by the Hon’ble Court in the cases of K. Brahmabhatt v. State of Gujarat8, & the case of Union of India v P. Manickam.9 11. In the present case, Aveeron Group had not exhausted remedies before Domestic Courts in consonance with Article 8.4 of the BIT, and has an equally effective alternate remedy at the domestic courts, which is not exhausted, and hence cannot approach the International Centre for Settlement of Investment Disputes for the resolution of the dispute.

10. [ISSUE II] WHETHER AVEERON GROUP IS CORRECT IN CLAIMING VIOLATION OF DOCTRINE OF FULL PROTECTION AND SECURITY OR IS THE WINDIVAN GOVERNMENT CORRECT IN USING THE FORCE MAJEURE EXCEPTION?

12. It is a humble contention before the International Centre for Settlement of Disputes (Hereinafter, ICSID) that the performance of the stipulation under BIT entered between Aveeron Group and the Government of Windiva was rendered impossible due to the surge of violent protests and civil unrest at Mekhli, that damaged not only private, but government property as well. Such an event falls under the exception of ‘Force Majeure’. Windivan Government is correct in using the Force Majeure exception.

[2.1] THE PROVISION OF BILATERAL INVESTMENT TREATY (HEREINAFTER, BIT) CLAIMING VIOLATION OF DOCTRINE OF FULL PROTECTION AND SECURITY HAD BECOME FRUSTRATED.

8 9

Kanubhai Brahmbhatt v State of Gujarat (1987) SC AIR 1159 Union of India v Paul Manickam (2008) SC 8 SCC 34

160

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

13. The Counsel humbly avers that the fulfillment of demand for compensation by Aveeron had become frustrated & impossible to perform by Government of Windiva, by reasons of impracticability and impossibility owing to the sudden violent protests in the Capital of Windiva, Mekhli, and hence private entities could not be provided with full protection & security in Windiva taking into consideration damage caused not only to private, but government property as well. 10 [2.1.1] The terms stipulated under Bilateral Investment Treaty had become impossible to perform vide provisions of the BIT and other legislations governing contractual obligations 14. Force Majeure event has been defined by Article 1.3 of the BIT, stating that, “Force Majeure event means an unforeseeable & uncontrollable natural disaster or manmade constraints which make the performance of an obligation impossible”.11 In the present scenario, the civil unrest and violent protests stemming from the Population Control Bill, clearly constitutes and fall within an event of Force Majeure.

15. The Counsel humbly submits that the fulfillment of demand for compensation by Aveeron cannot be fulfilled, and private entities could not be provided with full protection & security in Windiva, in case of an event of Force Majeure, in consonance with the requirements laid down in Article 3.3 of the BIT. 12 16. Article 3.3 of the BIT clearly states that an event of Force Majeure does not constitute as a breach of the principle of full protection and security13, and thus demands for compensation stemming from an event of Force Majeure are excluded from the ambit of protection provided under Article 3 of the BIT. 17. Furthermore, Section 5614 of the Indian Contract Act, 1872 (“Contract Act”) provides that a contract to do an act, which becomes impossible after the contract is made, becomes void when the act becomes impossible. This section does not contemplate a situation of literal impossibility, but merely a scenario where the performance becomes impracticable and Moot Proposition, 5 BIT (n 4) art 1 12 BIT (n 40 art 3.3 13 Ibid 14 The Indian Contracts Act 1872, s 56 10 11

161

The Collection of the Best for IMAIL 2021

useless from the point of view of the object and purpose that the parties had in view when they entered into the contract. 15 18. This principle has been reiterated by this Hon’ble Court in Delhi Development Authority v. Kenneth Builders & Developers Pvt. Ltd16. It has also been clarified that this impracticability or uselessness could arise due to some intervening or supervening circumstances which the parties had not earlier contemplated. In the present scenario, the violent protests and civil unrest owing to the Population Control Bill, could not be reasonably contemplated by the Government of Windiva.

19. Further, as it has been clarified in Kesari Chand v. Governor General in Council17 that the doctrine of frustration comes into play when a contract becomes impossible to perform, after it is made, on account of circumstances beyond the control of the parties, the counsel humbly contends that the reason for impossibly of performance by Government of Windiva can be attributed to protests and circumstances which fell beyond the control of the Government.

11. [2.2] THE RESPONDENT CAN TAKE THE PLEA OF FORCE MAJEURE EXCEPTION DUE TO ARISING UNSTABLE CIRCUMSTANCES.

20. The Counsel humbly submits that the Respondent should be allowed to take the plea of force majeure in view of the unforeseen circumstances that diminished their ability to discharge a stipulation in the BIT. Not only was private property damaged due to the unrest, even government property was damaged extensively. Furthermore, In the present case, the unforeseen protests that turned violent, coupled with the civil unrest, due to the Population Control Bill falls under a situation of Force Majeure.

21. ‘Force Majeure’ can be defined as an event or effect that can be neither anticipated nor controlled and includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g.,

Satyabrata Ghose v Mugneeram Bangur & Comp (1954) SC 1 AIR 44 Delhi Development Authority v Kenneth Builders & Developers Pvt Ltd (2016) 13 SCC 561 17 Kesari Chand v Governor General in Council (1949) ILR 718 15 16

162

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

riots, strikes, and wars). 18 Taking the aforementioned definition in Consonance with the definition provided by Article 1.3 of the BIT, it can clearly be seen that protests that turned violent, coupled with the civil unrest, due to the Population Control Bill falls under a situation of Force Majeure.

22. The Supreme Court has recognized the distinction between ‘Act of God’/‘Vis Major’ and ‘Force Majeure’. 19 In a number of cases20, non-performance of a contract has been excused by observing various circumstances to fall under the purview of “Force Majeure”. In the present case, the acts of people (ie. riots, protests & civil unrest) falls under the definition and ambit of Force Majeure.

23. In the case of Dhanrajamal Gobindram v. Shamji Kalidas & Co.21, The Hon’ble Supreme Court has observed that ‘where reference is made to “force majeure”, the intention is to save the performing party from the consequences of anything over which there is no control. Government of Windiva had no control over the protests and unrest due to the Bill.

Furthermore, making the Government of Windiva liable to pay for economic damages caused to various private entities is tantamount to making them liable for consequences of anything over which the government has no control.

[2.2.1] Circumstances due to unrest and protests, which lead to the non-performance were unforeseen.

24. It is humbly contended that the circumstances that brought about the impossibility of performance of stipulation under BIT was unforeseeable. In Delhi Development Authority v. Kenneth Builders & Developers Pvt Ltd22, it was held that “neither the Petitioner, nor the Respondent contemplated prohibition of construction activity on project land nor were they aware that any development activity on the said land requires permission from Ridge Management Board and also from the Supreme Black’s Law Dictionary (11th Edition, 2019).

Dhanrajamal Gobindram v Shamji Kalidas & Co.(1961) 3 SCR 1020 20 Rexing Qulaity Eggs v. Rembrandt Enterprises (2018) 360 F. Supp. 3d, 817 ;Sandry v.

Brooklyn School District (1918) 182 NW 689; Aviation Holdings Ltd. v Aero Toy Store LLC [2010] EWHC (Comm) 40 [2010] 2 Lloyd’s Rep 668 21 BIT (n 11) 22 Delhi Development Authority v Kenneth Builder & Developers Pvt. Ltd (2016) 13 SCC 561 18 19

163

The Collection of the Best for IMAIL 2021

Court since there was morphological similarity between the Ridge and project land. Hence, it was held to be an intervening circumstance which eventually frustrated implementation of the contract.”

It is humbly averred by the Counsel that the Respondent took all necessary steps to fulfill its performance in other aspects of the contract, including giving repeated notices to Aveeron Group that were nor replied to. 23 In Delhi Development Authority v. Kenneth Builder & Developers Pvt. Ltd, the Hon’ble Supreme Court held that the facts and circumstances made it impracticable for Respondent to commence the said construction activity and hence, the contract stood frustrated. Similarly, owing to the contingent circumstances created due to the unrest, the performance by Government of Windiva stands impracticable due to the unrest.

In the Cutler case (US v. Italy)24, an American citizen complained about the destruction of his property that resulted from a mob attack in Florence. Italy accepted that it had an obligation of vigilance but not an obligation from preventing any harm. “It cannot be said with absolute confidence that the State is responsible merely because the event could have been averted if sufficient police had been present.”

Furthermore, in the case of Sambiaggio (Italy v. Venezuela)25, the case's umpire held that Venezuela could not be found responsible for acts of uncontrolled revolutionists in the absence of any evidence that the state had 'failed to exercise due diligence to prevent damages'.

Thus, taking into consideration the above pronouncements, the Respondent can take the plea of Force Majeure Exception due to arising unstable & uncontrolled circumstances.

25.

26.

27.

28.

[2.2.2] Present Circumstances do not warrant application of Doctrine of Full Protection & Security 29. In general parlance, the doctrine of full protection and security states that the host state is under an obligation to take active measures to protect the investment from adverse effects. The Moot Proposition, 4 United States v Cutler [1994] EDNY 930 [1994] 58 F. 3d 825 25 Sambiaggio (Italy v Venezuela) (1903) 10 RIAA 499 23 24

164

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

adverse effects may stem from private parties such as demonstrators, employees or business partners or from actions of the host State and its organs including its armed forces. 26 In the present case, the doctrine of full protection & security has not been violated taking into consideration the fact that the act falls under a case of Force Majeure, and hence the state is not liable to provide redress for all affected entities.

30. It was stated in the case of Frontier Petroleum v. Czech Republic27 that, “In this Tribunal's view, where the acts of the host state's judiciary are at stake, “full protection and security” means that the state is under an obligation to make a functioning system of courts and legal remedies available to the investor. On the other hand, not every failure to obtain redress is a violation of the principle of full protection and security. Even a decision that in the eyes of an outside observer, such as an international tribunal, is “wrong” would not automatically lead to state responsibility so long as the courts have acted in good faith and have reached decisions that are reasonably tenable. In particular, the fact that protection could have been more effective, procedurally or substantively, does not automatically mean that the full protection and security standard has been violated”.

31. In a case with similar factual milieu, Pantechniki v. Albania28, the claimant, a contractor selected for infrastructure works in Albania, complained that violent riots taking place over several days had damaged its investment, and that Albania had breached its FP&S obligation by failing to prevent the damage.

The sole arbitrator held that the state's FP&S obligations depend on the state's ability to accord protection.

32. In Tecmed v Mexico29, the Claimant alleged that the Mexican authorities did not act efficiently against ‘social demonstrations’ and disturbances at the site of the landfill under dispute. The Tribunal applied a treaty provision providing for ‘full protection and security to the investments.

Christoph Schreuer, Full Protection & Security [2010] Journal of International Dispute Settlement 1-17 27 Frontier Petroleum v Czech Republic [2010] ICSID 5 [2010] IIC 465 28 Pantechniki v Albania [2009] ICSID 7 [2009] IIC 383 ¶71–84 29 Tecnicas Medioambientales Tecmed S. A. v The United Mexican States (2004) 43 ILM 133 26

165

The Collection of the Best for IMAIL 2021

. . in accordance with International Law’. The Tribunal found that there was not sufficient evidence to prove that the Mexican authorities had encouraged, fostered or contributed to the actions in question. The same ratio was reiterated in Pantechniki v Albania30, wherein it was stated that the tribunal held that the extent of the State’s duty under this provision depended to some extent on the resources available to the State.

33. Taking into consideration the above pronouncements, it can be inferred that the present Circumstances do not warrant application of Doctrine of Full Protection & Security, as the actions of the state do not fall within the ambit of protection accorded by Doctrine of Full Protection & Security.

[2.2.3] The basis upon which the contract was made were affected due to the Violent Protests & Civil Unrest.

34. As rightly observed in Dhanrajamal Gobindram v. Shami Kalidas & Co31, Commercial documents are sometimes expressed in a language which does not, on its face, bear a meaning. The effort of Courts is to give a meaning, if possible. In Ocean Tramp Tankers Corporation v VIO Sovfracht32, it was stated that “If during the execution of a contract, a situation is fundamentally distinct and for which no provision has been made by the parties so much so that it would not be just in the new situation to hold them bound in its terms, then the contract is over. The implied term theory is now discarded.”

35. Furthermore, the Hon’ble Supreme Court has held 33 that ‘in an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do.’ In view of the same, the changed circumstances, it is said, make the performance of the contract impossible and the parties are

Pantechniki (n 28) Dhanrajamal Gobindram v Shamji Kalidas & Co.[1961] ICSID 02 [1961] 3 SCR 1020 32 Ocean Tramp Tankers Corporation v VIO Sovfracht [1964] 2 QB 226 [1964] 1 All ER 161 33 Delhi Development Authority (n 22) 30 31

166

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

absolved from the further performance of it as they did not promise to perform an impossibility. 34 36. Thus, the Counsel humbly submits that the Respondent should be allowed to take the plea of force majeure in view of the unforeseen circumstances, and shall not be liable for paying damages to Aveeron Group due to the existence of force majeure situation that rendered the performance of obligations under Article 3 of the BIT impossible.

12. [ISSUE III] WHETHER AVEERON GROUP IS JUSTIFIED IN TREATING ALGORITHMIC CAMOUFLAGE AS COUNTERMEASURE TECHNOLOGY SO AS TO NOT PROVIDE AFTER SALE SERVICE TO THE GOVERNMENT OF WINDIVA AND WHETHER THE GOVERNMENT OF WINDIVA BREACHED BUSINESSRELATED CONFIDENTIAL INFORMATION WHILE DISPATCHING FEW UNMANNED AERIAL VEHICLES (UAVS) TO AN INDIGENOUS COMPANY SPECIALIZING IN DEFENSE TECHNOLOGY?

37. It is humbly contested that [1] Algorithm camouflage does not come under the ambit of countermeasures and the claimant is bound to provide after-sale services about it. [2] the respondent has not breached the confidentiality under contractual obligations and BIT clauses It is further submitted that [3] actions of the respondent have not violated the claimant's IPR.

34

Ibid

167

The Collection of the Best for IMAIL 2021

[3.1] ALGORITHMIC CAMOUFLAGE IS NOT A COUNTERMEASURE TECHNOLOGY AND THE CLAIMANT IS NOT LIABLE TO RENDER SERVICE FOR THIS. 38. In contemporary times UAVs became the perfect choice for military usage.35 To detect camouflage and planning to an exact landed trajectory at a military tank comes under the ambit of basic surveillance done by autonomous vehicles. Respondent contests that firstly, [3.1.1] camouflage detection is the need of era in the military sites further fan not be articulated as a countermeasure. Secondly, [3.1.2] for this technology, the claimant is liable to render after-sale services.

[3.1.1] the algorithmic camouflage as countermeasure technology 39. Various drone types are now equipped with crash avoidance systems, to navigate around objects and to return to base on a programmed route.36 As a result, several methods were discussed about the evaluation of drones safety, and by applying these methods on UAVs. 37 40. This is an important note when you consider the complexities in a military base, the camouflage detection is an implied phenomenon38 for the clandestine approach followed by the military. Camouflage in military site is the portrayal of concealment and visual detection in war.

41. Therefore the incorporation of such algorithm was more implied in nature rather than articulating it as mere countermeasure.

Kendra LB Cook, ‘The Silent Force Multiplier: The History and Role of UAVs in Warfare’, 2007 IEEE Aerospace Conference (2007) 1-7 36 Jean-Paul Yaacoub and others, ‘Security Analysis of Drones Systems: Attacks, Limitations, and Recommendations’ (2020) 11 Internet of Things 100218 37 Andrew D Zeitlin, ‘Standards and Certification of a UAS Sense and Avoid Capability’ in Kimon P Valavanis and George J Vachtsevanos (eds), Handbook of Unmanned Aerial Vehicles (Springer Netherlands 2015) <https://doi.org/10.1007/978-90-481-9707-1_37> accessed 13 July 2021 38 Over The Horizon, ‘Swarm Weapons: Demonstrating a Swarm Intelligent Algorithm for Parallel Attack’ (OTH, 13 August 2018) <https://othjournal.com/2018/08/13/swarm-weapons-demonstrating-a-swarmintelligent-algorithm-for-parallel-attack/> accessed 13 July 2021 35

168

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

[3.1.2] The claimant is under obligation to render its service for a countermeasure application 42. As stated above, the algorithmic camouflage is cannot be articulated as countermeasure technology, and as per the terms of the contract, the claimant is bound to serve for such measures.39 43. The Saipem v. Bangladesh tribunal has stressed upon the difference between an overall investment operation and its individual components, including claims arising from a relevant contract. 40 Therefore the respondent can make the claimant liable and moreover mandatory to perform an implied clause under the ambit of an agreement.

[3.2] THE RESPONDENT HAS BREACHED THE CONFIDENTIALITY CLAUSE UNDER CONTRACTUAL AND BIT OBLIGATIONS 44. It is contended that the respondent has not breached the any confidentiality clause, defined under article 1.1 of BIT. The respondent is accused of violating article 1.1 of BIT defines the ambit of confidential information further covers, firstly, [3.2.1] the respondent has not breached confidentiality unde BIT violations. Secondly, [3.2.2] the breach of confidentiality of contractual claims does not come under umbrella clause of BIT. [3.2.1] The respondent breached confidentiality under BIT obligations 45. Although Claimant has framed its claims as breaches of Article 1.1 of the BIT41, the alleged claims are fundamentally for a breach of the terms of its contract and are inappropriately brought before the Tribunal. The ad hoc committee in the Vivendi Annulment stated:

Moot Proposition [2007] ICSID 5 [2007] ICSID Rep 44 41 BIT (n 4) art 1.1 39 40

169

The Collection of the Best for IMAIL 2021

“In a case where the essential basis of a claim brought before an international tribunal is a breach of contract, the tribunal will give effect to any valid choice of forum clause in the contract.”42 46. Claimant’s claims do not go beyond this allegation of breaching the terms of its contract with Respondent. Where all that has been alleged in a so-called treaty claim is merely that a contract has been violated, Professor Abi Saab rightly points out that “such a nominal trick does not suffice to transform the contract claim into a treaty claim or to create a parallel treaty claim.”43 47. In SGS v. Philippines there was a dispute over the amount of money owed under a contract—specifically the failure to pay the money owed amounted to a breach of the PhilippinesSwitzerland BIT’s fair and equitable treatment standard.44 48. Similarly the question here is whether the respondent have violated a confidentiality clause under the agreement by sending few assets for modification because claimant is not willing to render his services. 45 Such a claim does not transform a basic breach of contract claim into a breach of the BIT. [3.2.2] the breach of confidentiality of comes under umbrella clause of BIT 49. The obligations observance clauses, namely, umbrella clauses, are aimed to elevate contractual and other commitments of host states under an investment treaty's protective umbrella. 46 Contractual obligations pertaining to the confidentiality of the business in present case does not come under the shade of umbrella clauses, by the application of article 1.1 of BIT. 47 50. As umbrella clauses they provide an opportunity to foreign investors to elevate their breach of investment contract claims Compañiá de Aguas del Aconquija SA and Vivendi Universal SA v Argentine Republic [2003] ICSID 8 [2005] ICSID Rep 490 43 ‘ICSID - TSA SPECTRUM DE ARGENTINA S.A. v. ARGENTINE REPUBLIC’ (2009) 48 International Legal Materials 496 44 [2004] ICSID 8 [2005] ICSID Rep 518 45 Moot Proposition, 4 46 Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (OUP Oxford 2012) 47 BIT (n 4) art 1.1 42

170

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

to the violation of investment treaties under international law.48 The Tribunal had given a widely criticized decision and rule that the umbrella clause is not effective on the breach of contract between the parties. 49 The tribunal had added a distinction between the sovereign and merchant status of the states to their reasoning.50 51. Therefore the breach of confidential obligations does nor come under the shade of umbrella clauses of BIT. It is contended that the respondent has not violated contractual obligations whist BIT clauses.

[3.3] THE RESPONDENT HAS VIOLATED CLAIMANTS INTELLECTUAL PROPERTY RIGHTS OF THE ASSET .

52. It is humbly contended that respondent has not infringed claimant's intellectual property rights. It is contended that, firstly, [3.3.1] respondent has not infringed any patented rights of claimant Secondly, [3.3.2] making small changes as per convenience would not affect the patented asset.

[3.3.1] There is no violation of claimant’s patent rights 53. Section 48 of the Patent Act, 1970, confers exclusive rights to the patentee to prevent third parties from making, using, offering for sale, selling or importing the patented invention for the purpose of using, selling and offering for sale in India without the consent of the patentee. 51 54. However, third parties can use patented inventions for commercial gains either by getting a license from the patentee or getting his/her appropriate consent for a specific use.

55. In the present scenario, respondent had not committed any of the above specified grounds. Therefore by sending UAV to Shotaro Hamamoto, ‘Parties to the Obligations in the Obligations Observance (Umbrella) Clause’ (2015) 30 ICSID Review – Foreign Investment Journal 449 49 SGS Société Générale de Surveillance SA v Islamic Republic of Pakistan [2003] ICSID 8 [2005] ICSiD Rep 406 50 CMS Gas Transmission Company v Argentine Republic [2003] ICSID 7 [2004] ICSID Rep 499 48

51

The Patent Act 1872, s 48

171

The Collection of the Best for IMAIL 2021

amend a problem which the claimant was not eager to do, the respondent had not violated claimant’s patent rights.

[3.3.2] Mere modification would not amount to infringement of patent 56. The Court has made clear that modification that go beyond mere repair and instead ‘remake’ or ‘repurpose’ the product will infringe the underlying patent.52 57. Incorporating an algorithm in the artificial intelligence manned UAVs53 further does not amount to a major change in the originally designed asset. The respondent is cannot be liable for the infringement of patent 13. ISSUE IV: WHETHER AVEERON GROUP IS CORRECT IN STATING VIOLATION OF PRINCIPLE OF NATIONAL TREATMENT AND BREACH OF LEGITIMATE EXPECTATION ON THE FAIR AND EQUITABLE STANDARD IN RESPECT OF THE DIFFERENTIAL TREATMENT GIVEN IN IMPOSITION OF INDIRECT TAX OR IS THE CLAIM OF THE WINDIVAN GOVERNMENT CORRECT IN INTERPRETING THE WITHDRAWAL OF TAX EXEMPTION AS AN EVENT WHICH PRE-EXISTS THE BIT?

58. It is humbly submitted that the Windivan government did not violate the principle of national treatment nor did it breach the legitimate expectation of the Aveeron. The challenges w.r.t. to the validity of this notification does not lie. This has been averred on the basis of the following contentions:

52 53

Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 41[2020] FCAFC 115 Moot Proposition, 8

172

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

[4.1] THE NOTIFICATION DOES NOT FULFIL ALL THE PERQUISITES OF THE PRINCIPLE OF NATIONAL TREATMENT.

59. It is humbly submitted that the decision of the state of Windivan to reverse the tax exemption cannot be termed as the breach of nation treatment principle as firstly, Legislature has a right to experiment in the economic matter. Secondly, the notification is not discriminatory as there exist an intelligible differentia. Lastly, the notification is not arbitrary as there is a nexus between the change in policy and the aim to be achieved through it.

[4.1.1] Legislature has a right to experiment in the economic matter.

60. It is humbly submitted that the impugned notification is a bonafide attempt by the legislature to experiment with the economic legislation and thus, the legislature is entitled to sufficient play in the joints and should not be interfered with by the Court.54 61. It is submitted that to stay experimentation of the legislature in things which are social and economic is gravely detrimental and fraught with serious consequences to the nation. 55 Further, every government has a responsibility for ensuring socioeconomic stability of a nation. In Bhavesh D. Parish v. Union of India56, the Apex Court held that the system of checks and balances of the government has to be construed in a balanced manner keeping in mind the primary objective of ensuring economic growth rather than stymying it by casting aspirations upon the constitutional validity at the threshold itself.

62. Similarly, in the case of Ferguson v. Skrupa57, it was noted that the courts are not bound to substitute their socio-economic beliefs to pave way for the judgment of legislative bodies.

Legislative bodies in India have wide berth to experiment with economic problems, and the Apex Court does not subject the state to a situation in contravention to the basic principles Swiss Ribbons (P.) Ltd. v. Union of India (2019) 7 SCC 584 New State Ice Co. v. Libemann (1932) 285 US 262 56 Bhavesh D. Parish v. Union of India (2000) 5 SCC 471 57 Ferguson v. Skrupa (1963) 372 US 726 54 55

173

The Collection of the Best for IMAIL 2021

enshrined by the government and beyond the principles the government intended to secure.

63. In the case of R.K. Garg v. Union of India 58 , the Apex Court observed that the economic legislations cannot be struck down on the grounds of crudities, since every economic legislation is essentially empiric in nature.

64. In light of the aforementioned rulings, it is humbly submitted the state of Windiva has the right to experiment in the economic matter. The impugned notification has been passed in order to improve the economic health of the country by extinguishing the tax exemptions which were granted by the state during its prosperous times.

[4.1.2] The notification was not discriminatory as there exists an intelligible differentia.

65. The principle of national treatment prohibits any discrimination based on nationality. If any legislation classify on an intelligible differentia which distinguishes those that are grouped from others are left out of the group, it cannot be called discriminatory. So, the only defence which vests with the state in case of such a violation is firstly; that there should exist intelligible differentia in classification b/w the two classes and secondly; that there should be no manifest arbitrariness.

66. Further, in the case of Leung Chun Kwong v Secretary for Civil Service59, it was observed that in every alleged case of discrimination, the correct approach is, first, to determine whether there is differential treatment on a prohibited ground and, only if this can be demonstrated, then, to examine whether it can be justified. Differential treatment which is justified does not constitute unlawful discrimination.

However, where differential treatment is not justified it is unlawful discrimination.

67. It is submitted that the Aveeron group was granted tax exemption under the ‘Make in Windiva’ scheme whose main aim was to encourage foreign companies to manufacture in Windiva. Whereas, the indigenous companies were granted 58 59

R.K. Garg v. Union of India (1981) 4 SCC 675 [2019] 22 HKCFAR 127

174

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

exemption under the ‘Windivan Nirbharta Scheme’ whose ultimate objective was to make the country independent against the tough competition. This classification was done by the government of Windiva with an aim to make the country a global production house but without compromising its selfreliant nature. This classification is done on the basis of goals and future prospects of the state and not on the nationality of companies. Thus, prioritizing one goal over the other and granting tax exemption to only one class cannot be called discrimination.

[4.1.3] The notification is not arbitrary as there exists a nexus between the change in policy and the aim to be achieved through it.

68. This right of government can secure it from the liability only when the measure taken is not an arbitrary one. 60 If the measure adopted by the government is arbitrary and offers protection to domestic goods and investors in detriment to their foreign counterparts, the government will be held liable for breaching the principle of national treatment.

69. It is submitted that the tax exemption has been reversed taking into account the present circumstances i.e. the civil protest in Mekhli and the huge damage caused to the properties of government companies. This step was taken with the view to stabilize the economic condition of the state by saving the tax exemptions that had been granted to the foreign companies for the last five years.

[4.2] THE NOTIFICATION DOES NOT BREACH THE LEGITIMATE EXPECTATION OF THE AVEERON GROUP 70. It is humbly submitted before the Hon’ble ICSID that the notification issued by the Windiva government did not breach any legitimate expectation of the Aveeron group as firstly there was no specific commitment in the BIT w.r.t stability of tax policy. Secondly, the Aveeron group failed to do proper due Maury D. Shenk, ‘United States--Standards for Reformulated and Conventional Gasoline’ (1996) 9 AJIL <https://doi.org/10.2307/2203996> accessed 30th June 2021 60

175

The Collection of the Best for IMAIL 2021

diligence. Lastly, State has the right to modify legal framework in public interest.

[4.2.1] There Was No Specific Commitment in the BIT W.R.T Stability Of Tax Policy 71. In Charanne v Spain61, the tribunal held Spain not liable for the breach of Legitimate Expectation as there was 'no specific commitment' by Spain directed towards the investor for creation of legitimate expectations that the regulatory environment will not change. 62 72. It was further held in MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile63 that the “obligations of the host State towards foreign investors derive from the terms of the applicable investment treaty and not from any set of expectations investors may have or claim to have.”

73. In CMS Gas Transmission Co. v. Argentine Republic64, the tribunal stated that legitimate expectations might not arise as legal obligations if they are considered to arise by reason of a course of dealing between the investor and the host-state.65 74. In the case in hand, the annexure of BIT does not include any specific language to reasonably infer that the tax regime would remain untouched for the whole life. Such extraordinary expectation is neither legitimate nor feasible.

[4.2.2.] The Aveeron group failed to do proper due diligence.

75. It is humbly submitted before the Hon’ble ICSID that several international investment tribunals have established that the investor is entitled to protection of its legitimate expectations provided that it exercised due diligence. According to the Duke Energy v. Ecuador tribunal, "the assessment of the reasonableness or [2013] SCC [2017] 26 RECIEL 174 Deyan Dragiev, 'Legitimate Expectations in Renewable Energy Treaty Arbitrations: The Lessons So Far' (Kluwer Arbitration Blog, 22 March 2018) < http://arbitrationblog.kluwerarbitration.com/2018/03/22/legitimateexpectations-renewable-energy-treaty-arbitrations-lessons-far/ > accessed 30 June 2021 63 MTD Equity Sdn. Bhd. & MTD Chile S.A. v. Republic of Chile [2007] ICSID 01 [2008] 13 ICSID Rep 488 64 CMS Gas Transmission Co. v.Argentine Republic [2007] ICSID 08 [2009] 14 ICSID Rep 151 65 Ibid 89 61 62

176

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

legitimacy [of the investor’s expectations] must take into account all circumstances, including not only the facts surrounding the investment, but also the political, socioeconomic, cultural and historical conditions prevailing in the host State."66 76. It was further held in the Marvin Feldman v. Mexico, that proof of positive knowledge was not required and that the rule applied if the investor had the opportunity to take cognizance of the law. The notification pre-existed the BIT and there has been no de jure change in it at any time relevant to this dispute.

77. So, Aveeron group cannot claim that the changes were brought out of the blue as if they had done proper due diligence, they would’ve known about the end date of the tax exemption scheme.

[4.2.3] State has the right to modify legal framework in public interest 78. Governments have the right to prescribe, within the limits of their Constitution, reasonable regulations necessary to protect the lives, health and welfare of the community, preserve good order and public morals and restrain and punish of crime. this acknowledged right of the State cannot be thwarted to modify the legal and regulatory framework benefitting any party.

79. Further, in the case of Teinver v. Argentina67, the tribunal upheld the state’s right to change its laws. It was held that “it will not breach its obligation to treat investors fairly and equitably if it changes its laws in a legitimate exercise of its regulatory authority.”

80. It is further submitted that the tax exemptions given by the state of Windiva were mere incentives for the investors, Aveeron group cannot consider it as an acquired right to receive tax exemption. A reasonable balance has to be maintained between the interests of both the party. A mere claim of incentive cannot override the state’s right to bring changes in public interest. Thus, the state of Windiva cannot be held liable for removing tax exemptions in the interest of its citizens.

66 67

Duke Energy v. Ecuador tribunal [2008] ICSID 04 [2010] 15 ICSID Rep 100 [2008] ICSID 09 [2012] IIC 570

177

The Collection of the Best for IMAIL 2021

14. [ISSUE V] WHETHER AVEERON GROUP IS ENTITLED TO DAMAGES OF USD 670 MILLION AND COSTS OF THE ENTIRE ARBITRATION PROCEEDINGS AND WHAT IS THE MODE OF CALCULATION OF THESE DAMAGES?

81. Claimants have requested an exorbitant amount of damages of no less than USD 670 million for a force majeure event happens at Mekhli, default in payment due to error in block chain enabled smart contract, gaudy patent infringement and compelling National laws.68 82. Even if the Tribunal were to find Respondent liable, only the direct damages should be compensated, not the highly speculative lost profits. First, (A) Claimants’ reliance on the DCF method for the lost profits calculation is unjustified in the absence of sufficient evidence supporting future profitability of their platforms. Instead, (B) the only reliable method of valuation is the cost-based method.

[5.1] IN THE ABSENCE OF SUFFICIENT EVIDENCE OF PROFITABILITY PRODUCED BY CLAIMANTS, THE DCF METHOD SHOULD BE REJECTED AS LEADING TO SPECULATIVE RESULTS 83. Respondent does not contest that [1] the DCF method may be generally appropriate when there is sufficient evidence of future profitability of the investment. However, [2]the evidence in this case makes the DCF method purely speculative.

[5.1.1] For the DCF method to apply, there have to be sufficient history of profitability 84. Respondent submits that (a) the applicable full reparation standard (b) militates against speculative calculations based on the DCF method leading to over-compensation.

68

Moot Proposition, 10

178

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

a.

The full compensation standard does not allow speculative damages Under the customary standard of full reparation, upheld in the Chorzów Factory,69 an investor should be put into the same economic position it would have been in, but for the unlawful act.70 Thus, there is no room for under-compensation or overcompensation.71 Investment tribunals have consistently refused to award speculative damages 72 as they would lead to overcompensation.73 In the words of the ADM v Mexico, tribunal, “the award for damages which are speculative would … run afoul of ‘full reparation’”.74 Hence, in choosing the valuation method the Tribunal should be mindful of not awarding speculative damages. b. The DCF method cannot be applied when it leads to speculative results Claimant employs the DCF method, by claiming a such extravagant amount in the name damage, it consists of two steps: calculating future income stream and discounting it to the present value to account for potential risks. 75 As it is based on projections into the future, the DCF method is highly sensitive to uncertain inputs: 76 if the underlying assumptions are speculative, the entire model will be unsound.77

85.

86.

87.

88.

89.

Case concerning Factory at Chorzów (Germany v Poland) [1927] PCIJ Rep Series A No 17 at 125 70 Ibid 71 Chevron Corporation and Texaco Petroleum Corporation v Ecuador [2010] PCA 34877 72[2007] ICSID 04 [2018] DRC 39; Himpurna Cal Energy Ltd v PT (Persero) Perusahaan Listruik Negara [1999] UNCITRAL AC 25 [2000] 13 YCA 375–376; Amoco v Iran [1987] IUSCT 56 [1987] PA 244–245 73 Gold Reserve Inc v Venezuela [2014] ICSID 09 [2014] ICSID Rep 685; BG Group Plc v Argentina [2007] UNCITRAL [2007] FA 428 74 ADM (n 6) 39–40 75 World Bank Guidelines on the Treatment of FDI 76 Montek Mayal and Alexender Daivie, ‘DCF: Gold Standard or Fool’s Gold?'

(2019) FTI Consulting <https://www.fticonsulting.com/emea/insights/articles/dcf-gold-standard-orfools-gold> accessed 12 July 2021 77 Ibid 69

179

The Collection of the Best for IMAIL 2021

90. Tribunals reject the DCF whenever the assumptions are deemed too speculative.78 Tellingly, the Awdi tribunal held that “the application of the DCF method … is not justified, [since there are] uncertainties regarding future income and costs”.79 [5.1.2] The DCF method yields speculative results in the present cas 91. For the DCF method to produce accurate results, Claimants has to cumulatively: (a) show a sufficient history of profitability, (b) demonstrate the predictability of prices for its products; (c) carefully asses risks for the investment in the host state; and (d) consider the average of best-case and worst-case scenarios of profitability. Claimants blatantly ignores all these requirements. a. Claimants’ platforms have insufficient history of profitability 92. Investment tribunals reject the DCF method if a company has not been making profits for a sufficiently long time to make reliable predictions of its profitability. 80 For instance, the Asian Agricultural Products LTD (AAPL) v. Sri Lanka, tribunal observed that the DCF method: requires the prior presence on the market for at least two or three years, which is the minimum period needed… to establish continuing business connections (emphasis added). 81 93. Importantly, even a longer period of 3.5 years was found by the tribunal too “short … to construct a DCF model”, “given … the brevity of operation”.82 94. Claimant does not possess a vast history of profit generating on the asset in accordance with the settled judicial interpretation. b. Additionally, Claimants’ history of success with other projects in different countries does not justify the application of the DCF method

LG&E Energy Corp, LG&E Capital Corp, and LG&E International, Inc v Argentina [2007] ICSID 21 [2006] ICSID Rev FILJ 203; Hassan Awdi, Enterprise Business Consultants, Inc and Alfa El Corporation v Romania [2013] ICSID 10 [2015] ICSID Rep 514 79 Ibid 80 Metalclad Corporation v Mexico [2000] ICSID 5 [2002] ICSID Rep 121 81 [1990] ICSID 6 [1991] ICSID Rev FILJ 526 82 Tenaris SA and Talta Trading e Marketing Sociedade Unipessoal Lda v Bolivarian Republic of Venezuela [2016] ICSID 11 [2016] ICSID Rep 528–532 78

180

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

95. Claimants are likely to argue, in the alternative, that the DCF method may apply even without the prior record of profitability in Windivia given their successful operations in other countries.83 96. However, in the absence of a sufficient history of profitability, tribunals apply the DCF method only if the type of business permits accurate predictions.84 For example, the tribunal applied the DCF method since “gold, unlike most consumer products … is less subject to ordinary market fluctuations” and “the costs are well known in the industry”.85 97. Here, when it comes to assessing defence technology platforms the same premise of high predictability cannot apply.

The world has seen the history of tremendous success of defence technology platforms (e.g. Raytheon and Lockheed Martin's THAAD platform)86 as well as not less tremendous drastic failure, even when the initial prediction of profitability was extremely positive.

98. Thus, the future of any defense technology platforms business is unpredictable in the initial years of the operation, and the DCF method cannot be applied to Claimants’ asset. c. Incompatibility with National Laws renders the DCF method inapplicable 99. The DCF method requires that cash flows be discounted since there are various risks that may reduce business profitability. 87 In order to establish an appropriate discount rate, a tribunal should “into the shoes of the hypothetical reasonable businessman” and consider how much it would pay for an investment. 88.

100. For instance, the Phelps Dodge Corp. v. Iran tribunal held that in light of the Iranian revolution “the investment’s prospects would …

Moot Clarifications Occidental Petroleum Corporation and Occidental Exploration and Production Company v Ecuador II [2012] ICSID 06 [2012] ICSID 718–719 85Crystallex International Corporation v Venezuela [2016] ICSID 11 [2016] ICSID Rep 879 86 Amanda Macias, ‘Russia Is Luring International Arms Buyers with a Missile System That Costs Much Less than Models Made by American Companies’ (CNBC 2018) < https://www.cnbc.com/2018/11/19/russia-lures-buyers-as-s-400-missilesystem-costs-less-than-us-models.html> accessed 12 July 2021 87 John Trenor, Guide to Damages in International Arbitration (4th ed Global Arbitration Review 2018) 166 88 Starrett Systems Inc and others v Iran Bank Markazi Iran and others [1987] IUSCT 24 [1987] 314-24-1 FA 338 83 84

181

The Collection of the Best for IMAIL 2021

have been seen as … uncertain”, thus rendering the DCF method inapplicable.89 101. Due to all the taxation liabilities imposed on the claimant complying with the national laws of Windivia,90 and the forcemajeure unrest at Mekhli91 the investment on such circumstances may be get affected sporadically and a concrete statement about profit and future assessing value of the asset can not be formulated. Further compensation arising out of force-majeure event doesn’t hold a valid ground in investment treaty.92 [5.2] THE TRIBUNAL SHOULD CONSIDER BIT OBLIGATIONS OVER CONTRACTUAL BREACHES

102. Respondent contends firstly, [5.2.1] Claimant cannot claim compensation on contractual violations; Secondly, [5.2.2] respondent is not ought to pay for the entire cost of arbitration as per the BIT; Thirdly, [5.2.3] The tribunal should apply cost based method of valuation.

[5.2.1] Claimant cannot claim compensation on contractual violations 103. A matter of contract law is separate from its relevance for assessing compensation under the treaty. 93 The issue of confidentiality 94 and error in non-payment of tranche95 to the claimant categorizes more in the arena contractual breaches. A liquidated damages clause was not negotiated looking at the fact that the payments and orders would be executed automatically through the smart contract. 96

89[1986]

IUSCT 135 [1986] 217- 99-2 FA 30 Moot Proposition, 9 91 Moot Proposition, 6 92 BIT (n 4) art 3.3 93 Venezuela Holdings BV and others v Bolivarian Republic of Venezuela [2015] ICSID 7 [2017] DA 161 94 Moot Proposition, 8 95 Moot Proposition, 7 96 Moot Proposition, 4 90

182

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

104. As per Article 5 of the BIT, the respondent is not liable to compensate for the contractual breaches arising in a dispute. 97 [5.2.2] respondent is not ought to pay for the entire cost of arbitration as per the BIT 105. Allegedly, the ‘traditional approach' in ICSID arbitration has been the ‘pay your own way' (PYOWA). The tribunal in Tza Yap Shum v. Peru98 has explained that PYOWA represents a remnant from public international law, given that in state-tostate disputes the costs are split.

106. Moreover, in contrast to Article 61(1) of the ICSID Convention which deals with conciliation and explicitly provides that costs “shall be borne equally by the parties”99 107. As per Article 11 of the BIT, a first instance approach has been prescribed that The disputing parties shall share the costs of the arbitration, with arbitrator fees, expenses, allowances and other administrative costs. 100 108. Therefore the claimant cannot contest the obligate the respondent to incur entire cost of the arbitration proceedings.

[5.2.3] The tribunal should apply cost-based method of valuation.

109. Instead of indulging into speculations promoted by Claimants, the Tribunal should apply the only reliable method in the circumstances of uncertainty, i.e. the cost-based method. This method implies granting the actual costs incurred to establish an investment and is widely applied by investment tribunals. 101 110. For instance, the Togo Electricité and GDF-Suez Energie Services v.

Republic of Togo tribunal summarised the prevailing practice as follows: “tribunals have … limited the amount of damages to the actual value of the investment-related expenditures, [when the potential profitability remained highly uncertain]”.102 BIT (n 4) art 5 [2011] ICSID 07 [2007] ICSID Rep 296 99 International Convention on Settlement of Investment Dispute (adopted 18 March 1965) 575 UNTS 159 art 61(1) 100 BIT (n 4) art 5 101 Bear Creek Mining Corporation v Peru [2017] ICSID 14 [2017] ICSID Rep 604; Caratube International Oil Company LLP and Devincci Salah Hourani v Kazakhstan [2017] ICSID 13 [2017] ICSID Rep 1087 102 [2010] ICSID 06 [2010] ICSID Rep 180–182 97 98

183

The Collection of the Best for IMAIL 2021

111. Entire expenses of claimant in the project consisted of USD 200 Million103 out of which half of the payment was made successfully. 104 Therefore the claimant's claim of an amount of USD 670 Million dollars105 is not justified and further states irrational accounts of deceiving.

Moot Proposition, 4 Moot Proposition, 7 105 Moot Proposition, 10 103 104

184

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

R ELIEF REQUEST WHEREFORE IN THE LIGHT OF ISSUES RAISED , ARGUMENTS ADVANCED & AUTHORITIES CITED, IT IS HUMBLY PRAYED THAT THIS HON’BLE COURT MAY BE PLEASED TO: • •

• •

•

•

Declare that the cause of action is a pure breach of contract and should be solved before domestic courts of Windiva Quash the claim of violation of doctrine of full protection and security and declare that the circumstances fall under the exception of force majeure.

Declare that the algorithmic camouflage does not fall under the category of countermeasure technology.

Declare that the respondent did not breach businessrelated confidential information while dispatching few unmanned aerial vehicles (UAVs) to an indigenous company specializing in defense technology.

Declare that the respondent did not violate the principle of national treatment and did not breach the legitimate expectation on the fair and equitable standard in respect of the differential treatment given in imposition of indirect tax.

Declare that the claimant is not entitled to damages of USD 670 Million and costs of the entire arbitration proceedings.

AND/OR PASS ANY OTHER ORDER, DIRECTION, OR RELIEF THAT THIS HON’BLE COURT MAY DEEM FIT IN THE INTERESTS OF JUSTICE, EQUITY AND GOOD CONSCIENCE All of which is humbly prayed, Sd/Date: --/--/202X On behalf of The Government of Windiva Counsel

185

The Collection of the Best for IMAIL 2021

The Claimant Memorial – Second Runners-Up Team Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur

Harshita Agarwal, Poulomi Sen, Charu Joshi, & Gayatri Joshi, Authors

186

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-<T-VXZ-TIKI-AL>-C INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP, Claimant, v.

THE GOVERNMENT OF WINDIVA, Respondent.

ICSID Case No. ARB/XZ/A CLAIMANT’S MEMORIAL 05 AUGUST 2021

187

The Collection of the Best for IMAIL 2021

SUMMARY OF ARGUMENTS 1. Respondent has not only violated the contractual claims but also the BIT claims. The violation of contractual claims have been observed as an umbrella clauses in BIT by many arbitral tribunals. Claimant has complied with all the pre-requisites mentioned in the BIT before approaching the ICSID tribunal. Therefore, under Article 8 of the BIT and Article 25 of ICSID Convention, the Tribunal has the jurisdiction in the present dispute.

2. Respondent has failed to comply with the contractual obligation with respect to Full Protection Security that was to be provided to Claimant under Article 3 of the BIT during protests and violence.

Further, Respondent has failed to discharge its due diligence obligation. Since the civil unrest and the protests were not something which was unforeseen and uncontrollable, rendering the performance of the obligation impossible, therefore, the said events does not falls within the ambit of a force majeure exception and also, the applicability of doctrine of frustration which encompasses force majeure is not possible.

3. Algorithmic camouflage technology is a countermeasure technology in military warfare systems and the problems arising out of countermeasure technology are not mentioned under the After-Sale service clause. Therefore, Claimant is not bound to provide after sale service to the Respondent. Further, dispatching the UAVs provided

by Claimant to an indigenous company amounts to a direct breach of the confidentiality clause under Article 7 under the BIT and violation of the fair and equitable treatment standard.

4. Claimant and indigenous defence manufacturers have ‘like’ products, the reversal of tax exemption for Claimant (thereby imposition of the indirect tax) and provision of tax exemption to the indigenous defence manufacturers, is the violation of the principle of national treatment and Article 14 of the Constitution of India. The imposition of tax on Windivan subsidiary of Claimant as compared to its equivalent indigenous defence manufacturers is vitiating the principle of fair and equitable standards.

5. The calculation of damages by Claimant is done in accordance to the Chorzów case using the DCF method. The principle of "costs follow the event," or "loser pays" have been upheld by many arbitral tribunals and thus, is justifiable in the present dispute.

188

The Collection of the Best for IMAIL 2021

ARGUMENTS FIRST ISSUE: CLAIMANT'S CAUSE OF ACTION ARISE OUT OF THE VIOLATION OF CONTRACT GIVING RISE TO VIOLATION OF BIT AND THE ICSID TRIBUNAL HAS JURISDICTION OVER CLAIMANT'S CLAIMS. 1. Contractual claims occurring beneath umbrella clauses in Bilateral Investment Treaties have grown to be very famous in current years.546 The cause of action arising out of a violation of contract prompts the violation of BIT. As observed in SGS vs. Philippines, the ICSID Tribunal judged that despite the claims emerge under the contract originally, they were BIT claims, as well, under the umbrella clause547[A].

2. The jurisdictional prerequisites of the BIT548 are completely fulfilled here on the grounds that (i) Claimant is a qualifying investor; (ii) it had a qualifying investment, and thus, has a subject matter jurisdiction; (iii) this matter was timely commenced and concerns a State measure that was taken after the BIT's entry into force[B]. Also, the jurisdictional requirements of the ICSID Convention was met[C].

[A] ICSID has Jurisdiction over Claimant's Contractual Claims as a breach of the Awarded Contract leads to the breach of Article 3 of BIT. 3. Respondent asserts that ICSID have no jurisdiction over Claimant's contractual claims because they are contractual in nature and hence are inappropriately reformulated as BIT claims. Claimant will prove that this assertion is false and that its claims are in fact suitably categorized as BIT claims.

"The most reasonable interpretation of a broadly worded clause in light of its plain language, history and purpose is that it applies without exception to investment contracts."549 Michael D. Nolan, Edward G. Baldwin, The Treatment of Contract-Related Claims in Treaty-Based Arbitration, (MEALEY’S International Arbitration Report, June 2006).

547 ICSID Case No. ARB/02/6.

548 Windiva-Firel BIT, art. 8.

549 Jarrod Wong. Umbrella clauses in Bilateral Investment Treaties: of breaches of contract, treaty violations, and the divide between developing and developed countries in foreign investment disputes, (George Mason Law Review 2006).

546

189

The Collection of the Best for IMAIL 2021

(i) The language of Article 3 distinctly favors a broad interpretation.

4. Article 3 in the Windiva-Firel BIT states that: "Each Party shall accord in its territory to investments of the other Party and to investors with respect to their investments full protection and security."550 5. The ICSID Tribunal in Eureko B.V. vs. Poland experienced a practically indistinguishable umbrella clause in the applicable BIT, and afterward remarked that: "...the 'ordinary meaning' - of a provision prescribing that a State 'shall observe any obligations it may have entered into' with regard to certain foreign investments is not obscure. The phrase, 'shall observe' is imperative and categorical. 'Any' obligations is capacious; it means not only obligations of a certain type, but 'any' - that is to say, all - obligations entered with regard to investments of investors of the other Contracting Party."551 6. Similarly, this contention can be applied to Article 3 of the WindivaFirel BIT. Looking at Article 3 of the Windiva-Firel BIT, it is clear that by not mentioning any eligibility criteria to investment 'obligations', the term 'ordinary meaning' unquestionably will be incorporating contractual obligations. (ii) Any ambiguity concerning the Scope of Article 3 ought to be determined in support of Claimant (The Investor).

7. Article 3 must be read considering its "Object and Purpose." Under Article 31(1) of the Vienna Convention on the Law of Treaties, which has been adopted by both Windiva and Firel as mentioned in Article 9.3(c) of Windiva-Firel BIT, states "A treaty shall be interpreted in good faith in accordance with the ordinary meaning given to the terms of the treaty in their context and in the light of its object and purpose."552 8. Today, there are more than 2500 BITs are operational, all of which have been created with the express reason of obliging host states to extend full protection and security, and fair and equitable treatment to investors.553 9. The Preamble of the Windiva-Firel BIT states that the Parties giving consent to the BIT with:

Windiva-Firel BIT, art. 3.

IIC 98 (2005).

552 Vienna Convention on the Law of Treaties, 1969, art. 31.

553 The Entry into force of BITs (UNCTAD Geneva 2006).

550 551

190

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

"Recognizing that the promotion and the protection of investments of investors of one Party in the territory of the other Party will be conducive to the stimulation of mutually beneficial business activity.."554 10. This adheres with the customary purpose of all BITs in force, which is, to provide full protection and security to foreign investors and their investments, and providing all investors fair and equitable treatment. Since the writing and the purpose and objective of BITs distinctly boost the protection and security of foreign investors, then according to the Vienna Convention, which both Windiva and Firel have endorsed, any uncertainty in the BIT between them should be deciphered in the foreign investor's favor rather than the State. Thus, in this dispute, any uncertainty that may be encountered by the ICSID Tribunal in Article 3 of the BIT, should be deciphered in the Claimant's favor. In this dispute, the uncertainty that Respondent contends exists is whether Article 3 commends all contractual claims between the host State and foreign investors to the extent of BIT claims. However, if the ICSID observes that there indeed is any uncertainty as to the purpose and objective of Article 3, as mentioned in the Vienna Convention, the clause must still be extensively deciphered. Thus either way, Claimant's contractual claims should be raised to the level of BIT claims.

11. It should also be noticed that had Windiva and Firel proposed a diverse purpose and objective for Article 3, they had every opportunity to incorporate a different phrasing in the BIT. The parties could have easily restricted Article 3 only to disputes related to investment by eliminating contractual claims between a foreign investor and a host State, but they preferred not to. This in itself explains that the intention of the parties was to render for comprehensive recognition of contract claims under the BIT. [B] The jurisdictional requirements of the BIT are satisfied. (i) The Claimant is a qualifying investor under Article 1.5 of the BIT. 12. The plain terms of Article 1.5 of the BIT dictate that Claimant is a qualifying investor. Article 1.5 of the BIT establishes that an "investor" is a "natural or juridical person...that has made an investment in the territory of the other Party."555 Here, Claimant is a juridical person under the laws of Firel. Claimant made an investment in 554 555

Windiva-Firel BIT, Preamble.

Windiva-Firel BIT, art. 1.

191

The Collection of the Best for IMAIL 2021

13.

14.

15.

16.

17.

Respondent's territory and under the plain terms of Article 1.5 of the BIT, Claimant is a qualifying investor.

Claimant is a qualifying investor and has made a noteworthy investment within the terms of Article 1.4 of the BIT. The term "investment" as defined in the BIT states that "an enterprise...operated in good faith by an investor in accordance with the law of the Party in whose territory investment is made...has the characteristics...commitment of capital or other resources...for the development of the Party."556 Article 1.4 of the BIT further explains the kind of possession that must be possessed by the "enterprise" making the investment. It states that "(d) licenses, permits, authorizations...in accordance with the law of a Party....(h) any other interests...involve substantial economic activity...enterprise derives significant financial value."557 Claimant also comes within the meaning of "enterprise" as defined in Article 1.2 of the BIT which states that ""enterprise" means: any legal entity...operated in compliance with the law of a Party...and a branch of any such entity established in the territory of a Party in accordance with its law and carrying out business activities there."558 In investment treaty system, the place of incorporation test, also known as a literal test, has been sanctioned by continuous usage and by various international tools, 559 which incorporates the pure expressions and tribunal analysis of the ICSID Convention, 560 and the 2012 USA Model BIT. The 2012 US Model BIT defines "enterprise" as "any entity constituted or organized under applicable law".561 To decide the ratione personae question in this case, the Tribunal should look solely to the clear and determinative language of Article 1.2 of the BIT. Application of the place of incorporation standard here is straightforward. Claimant has been incorporated under the laws of Firel. Claimant also maintains registered offices in Firel and complies with its tax obligations there. Claimant is an "enterprise" of Firel under Article 1.2 of the BIT. ibid 3. ibid 3.

558 ibid 3.

559 [1970] ICJ 1.

560 ICSID Convention, Chapter II, art. 25.

561 U.S. Model BIT, 2012.

556 557

192

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(ii) The Tribunal have subject-matter jurisdiction.

18. The Tribunal has ratione materiae as the rights conferred by the awarded contract obtained by Claimant constitute an "investment" under Article 1.4(a)-(h) of the BIT. The characteristic of the "investment" as explained in the BIT is "the commitment of capital or other resources, certain duration...gain or profit...and a significance for the development of the Party in whose territory the investment is made."562 The Awarded Contract gave Claimant the rights for the production and delivery of artificially intelligent unmanned aerial vehicles for the development and strengthening of the Host Party's air force. Further rights were conferred by Claimant in the form of licenses, permits to establish Claimant's Indian Branch Office in the territory of the Party. Also, the investment was made by Claimant in terms of copyright, know-how, and intellectual property rights associated with the artificially intelligent unmanned aerial vehicles. These contractual rights and the related activities are plainly an "investment" under Article 1.4 of the BIT. (iii) The Tribunal has temporal jurisdiction.

19. The Tribunal has ratione temporis over the claims as the Claimant entered into the Contract with the Respondent after the BIT came into existence. Furthermore, Claimant complied with the provisions of Article 8 of the BIT. Claimant notified the relevant domestic authorities about the breach within the six months period as mentioned under Article 8.3 of the BIT. Claimant complied with the one year waiting period as mentioned under Article 8.4 of the BIT. Claimant also complied with the Article 8.5 of the BIT which states that "the disputing parties shall use their best efforts...resolve the disputes...for a period of not less than 6 months." Specifically, Claimant served a notice of arbitration to Respondent and after 60 days filed a request for arbitration before ICSID, thus, complying with the Article 8.6 of the BIT.563 20. Since Claimant's claims arise under Article 1, and 3 of the BIT, and the provisions mentioned under Article 8 of the BIT are fulfilled, therefore, the jurisdiction must be assessed according to the jurisdiction clause mentioned in the Article 8.7 of the BIT. 564 ibid 3. ibid 1.

564 ibid 1.

562 563

193

The Collection of the Best for IMAIL 2021

[C] The ICSID Tribunal has Jurisdiction to hear Claimant's BIT claims.

21. Article 25(1) of the ICSID Convention governs the jurisdiction of ICSID. Article 25(1) lays down certain requirements that has to be fulfilled for an ICSID to hear a case. They are: (i) the dispute must be a legal dispute; (ii) it must arise directly out of an investment; (iii) the dispute occurred must be between a Contracting State and a national of another Contracting State; and (iv) the parties to the dispute must have consented in writing to submit the dispute to ICSID.565 (i) The Dispute at issue are Legal Dispute.

22. Claimant contends that Respondent has infringed its right to fair and equitable treatment as mentioned under the Article 4.1 of the BIT. 566 Claimant further contents that Respondent has infringed the "full protection and security" that was supposed to be provided to the investors according to Article 3.1 of the BIT.567 These claims sharply portrays that they are of a legal nature, as it has arisen out of the disputes that the right of Claimant has been violated which according to the Respondent violation has not occurred. Since, the dispute is of legal nature, this condition is fulfilled. (ii) The Dispute arises directly out of an investment.

23. As mentioned before, the Windiva-Firel BIT defines "investment" as an "enterprise" operated in good faith by an "investor" according to the law of the host State. Claimant is an "enterprise" as defined in the BIT, that is, any "legal entity" operated in compliance with the law of the host State. The definition incorporates company, corporation, LLP, or a joint venture. 568 24. In this case, Claimant is a company which was awarded the contract of manufacturing and delivering 100 artificially intelligent unmanned aerial vehicles by Respondent. This clearly establishes that Claimant is an enterprise and therefore, a legal entity according to the BIT. 25. Article 25(2) of the ICSID Convention 569 defines "National of another Contracting State" as "any juridical person which had the nationality of a Contracting State other than the State party to the dispute." The term "juridical person" is used in BIT ibid 4.

Windiva-Firel BIT, art. 4.

567 ibid 2.

568 ibid 3.

569 ibid 4.

565 566

194

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

to define the term "investor" which has similar language that was used to define the term "enterprise". Therefore, Claimant being a group of companies from Firel, meets all the requirements mentioned above and thus, satisfies Article 25(2) of ICSID. 26. Claimant has invested remarkable amount of money for the manufacturing and delivering of artificially intelligent unmanned aerial vehicles to Respondent. Therefore, Claimant has made an investment within Windiva as per Article 1.4 of the BIT. The term "investment" as defined in the BIT comprises "commitment of capital or other resources...significance of development of the Party in whose territory the investment is made...copyrights, know-how, and intellectual property rights...substantial economic activity."570 Claimant's investment clearly comes within the definition of "investment".

27. Thus, to conclude, the dispute has arisen directly out of the awarded contract that was entered by both Claimant and Respondent. Since Claimant has invested significant amount of money through a contract that was awarded by Respondent, the second condition is fulfilled. (iii) The Dispute occurred must be between a Contracting State and a National of another Contracting State.

28. In the dispute at hand, Respondent, that is, the Government of Windiva is a Contracting Party to the Windiva-Firel BIT, and Claimant is a legal entity and, thus, an enterprise that is a National of the other Contracting Party, Firel, as already mentioned above. Thus, this condition is also satisfied without contention. (iv) The Parties to the Dispute must have consented in writing to submit the dispute to ICSID. 29. As mentioned in Article 8.7 of the BIT, the dispute has to be submitted to ICSID only if the conditions mentioned in Article 8.1 to 8.6 is satisfied. Claimant has fulfilled all the requirements of Article 8.1 to 8.6 as already discussed above in 19. It is broadly acceptable that a BIT offering ICSID as a choice for dispute settlement is contemplated consent on the part of the Contracting State.571 As held in Azurix vs. Argentina by ICSID, the jurisdiction can be formed on an offer of consent in a BIT.572 Respondent has expressly consented in the BIT, by writing, to arbitrate investment ibid 3. ibid 1.

572 ICSID Case No. ARB/01/12.

570 571

195

The Collection of the Best for IMAIL 2021

dispute between itself and investor through ICSID, for which the disputed investor has to submit its claim to ICSID, thus giving, his/her consent to arbitrate the investment dispute through ICSID. 30. Claimant filed a request for arbitration before ICSID, via writing. As both Claimant and Respondent have consented , in writing, for ICSID jurisdiction, this conditions is also fulfilled. Since, each of the four requirements of Article 25(1) of ICSID Convention are satisfied, ICSID has jurisdiction over Claimant's claims.

SECOND ISSUE: CLAIMANT IS CORRECT IN CLAIMING VIOLATION OF DOCTRINE OF FULL PROTECTION AND SECURITY. 31. The doctrine of full protection and security ("FPS") is the "absolute" and "non-contingent" doctrine of treatment which is independent of the host State's treatment of other investors or investments, 573 As a result, the standard of full protection and security creates an obligation on the host states to take measures to protect investors and investments from any physical harms574. In several international investment treaties, such protective measures have been assured in the form of a full protection and security clause 575. The international responsibility of a government regarding property of foreigners cannot be dissected from its international obligation in relation to foreigners in other respects 576.

32. The FPS standard was coined in eighteenth century European scholarship577 and treaties578. An early codification of the FPS doctrine finds its mention in Article 76 of the Introduction to the General Law for the Prussian States of 1794 579. The doctrine became more ubiquitous in the nineteenth century after treaties on friendship, commerce and navigation 580 was brought into Campbell Mclachlan et al., International Investment Arbitration: Substantive Principles (2nd edn, Oxford Public International Law 2007).

574 Nartnirun Junngam, The Full Protection and Security Standard in International Investment Law: What and Who is Investment Fully[?] Protected and Secured From (American University Business Law Review 2018).

575 ibid.

576 ibid.

577De Vattel, E., The Law of Nations or The Principles of Natural Law (1758).

578 Treaty of Amity and Commerce between the United States and Kingdom of Prussia 1785, art. XVIII. 579Introduction to the General Law for the Prussian States of 1794, art. 7.

1. 580TREATY OF AMITY, COMMERCE AND NAVIGATION BETWEEN ITALY AND VENEZUELA 1861.

573

196

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

existence and remained incorporated in such treaties even post World War II 581, in the Abs-Shawcross Convention582 as well as in the 1967 Draft OECD Convention 583. The FPS was out-rightly mentioned in the very first ICSID case under a BIT, AAPL v. Sri Lanka.584 33. Claimant through the mentioned judgment asserts that Respondent has breached the doctrine of FPS[A], and Respondent contention of force majeure exception is lethally flawed[B].

[A] Respondent has failed to perform the BIT's obligation of Full Protection and Security.

34. The FPS standard creates an obligation for the host State: (i) not to directly harm investors/investments through acts attributable to the State, and (ii) to protect investors and investments against actions of private parties, e.g., in the course of civil unrest, as well as actions or inactions585 of the host State, its organs or agents 586. (i) Article 3.1 of the BIT mentioning "physical security" has been violated.

35. Article 2(2) of the United Kingdom–Vietnam BIT 587 stipulates the most accepted formulation of the standard: "Investments of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party."

36. The Tribunal in CME vs. Czech Republic588observed that: "The host State is obligated to ensure that neither by amendment of its laws nor by actions of its administrative bodies is the agreed and approved security and protection of the foreign investor’s investment withdrawn or devalue."

2.

581TREATY

OF FRIENDSHIP, COMMERCE AND NAVIGATION BETWEEN THE UNITED STATES OF AMERICA AND ITALY 1948.

582Abs,

Herman and Hartley Shawcross, Draft Convention on Investments Abroad, 1960, art. 1, sentence 2.

583 Draft Convention on the Protection of Foreign Property, Council of the Organisation for Economic Cooperation and Development (OECD) 1967, art. 1(a).

3. 584ICSID CASE NO. ARB/87/3, PARA.45, PARA.46, PARA.47, PARA.48, PARA.49, PARA.50.

585 Mobil Exploration v. Argentina, ICSID Case No. ARB/04/16, para.1002.

586 Hydro Energy and Hydroxana v. Spain, ICSID Case No. ARB/15/42.

587 United Kingdom - Vietnam BIT (2002).

588(2006) 9 ICSID Rep 264, para. 613.

197

The Collection of the Best for IMAIL 2021

37. Placing reliance on the case of American Manufacturing & Trading v Zaire589, Zaire was liable for failing to take adequate measures essential for safeguarding the claimant’s property during the course of riots in Kinshasa. It was concluded that it was immaterial whether the mentioned acts were committed by a member of the Zairian armed forces or a common burglar, owing to the reason that Zaire had an “obligation of vigilance,” and therefore its obligation was invoked for failure to discharge its obligation of full protection and security and for losses due to riots and acts of violence.

38. In the case of AMCO v Indonesia590, an investment was taken over forcefully with the aid of the Indonesian military members. Though the tribunal found that the forcible takeover cannot be regarded to be caused by the government of Indonesia, it eventually held that Indonesia breached International Law since it failed its "duty to protect aliens and their investment against unlawful acts committed by some of its citizens."

39. A host State may be held liable for violation of the FPS standard if the state fails in preventing a situation which fell in the purview of public powers591. Tribunals, have several times, observed that for purposes of protection and security of investment, the host states are supposed to utilize "all possible measures that could be reasonably expected"592.

40. In light of the aforementioned principles and provisions it can be deciphered that Respondent has failed to discharge its obligation to adopt protective measures to shield investments and investors from physical harms. Respondent should be held accountable for failing to prevent protests and violence which very much fell within its public powers.

41. The host State had a contractual obligation to render FPS to Claimant as Article 3 of the BIT vividly stipulates that each party shall accord in its territory to investments of the other Party and to investors “full protection and security” with respect to physical security of investors and to investments made by the investors of the other party. They failed to comply with even the bare minimum requirements of its obligation to render full protection and security.

589(1997)

No ARB/93/1.

1 ICSID Rep 413 [172].

591G. Cordero Moss, Standards of Investment Protection (OUP, 2008), p. 138.

592 ibid 8; Saluka Investments B.V. (the Netherlands) v. The Czech Republic, ICGJ 368 (PCA 2006), paragraph 484.

590(1984)

198

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(ii) 42.

43.

44.

45.

46.

Thus, the Tribunal should hold Respondent liable for not fulfilling its commitment made under Article 3 of the BIT. Respondent did not comply with the due-diligence obligation.

The doctrine of FPS creates an obligation for the host State to act with due diligence593.Due diligence is regarded as a general principle of law594. In case a State violates its obligation to exercise due diligence, State responsibility may then ensure if the act in question can be regarded to be caused by the State. The work of the ILC on the topic of State responsibility originally focused on the responsibility of States for injuries caused to aliens 595.

The due diligence obligations under the FPS standard requires the States596: (a) to protect foreign investments from third party' acts; (b) to apprehend and punish those responsible for the act; and (c) to possess and make available to foreign investors a judicial and administrative system capable of preventing acts, and of punishing and apprehending those responsible for the act.

In the case of Janes v. Mexico597, the Commissioner decided, that "...failure on the part of the Mexican authorities to take prompt and efficient action to apprehend the slayer" and therefore the Mexican authorities were held liable for not having taken "proper steps to apprehend and punish the slayer of Janes."

Arbitrator Max Huber in the Spanish Morocco case598 affirmed that in the events of riots, states have a duty of vigilance towards aliens. The Commissioner in the case of Youmans v. Mexico599, held that in case of "mob violence", States will be held liable if "a lack of diligence in the punishment of the persons implicated in the crime" is observed.

In the case of Asian Agricultural Products Ltd (AAPL) v. Sri Lanka600, it was found that a an assurance to provide full protection and security can imply an absolute standard of FPS imposing strict 593 Dr. Eric De Brabandere, Host

States' Due Diligence Obligations In International Investment Law (Syracuse Journal of International Law and Commerce 2015).

594Timo Koivurova, Max Planck Encyclopedia Of Public International Law: Due Diligence (OUP 2012).

595 F. V. Garcia Amador, RESPONSIBILITY OF THE STATE FOR INJURIES CAUSED IN ITS TERRITORY TO THE PERSON OR PROPERTY OF ALIENS (Yearbook of the International Law Commission 1958).

596ibid.

597 4 R.I.A.A. 82-98 (Mex.-U.S. Gen. Cl. Comm'n 1925).

598(1924) 2 R.I.A.A. 615.

599(1926) 4 R.I.A.A. 110.

600 ibid 8.

199

The Collection of the Best for IMAIL 2021

liability. The tribunal declared that the host state had a duty of "due diligence" to take "reasonable measures of prevention which a well administered government could be expected to exercise under similar circumstances."

47. Taking the present case into context, Respondent has failed to discharge its due diligence obligations. First and foremost, Respondent was unsuccessful in discharging their duty of duediligence to take reasonable steps to curb the impact of the violent protest which any Government could be reasonably expected to exercise under such circumstances. Secondly, Respondent failed to anticipate the repercussions of introducing a highly contentious Bill in the Parliament. Since Respondent had the obligation to act with due diligence to apprehend and punish those responsible for the act, the protests which took place subsequent to passing the Population Control Bill should have been anticipated and the Government should have steps to prevent the havoc. Thirdly, Respondent failed to discharge the obligation to make available to the Claimant, an foreign investor, a judicial and administrative system capable of preventing acts, and of punishing those responsible for the act.

Therefore, it is apparent that Respondent failed to comply with its due-diligence obligation.

[B] The acts of violence and protests does not fall within the ambit of Force Majeure.

48. Respondent didn’t even make an attempt to stand in the way of the protestors while they were causing havoc by damaging property which resulted in causing significant damage to Claimant’s Indian branch office. Despite the efforts of Claimant to seek compensation by virtue of Article 3 of the BIT, no steps were taken by Respondent.

Rather they rejected the claim and falsely stated that the damage to the company’s property was caused out of a force majeure event that was excluded under Article 3 of the BIT. 49. Article 1.3 of the BIT defines the scope and ambit of Force majeure by stipulating that ""force majeure event" means an unforeseeable and uncontrollable natural disaster or man- made constraints which makes the performance of an obligation impossible."601 50. Section 56 of Indian Contract Act, 1872602 deals with Doctrine of frustration whereas contracts encompassing a Force Majeure clause is 601 602

ibid 3.

Indian Contract Act, 1872, s. 56.

200

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

51.

52.

53.

(i) 54.

55.

governed by Section 32 of Indian Contract Act, 1872603 which provides for Enforcement of contracts contingent on an event happening.

Doctrine of frustration can only be applied when 604: (a) force majeure clause is not introduced in a contract which compels the parties to apply the narrow common law contract doctrines of ‘impracticability’ and ‘frustration of purpose’, which hardly result in excuse of performance; (b) force majeure clause is included but it does not cover the concerned act.

In the case of Lauritzen AS v. Wijsmuller BV605, it was observed that the "object of the doctrine of frustration was to give effect to the demands of justice, to achieve a just and equitable result, to do what is reasonable and fair, as an expedient to escape from injustice where such would result from enforcement of a contract in its literal terms after a significant change in circumstances."

Claimant contents that the acts of protest and violence: (i) were not "unforeseen"; (ii) were not "uncontrollable"; and (iii) does not render the performance of the obligation impossible,606 and therefore, is not a force majeure exception and also, the applicability of doctrine of frustration which encompasses force majeure is not possible.

The act of protests were not "unforeseen".

In the case of M/s Alopi Parsad and sons v Union of India607, it was concluded that "A party cannot be absolved from the performance of his part of the contract merely because his performance has become onerous due to the occurrence of unforeseen events."

Whenever a new bill is introduced in the Parliament, anti-bills protest tends to take place. Therefore, the protests were not something which could not have been anticipated when the Population Control Bill was introduced in the Parliament by the Central Government. Even if we consider that the protests and the concomitant damages could not have been anticipated, it still

603

Indian Contract Act, 1872, s. 32.

Harold J. Berman, Excuse for Nonperformance in the Light of Contract Practices in International Trade (Columbia Law Review 1963).

604

605[1990]

1 Lloyd's LR 1 at 8.

Responsibility of States for Internationally Wrongful Acts, 2001, art. 23.

6071960 (2) SCR 793.

606

201

The Collection of the Best for IMAIL 2021

remains undisputed that the protests could have been very well controlled by the public authorities. (ii) The act of protests were not "uncontrollable".

56. In the case of Entertain Video Ltd v Sony DADC Europe Limited608, Sony placed reliance upon a force majeure defence to an allegation that it had failed to safeguard and protect its premises against fire and break-ins which aroused out of the London riots of 2011. The High Court declared that the riots does not fall within the ambit of force majeure and therefore did not give rise to a force majeure defence.

Further, the High Court held that even if they consider the riot and fire as an unforeseen event, the defendant should have taken additional measures to prevent the fire and should have tried to safeguard its premises. Therefore, preventing protests and violence falls within the public powers and hence the protests and civil unrest could have been controlled by the Windivan government itself. (iii) The act of protests does not render the performance of the obligation impossible.

57. The party asserting force majeure exception is usually under an obligation to prove that the party has taken all reasonable measures to avoid or mitigate the effect of the event on the performance of the contract609.

58. Respondent had authority as well as power to restrain and restrict the protestors from destroying and damaging the Claimant’s Indian Branch Office, especially in circumstances where the government had BIT obligation to accord "full protection and security". They failed to prevent protests and violence which very much fell within its public powers. Since Respondent failed to curb the effects of the protests on Claimant which were well within its powers, it can be deciphered that Respondent has no evidence at all to exhibit that "reasonable endeavors" were made to curtail the effects of the protests.

THIRD ISSUE: CLAIMANT IS JUSTIFIED IN TREATING ALGORITHMIC CAMOUFLAGE AS COUNTERMEASURE TECHNOLOGY AND DECLINING AFTER SALE SERVICE, AND

[2020] EWHC 972 (TCC).

Cyril Amarchand Mangaldas, Corona Virus, Force Majeure and Impact on Commercial Contracts (Bloomberg Quint 2020).

608 609

202

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

RESPONDENT HAS BREACHED THE BUSINESSRELATED CONFIDENTIAL INFORMATION. 59. Claimant contends that the algorithmic camouflages is countermeasure technology and since the problems arising out of countermeasure technology is not mentioned under the after sale service clause, Claimant is not bound to provide after sale service with respect to it to Respondent [A].

60. Claimant further contends that Respondent sharing the businessrelated confidential information with an indigenous company is not only the breach of confidentiality clause as mentioned under the applicable BIT but also the violation of the FET standard [B].

[A] Algorithmic Camouflage is excluded from After Sale Service clause under the Contract.

61. Algorithmic Camouflage deployed in the military tank was a countermeasure technology, which was not a part of after sale services to be provided under the contract between the Claimant and Respondent as these technologies (Algorithmic Camouflage) are studied and employed as countermeasure systems in the Defense equipments.610 62. Under the principles of laws of Contract, an ‘acceptance’ is mandatory for any contract to be concluded. The acceptance to the extent of problems arising out of countermeasure technology, including Algorithmic camouflage was not made, therefore the Contract to that extent was not concluded. Hence, no obligation arises on behalf of the claimant and any assumption otherwise would be unjust and prejudicial towards the claimants. (i) Algorithmic Camouflage is a Countermeasure Technology.

63. The Cambridge dictionary defines countermeasure as "an action taken against an unwanted action or situation"; or "an action that is designed to reduce the effect of something harmful"; whereas the Oxford’s Learner's Dictionary defines it as "a course of action taken to protect against something that is considered bad or dangerous".

64. Camouflaging military tanks is a type of defense for warfare operations, and it comprises of material and hiding forces from being recognized by rivals or deceiving them about the location of

Pollock, David H. Accetta, Joseph S. Shumaker, David L., Countermeasure systems (The Infrared & Electro-Optical systems Handbook 1993) pg. 159-233.

610

203

The Collection of the Best for IMAIL 2021

65.

66.

(ii) 67.

68.

its own forces.611 It is done by selecting sizes of splotches, shapes, and colors in order to make it difficult to detect the camouflaged objects from the background of the terrain.

The Volume 7 of The Infrared & Electro-Optical systems Handbook, titled “Countermeasure system”, in its Chapter two ‘Camouflage, Suppression and Screening systems612’ discusses the camouflage technology is used to eliminate threats in military system.

Algorithms set up the coordinates of the composing elements of camouflage designs for military equipment. This has contributed to delivering pixels and fractals – forms already responsive to machinic computation – prevailing characteristics of the military equipment in use. Data concerning the average weather and the environment of the war scenario in which certain operations will happen are consolidated with concepts of existing machine-assisted recognition techniques and pre-personal visual perception to compute the optimal pattern.

Applying it in the present context, the ‘Algorithmic camouflage’ used by the military tank was a countermeasure taken by Respondent to protect the military tanks from detection and attack which resulted in one of the artificially intelligent UAV to crash. Hence, it is no doubt that ‘Algorithmic Camouflage’ deployed in the military tank was a countermeasure technology.

The Contract to the extent of problems arising out of countermeasure technology (including algorithmic camouflage) was not covered, hence, no obligation arises.

The United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG), which establishes a uniform framework for international commerce, under its Article 18 (1) defines acceptance as "a statement made by or other conduct of the offeree indicating -assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance."613 This when read with Article 23 of the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG), which specifies that “a contract is concluded at the moment when M. Laprus (ed.), Lexicon of military knowledge (Military Lexicon - Collective Work; Ministry Of National Defense Warsaw 1979).

612 ibid.

611

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG).

613

204

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

an acceptance of an offer becomes effective in accordance with the provisions of this Convention”;614 it can easily be deduced that ‘acceptance’ is compulsory for any contract to be concluded.

69. In the present after sale contract in issue, after sale service clauses for the artificial intelligence software as well as the hardware of the aerial vehicles were specified in the contract but problems arising out of countermeasure technology were not covered in the after sale service clause.

70. Hence, the acceptance to the extent of problems arising out of countermeasure technology was not made, therefore the Contract to the extent of providing after sale service arising out of countermeasure technology was not concluded. There is no question of transforming this contractual claim to a treaty claim when the contract itself does not exist. 615 (iii) Accruing additional rights to After-Sale service in favor of Respondent would be unjust for claimant.

71. Incorporating problems arising out of countermeasure technology (including algorithmic camouflage) into the After-Sale contract would have resulted in additional rights, obligations and compliances on the part of both the parties. Assuming the Algorithmic Camouflage as not a countermeasure technology, when indeed it is, would mean accruing additional rights to After-sale service in favor of Respondent without any additional obligation/responsibility of the Respondent towards Claimant. Such an assumption would be grossly unfair towards the Claimant and against the principles stipulated in the judgment Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador616 where under para 93 it was noted that “provisional measures may not be awarded for the protection of the rights of one party where such provisional measures would cause irreparable harm to the rights of the other party”.

[B] The Confidentiality Clause is breached by Respondent.

72. Dispatching the Unmanned Aerial Vehicles(UAVs) provided by Claimant to an indigenous company which specializes in Defense technology is (i) a direct breach of the confidentiality clause agreed 614

ibid.

615SGS. SociétéGénérale

de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13.

616ICSID Case No. ARB/06/11.

205

The Collection of the Best for IMAIL 2021

(i) 73.

74.

75.

(ii)

between the parties and Article 7 under the BIT, and (ii) violation of the fair and equitable treatment standard by reversing assurances that resulted in the Claimant' legitimate expectations.

Respondent is in direct breach of confidentiality under Article 7 of the BIT. Under the Article 1 of the BIT,617 “confidential information” means "business confidential information, e.g. confidential commercial, financial or technical information which could result in material loss or gain or prejudice a disputing party’s competitive position, and information that is privileged or otherwise protected from disclosure under the law of a Party."

Dispatching the UAVs provided by Claimant to an indigenous company which specializes in defence technology is a direct breach of the confidentiality clause under the contract as well as BIT. Such an act by Respondent jeopardizes the confidential technical information, including the intellectual property of the claimant and poses a risk of material loss on the part of Claimant and material gain on the part of Respondent. Further, Respondent is also in Breach of Article 7.2 of the BIT which reserved the right of Claimant to a reasonable opportunity to comment on such proposed measure in relation to the matters concerning UAVs, covered by the treaty: "Article 7.2 Each Party shall, as provided for in its laws and regulations: (i)publish any such measure that it proposes to adopt; and (ii)provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures."

Confidentiality is frequently viewed as one of the center benefits of international arbitration. The English Courts have settled implied confidentiality responsibility from the presence of an arbitration agreement. The rationale behind these verdict is that the implied obligation emerges out of the nature of the arbitration itself. In the particular case, the confidentiality clause was agreed upon by both the parties which Respondent breached straightforwadly 618.

Respondent has violated the fair and equitable treatment standard by reversing assurances that have resulted in the investor’s legitimate expectations.

ibid 3.

Gary Born, Confidentiality in International Arbitration (International Commercial Arbitration 2nd Edition 2015) pp. 2795-2796.

617 618

206

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

76. From Saluka v. Czech Republic619, the Fair and Equitable standards prohibit a Government’s violation of an investor’s legitimate expectations and failure by a Government to provide adequate advance notice of measures that will negatively impact an investment.

77. The FET standard requires the state to ensure the investor’s legitimate expectations dependent on the lawful structure at the hour of the investment and on any representations and undertakings made implicitly or explicitly by the host State. The lawful structure on which the investor is entitled to depend comprises of treaties and legislation enactment, and assurances which are contained in licenses, decrees, and comparative executive assurances, and also in contractual undertakings. In this particular case, Respondent has violated the FET standard by reversing assurances that have resulted in the investor’s legitimate expectations 620.

78. By entering into the BIT, Respondent accepted limitations on its power to handle the confidential information. By dispatching the UAVs to an indegenous company, Respondent fundamentally altered the regulatory framework of the investment in ways that were unfair and undermined the Claimant’s legitimate expectations. As a result, the conduct of Respondent was inconsistent with the BIT. FOURTH ISSUE: CLAIMANT IS CORRECT IN STATING VIOLATION OF PRINCIPLE OF NATIONAL TREATMENT AND BREACH OF LEGITIMATE EXPECTATION ON THE FAIR AND EQUITABLE STANDARD IN RESPECT OF THE DIFFERENTIAL TREATMENT GIVEN IN IMPOSITION OF INDIRECT TAX. 79. Claimant and its Windivan subsidiary was awarded the contract by Respondent to manufacture artificial intelligent UAVs for the defense purpose of the Windiva for which UAV parts are received from Firel but the entire manufacturing of UAVs is carried out by its Windivan subsidiary in the local manufacturing unit which is situated in SEZ. The supply of UAVs comprises of inter-state supply. That is the reason the claimant is imposed with IGST621.

ibid 9. ibid 16.

621 IGST Act, 2017, s. 7(5)(b).

619 620

207

The Collection of the Best for IMAIL 2021

80. The supply of goods by Claimant is considered as ‘import’ pertaining to the provision in the Windivan Law that ‘movement of goods from a SEZ to other States and provinces of Windiva is equivalent to ‘import’.

81. As already argued, Claimant is an “investor of a Party,” Firel, within the meaning of Article 1.5 of the BIT, and the Windivan subsidiary of Claimant is an “enterprise” and an “investment of an investor of a Party” for purposes of Article 1.2 and 1.4 of the BIT since the subsidiary is owned by Claimant.

[A] Violation of the principle of National Treatment.

82. As per the Article 4.1 of the BIT, each party has to give no less favourable treatment to the investors of other party, than its own investors in like circumstances, with respect to management, conduct, operation, sale or other disposition of investments in its territory. Hence, Respondent is bound to provide the cogent national treatment to Claimant in order to comply with the Article 4 of the BIT. (i) The Respondent's measures are de jure discriminatory.

83. By virtue of the IGST exemption for the import of defence equipments, Claimant received the tax exemption till January 01, 2024 after which there was the reversal of the exemption and Claimant was imposed with the tax. At the same time, the CGST and SGST exemption given by Respondent to the indigenous defence manufacturers was not reversed from January 01, 2024. There should be no difference in internal tax regime for local investors and foreign investors. Also, the tax exemption is limited to CGST and SGST of the indigenous defence manufacturers. It does not talk about exemption given on IGST. Hence, the differential treatment is clearly observed at the part of Respondent which amounts to violation of principle of national treatment.

84. The Marrakesh agreement establishing World Trade Organization mentions that, the financial regulations shall be based, as far as practicable, on the regulations and practices of GATT 1947.622 85. National treatment is a principle enshrined in the Article III of GATT 1947623 that prohibits the discrimination between the goods that are imported and goods which are domestically produced "with AGREEMENT ESTABLISHING THE ORGANIZATION. 623 The General Agreement on Tariffs and Trade, 1947.

622

208

WORLD

TRADE

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

86.

(ii) 87.

88.

respect to internal taxation or other government regulation". The relevant paragraphs in the article are as follows: "Paragraph 2: The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1624.

Paragraph 4: The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product."

Article III intends to encourage the importers with respect to economic opportunities through the elimination of discriminating governmental measures which are fair in international trade as against competition law which focuses on firm practices or structural modification which may prevent or restrain or eliminate competition. 625 The Respondent provided the Claimant with less favourable treatment.

In Japan—Alcoholic Beverages II626, the test has been given to determine the compliance of internal tax measure which is to be applied under Article III (2) of GATT 1947, sentence 1 is as follows: (a) The taxed imported and domestic products are like; and (b) The taxes applied to the imported products are in excess of those applied to the like domestic products.

The intent of these provisions is to bring equality of competitive conditions to the imported products. The Article III does not prevent contracting parties from differentiating between different product categories for policy purposes but prevents unreasonable

ibid.

Koul A.K, National Treatment on Internal Taxation and Regulation (Art. III) (Guide to the WTO and GATT Springer 2018).

626 JAPAN – ALCOHOLIC BEVERAGES II (1996).

624 625

209

The Collection of the Best for IMAIL 2021

89.

90.

91.

92.

93.

94.

discrimination between the imported products and domestic products with respect to internal taxation.627 The treatment of imported and domestic products as ‘like product’ may have significant implication for the scope of obligation under GATT and for the regulatory autonomy of contracting parties with respect to their internal tax laws and regulation. 628 Hence, Article III has to be carefully interpreted in the light of facts of a particular case.

Based on the jurisprudence of the GATT panels, the following four broad criteria are generally applied to decide whether two products are like products629: (i) The product’s end-uses in a given market; (ii) Consumer tastes and habits in a given market; (iii) The product’s properties, nature, and quality; and (iv) The customs classification of the product and/or the internal regulatory regime of the product.

These criteria are applied to determine “the nature and extent of a competitive relationship between and among the products.

Applying abovementioned principles to the facts of present dispute, it can be said that, Windivan subsidiary of the claimant as well as indigenous manufacturers of defense equipments work in the common domain in common territory, sale same products and have same target consumer. Hence, they are in the like circumstances as that of indigenous manufacturers of defense equipments.

In spite of having a local manufacturing unit, the supply of goods by the claimant is considered as ‘import’ within the meaning of Windivan law and additionally the tax exemption given to indigenous defense equipment manufacturers has been denied to the claimant, which clearly indicates the absence of equality as well as the violation of the principle of national treatment.

Besides this, Article 14 of the Constitution of India confers ‘equality before the law’ and ‘equal protection of law’ to every person, inclusive of both foreigners and Indian citizens, within the territory of India. The same is also applicable to the subsidiaries of multinational corporations, as Article 14 uses the word ‘persons’ rather than the word citizens. 630 It is, therefore, possible to file a lawsuit against discriminatory treatment to the ‘like’ and ibid 19. ibid 19.

629 Jain, S., National Treatment Obligation Under Article 3 of GATT Vis-à-Vis Indian Constitution (Open Markets, Free Trade and Sustainable Development 2019) pp.

227-259.

630 The Constitution of India, art. 14.

627 628

210

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

‘competitive’ foreign products marketed by such subsidiaries in India, on the ground of a violation of Article 14. In the present dispute such discriminatory treatment has been observed in case of claimant with respect to imposition of tax as compared to that of indigenous entities; in addition to violation of the principle of national treatment there has also been the violation of constitutional principle.

[B] Breach of Fair and Equitable standard.

95. The fair and equitable treatment standard in BITs has been interpreted as requiring that covered investment or investors receive treatment that is reasonable, consistent, non-discriminatory, transparent, and in accordance with due process. Thus, it is an essential feature for the effective implementation of the BIT. The Claimant contends that the Respondent's measures (a) were discriminatory; (b) were arbitrary; and (c) not in accordance with the principles of FET standard.

96. Understanding FET standard as legality is consistent with the purposes of the BITs. BITs are instruments that provide legal framework to the covered investments and investors by host states.

The purpose of a BIT is a partial subordination of the sovereign’s power to the legal constraints of the treaty. 631 97. Discriminatory conduct violates the fair and equitable treatment standard, but only when it lacks a reasonable justification.

Discrimination can only be justified by a non-discriminatory, legitimate purpose and nationality is not a reasonable and legitimate ground for discrimination. 632 98. In Biwater v. Tanzania 633, the claimant’s investment was awarded a contract to operate the water and sewerage service for the city. There were disputes concerning the performance under the contract.

Consequently, Tanzania unilaterally withdrew a value added tax exemption, an act that the ICSID tribunal found to be ‘unreasonable and unjustified’. The tribunal found that the act also was the exercise of sovereign executive authority, which adversely impacted upon operating company’s rights, and its ability to continue to perform.

Applying this argument in the present dispute, it can be observed VANDEVELDE, Kenneth, A UNIFIED THEORY OF FAIR AND EQUITABLE TREATMENT. 632 ibid.

633 ICSID CASE NO. ARB/05/22.

631

211

The Collection of the Best for IMAIL 2021

that non-reversal of the CGST and SGST exemption for indigenous manufacturers of defence equipment under Windivan Nirbharata Scheme and at the same time withdrawal of the IGST exemption in case of the claimant without a legitimate basis seems to be an exercise of sovereign executive authority hence is a clear violation of the FET standard.

99. The fair and equitable treatment standard is to be interpreted in the light of objective of BIT. The objective of BIT between Firel and Windiva was the protection of investments of investors of one Party in the territory of the other Party which is getting hampered by the differential treatment of Respondent towards indigenous investors and foreign investors with respect to taxation. Hence, Claimant is correct in stating violation of principle of national treatment and breach of legitimate expectation on the fair and equitable standard in respect of the differential treatment given in imposition of indirect tax.

FIFTH ISSUE: THE DAMAGES REQUESTED BY CLAIMANT IS ACCURATE, RESPONDENT SHOULD BEAR THE COSTS OF ENTIRE ARBITRATION PROCEEDINGS, AND THE DISCOUNTED CASH FLOW METHOD IS UTILIZED FOR CALCULATING DAMAGES. 100. Besides being blatantly neglecting its obligations under the BIT, Respondent is also baselessly challenging the estimation of damages, i.e., USD 670 Million, mentioned by Claimant for the absolute loss of their investments.

101. Claimant courteously request the ICSID Tribunal to observe that (i) the Chorzów standard for full reparation should govern the damages requested by Claimant[A]; and (ii) the DCF method is the mode of calculation for damages[B]. Further, Respondent should bear the costs of entire arbitration proceedings[C].

[A] The Chorzów Standard for full reparation should govern the Damages requested by Claimant.

102. To decide the appropriate standard for full reparation, the Tribunal should adopt the Chorzów Standard. As held by the Permanent Court of International Justice in the Chorzów Factory case:

212

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

"reparation must...wipe out all the consequences of the illegal act and re-establish the situation which would, in all probability, have existed if that act had not been committed."634 103. Numerous Tribunals have observed that the customary international law standard pronounced in Chorzów is applicable to the breaches of investment treaty. 635 The same observation was made by Tribunal in BG Group vs. Argentina, where the Tribunal adopted the Chorzów standard. The issue in the above case was of the breach of the fair and equitable treatment provision. 636 The applicable BIT Treaty is silent on the issue of remedies. When such situation occurs the investment tribunals incline towards the International Law Commission Articles. Article 31 of ILC mentions the full reparation standard for the injury caused due to internationally wrongful acts and Article 34 of ILC mentions restitution as the primary form of reparation,637 and the restitution is governed by Article 35 of ILC. 104. Claimant has already established that this Tribunal has the jurisdiction over this case, and thus, the power to award restitution, as per LCIA Arbitration Rules638 and also according to Article 8 of the BIT. In the absence of BIT provision mentioning about the remedies for unlawful acts, such as violation of FPS and FET standard, Claimant contents that there is applicability of Article 35 of ILC. (i) Restitution is not materially impossible in the present case.

105. According to Article 35(a) of Responsibility of States for Internationally Wrongful Act, restitution must not be materially impossible so as to be awarded. Material impossibility is barely characterized and enfolds the cases where the object at issue has been destroyed or permanently lost or gravely deteriorated. 639 The ILC commentary elucidates that "restitution is not impossible...on...legal or practical difficulties...the responsible State may have to make special efforts...administrative obstacles to restitution does not amount to impossibility." 640 ICGJ 247 (PCIJ 1927).

Marboe, Calculation of Compensation and Damages in International Investment Law (OUP 2nd edn 2017), pp. 44–50.

636 IIC 321 (2007).

637 Responsibility of States for Internationally Wrongful Acts, 2001, art. 34.

638 The London Court of International Arbitration Rules, 2020.

639 Responsibility of States for Internationally Wrongful Acts, 2001, art. 35.

640 ibid.

634 635

213

The Collection of the Best for IMAIL 2021

106. In the present dispute, the restitution requested by Claimant, i.e., USD 670 Million, is materially possible, and hence, Claimant should be provided the full amount as was observed by the tribunal in Nykomb case641. (ii) Restitution does not involve a burden out of all proportion.

107. According to Article 35(b), restitution should not "involve a burden out of all proportion".642 Proportionality alludes to the equilibrium that should be maintain between the benefit enjoyed by the investor and the cost suffered by the responsible State when restitution is provided, instead of compensation. 643 Therefore, so far the second requirement is concerned, Claimant submits the damages requested

by Claimant are not gravely disproportionate.

108. Hence, the full damages encompasses not only direct damages due to FPS but also damages due to the FES, infringement of intellectual property rights by Respondent, and the default of payment.

[B] The DCF method is the mode of calculation for damages.

109. Claimant contents that DCF is the suitable method for computation of the damages for all injuries caused due to the violation of the BIT

by Respondent. The objective is to eliminate all situations of the infringements and reinstate the environment that would have existed in the absence of infringement, thus, applying the "but-for" theory.

DCF method is a well-established method in international arbitration practice. 644 Applying the income approach, damage has to be assessed as loss profits. (i) The Tribunal should apply the fair market value standard to assess what a reasonable buyer would pay for Claimant's investments.

110. In order to completely compensate an investor for the loss of its operating business, the tribunals should analyze the business' cost on a market if investor chose to sell before the BIT breaches 645, i.e., fair market value. As observed by Starrett Housing Tribunal, FMV is the price a willing buyer would pay to a willing seller when both have complete details about the relevant situations. 646 SCC, December 16, 2003. ibid 23.

643 Emily Crawford, Proportionality (Oxford Public International Law 2011).

644 Toni Marzal, Quantum (In) Justice: Rethinking calculation of compensation and damages in ISDS (The Journal of World Investment & Trade 2021).

645 ibid 9.

646 IUSCT Case No. 24.

641 642

214

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

111. The buyer's expectations with respect to future profits have a vital impact on the price of profit generating assets. 647 No sensible individual would put cash into a business without anticipating that it should deliver profits.648 The same rationale was trailed by Sistem Tribunal which emphasized that expectations concerning future profits would have significant influence on the assets. 649 Therefore, FMV compensation must be taken into account for the future profitability of Claimant, given that continued demand for its services was guaranteed in the relevant market. (ii) The DCF valuation method should apply to assess the FMV of Claimant's investments.

112. The Claimant's investment value should be determined by reference to the company's reasonably anticipated profitability using the DCF method. It estimates the investment's present value through: (i) estimation of company's future net cash flows; (ii) evaluating the future costs; and (iii) discount future profits to the valuation date through the appropriate discount rate. 650 It has been considered "as sound tool used internationally to value companies."651 113. The use of DCF valuation in the present case is particularly appropriate as the Claimant's business stands out for its stability , low risk, and predictability, which reduces the margin of uncertainty to minimum. The company qualifies as a going concern and its future profits and predictability are guaranteed due to Respondent's contractual commitment for payment in each tranche through blockchain enabled smart contract.

114. The Company's revenues has decreased drastically due to the unlawful act, therefore DCF should be used to calculate the revenue loss incurred and company's future net cash flows. The similar observation was made in LG&E case, where the State' "measures...resulted in a significant decrease in the Licensee' revenues..."652 It

647 648

04.

Total S.A. v. the Argentine Republic, ICSID Case No. ARB/04/1.

Clayton and Bilcon of Delaware, Inc. v. the Government of Canada, PCA Case No. 2009-

ICSID Case No. ARB(AF)/06/1.

Borzu Sabahi, Compensation and Restitution in Investor-State Arbitration: Principles and Practice (OUP 2011).

651 Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3.

652 ICSID Case No. ARB/02/1.

649 650

215

The Collection of the Best for IMAIL 2021

must be calculated using the appropriate discount rate. 653 The appropriate discount rate should be the Weighted Average Cost of Capital (WACC).654 [C] Respondent should bear the costs of entire arbitration proceedings.

115. Article 61(2) of the ICSID Convention grants the Tribunal discretion to allocate the costs of the arbitration, 655 and ICSID Arbitration Rule 47(1)(j) provides that the Award should contain any decision regarding the costs of the proceeding. 656 116. An award of costs is justified in the present dispute as Respondent’s unlawful actions gave rise to it. Respondent has violated its treaty obligations, and numerous investment treaty tribunals have upheld the principle of "costs follow the event," or "loser pays" and have awarded the successful party all or a portion of its costs. 657 In Lemire v. Ukraine, the tribunal observed that "there should be an allocation of costs that reflects in some measure the principle that the losing party should contribute in a significant, if not necessarily exhaustive, fashion to the fees, costs and expenses of the arbitration of the prevailing party."658 117. In Kardassopoulos v. Georgia, the tribunal observed that "ICSID arbitration tribunals have exercised their discretion to award costs which follow the event in a number of cases, demonstrating that there is no reason in principle why a successful claimant in an investment treaty arbitration should not be paid its costs."659 The tribunal further observed that it was "appropriate and fair . . . to award the Claimants their costs of the arbitrations, including legal fees, experts’ fees, administrative fees and the fees of the Tribunal."660 118. The tribunal in Deutsche Bank v. Sri Lanka similarly awarded the claimant “a full recovery of its costs, legal fees and expenses,” finding that “the Respondent’s jurisdictional challenges have failed as have its attempts to resist findings against it on the merits,” and that the “breaches by the Respondent were egregious and it acted in bad faith.”661

Mark Kantor, Valuation for Arbitration: Compensation Standards,Valuation Methods and Expert Evidence (Wolters Kluwer 2008).

654 ibid.

655 ICSID Convention Rules and Regulation, art. 61.

656 ICSID Convention Arbitration Rule, art. 47(1)(j).

657 Best Practices in International Arbitration (ASA Conference-Zurich 2006).

658 ICSID Case No. ARB/06/18.

659 ICSID Case Nos. ARB/05/18 and ARB/07/15.

660 ibid.

661 ICSID Case No. ARB/09/2.

653

216

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

119. Therefore, Claimant respectfully requests that the Tribunal should order Respondent to bear all costs incurred by Claimant concerning with this arbitration662, which also includes the fees of its expert witnesses, the fees of its counsel, travel, translation costs, and other costs linked with the hearings, the expenses and fees of the Tribunal members, and the charges for using the facilities of the Centre.

662

UNCITRAL Arbitration Rules, art. 38.

217

The Collection of the Best for IMAIL 2021

RELIEF REQUESTED For the aforementioned reasons, Claimant respectfully requests the Tribunal to: 1. Find that this ICSID Tribunal has jurisdiction over Claimant's claims; 2. Declare that Respondent has the violated its obligations under the Windiva-Firel BIT; 3. Find that Claimant is justified for not providing After-Sale Service to Respondent; 4. Declare that Respondent has breached the confidentiality clause; 5. Declare that the enactment of Notification w.e.f. 01st January, 2024 related to IGST and its implementation and other related acts of Respondent amounts to violation of principle of national treatment and breach of fair and equitable standard; 6. Declare that Respondent’s counterclaims are inadmissible; 7. Find that Claimant is entitled to damages of USD 670 million; 8. Find that Claimant is entitled to all costs associated with these proceedings, including all legal and other professional fees and disbursements; and 9. Grant such further relief as counsel may advise and that the Tribunal deems appropriate.

RESPECTFULLY SUBMITTED ON JULY 11, 2021 by TEAM T-<T-VXZ-TIKI-AL>-C On behalf of Claimant, AVEERON GROUP

218

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

The Claimant Memorial – Amity Law School, Delhi Amity Law School, Delhi

Ayesha Mohanty, Devanshi Sharma, & Akshat Arora, Authors

219

The Collection of the Best for IMAIL 2021

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-04N-DASL-AR-C (C) INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP Claimant, v.

GOVERNMENT OF WINDIVA, Respondent.

ICSID Case No. ARB/XZ/A CLAIMANT’S MEMORIAL 05.08.2021

220

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

SUMMARY OF ARGUMENTS

1. THE CLAIMANT

HAS STANDING GROUNDS TO ESTABLISH ARBITRAL PROCEEDINGS BEFORE THE TRIBUNAL

¶

The international investment protection treaties provide for consent to arbitration and a request for arbitration filed on behalf by an investor. The jurisdiction of the current Tribunal is limited in several aspects. Firstly, Tribunal adjudication over the current matter is confined to jurisdiction over rationae materia or disputes concerning Investments (i). Secondly, Tribunal can only exercise its jurisdiction over rationae persona. This means that jurisdiction lies over the investors from one of the contracting states making an investment in the other contracting state (ii). There was a violation of the terms to the investment treaty (iii)

2. THE RESPONDENT HAS BREACHED THE CONFIDENTIALITY BETWEEN THE PARTIES ¶

TERMS OF

In the present case, there has been no intentional wrongful act conducted on behalf of the Claimant [i]. The complex technologies of unmanned aerial vehicles require human intelligence. Therefore, machine learning complexities must not be equated with intentional acts. [ii]. Since use of camouflages are countermeasure technologies, they could not be foreseen by the Claimant [iii]. However, this did not provide the Respondent the authority to deliver the UAVs to indigenous companies without the consent of the Claimant, thereby there has been a breach to the terms of confidentiality.

3. THE RESPONDENT VIOLATED THE SUBSTANTIVE PROTECTION OF THE TREATY ENUMERATED IN ART. 3 OF THE BIT

221

The Collection of the Best for IMAIL 2021

¶

The AG submits that the respondent violated the substantive protections of the treaty enumerated in Art. 3 of the BIT. It is submitted: Firstly, the GOW’s failure to act resulted in a breach of Art. 3 of the BIT [1.1]. Secondly, GOW cannot claim that the breach of Art. 3 was due to a Force Majeure Event [1.2].

Thirdly, in arguendo, AG is entitled to compensation on account of damage caused [1.3].

4. THE RESPONDENT VIOLATE THE SUBSTANTIVE PROTECTIONS OF THE TREATY ENUMERATED IN ART. 4 OF THE BIT ¶

The AG submits that the respondent violated the substantive protections of the treaty enumerated in Art. 4 of the BIT. It is submitted: Firstly, the GOW’s assertion that the tax exemption is an event which pre-existed the Treaty is misplaced and does not enable it to renege on its obligations [2.1]. Secondly, the actions of the GOW lead to a breach in the guarantee of national treatment as provided under the Treaty [2.2]. Thirdly, the GOW breached the legitimate expectations of the AG and the substantive protection of treating the claimant fairly and equitably [2.3].

5. THE CLAIMANT IS ENTITLED TO AN AMOUNT OF US$ 670 MILLION IN THE FORM OF DAMAGES AND COMPENSATION FROM THE RESPONDENT.

¶

The AG submits that it has classified the amount of damages due arising out of breach of contract, breach of the provisions of BIT, patent infringement and the loss of goodwill caused to the Claimant. It is submitted: Firstly, the customary standard for full reparation calls for wiping out all the consequences of the illegal act and re-establish the situation which would have in all probability existed had the illegal act not been committed.

Secondly, the Claimant has used the Face Value Method to calculate the number of damages arising out of patent infringement, breach of confidentiality and loss of goodwill.

222

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

The AG submits that it is entitled to the full costs of arbitration proceedings. It is submitted: Firstly, Article 11 of the BIT and Article 61(2) of ICSID Convention, Regulations and Rules give the Tribunal the discretion to direct the proportion in which the costs and expenses incurred in connection with the proceedings may be borne by the parties. Secondly, Tribunals have recognized that it would be unfair to leave the winning party to bear all its costs.

223

The Collection of the Best for IMAIL 2021

ISSUES

I. Whether Aveeron Group has standing grounds to establish arbitral proceedings before ICSID? II. Whether the Respondent has breached the confidentiality term between the parties?

III. Whether the Respondent violated the substantive protection of the Treaty enumerated in Art 3?

IV. Whether the Respondent violated the substantive protection of the Treaty enumerated in Art 4?

V. Whether Claimant is entitled to damages of USD 670 Million and costs of the entire arbitration proceedings and the mode of calculation of these damages?

224

The Collection of the Best for IMAIL 2021

ARGUMENTS

PART 1: JURISDICTION I.

AVEERON GROUP HAS STANDING GROUNDS TO ESTABLISH ARBITRAL PROCEEDINGS BEFORE THE ICSID

(¶1.)

The international investment protection treaties provide for consent to arbitration and a request for arbitration filed on behalf by an investor. The jurisdiction of the current Tribunal is limited in several aspects. Firstly, Tribunal adjudication over the current matter is confined to jurisdiction over rationae materia or disputes concerning Investments (A).

Secondly, Tribunal can only exercise its jurisdiction over rationae persona. This means that jurisdiction lies over the investors from one of the contracting states making an investment in the other contracting state (B). There was a violation of the terms to the investment treaty (C) (¶2.)

The Claimant will establish the three conditions that shall fulfil jurisdiction for arbitral proceedings before the present court 1.

THE AGREEMENT BETWEEN AG AND GOW IS COMPLIANCE WITH THE BIT (¶3.)

Rationae materia is pertinent in determining ‘subjectmatter jurisdiction663’ of an arbitral court to a particular case. In interpreting the provisions to establish an “investment,” widest possible connotation must be adopted.

This requires prima facie approach to the jurisdiction by establishing i) The existence of a dispute, ii) To establish the dispute to be of legal nature iii) understanding the scope of 663

ICSID Rules and Regulations, art 25(4)

225

The Collection of the Best for IMAIL 2021

‘investment’ iv) whether the dispute has arisen from the investment. (¶4.)

Dispute refers to disagreement on a point of law664 or fact or conflicting views where the resolution is of a legal consequence.665 (¶5.)

The legal nature of dispute also refers to breach of an agreement with the application of tax and customs provisions.’

The said agreement is currently under scrutiny amounting to breach of BIT agreement.666 The claim to the breach relies on moral standards that are important to international trade law agreements. Moreover, the said claims on behalf of the claimant, cannot be made redundant owing to governmental actions as they concern the legal consequences of the said breach.667 (¶6.)

Therefore, the agreement between the Claimant and Respondent is a dispute of legal nature. (¶7.)

Many scholars have affirmed that this dispute of legal nature must an ‘investment’ that is a catalyst for development and prosperity or impacts welfare around the world. This ‘economic development’ refers to all the modern kinds of investment resulting from association between States and foreign investors, inclusive of turnkey, service, know-how contracts668. (¶8.)

Investment through broad BIT agreements also refer ‘tangible and intangible assets’ to new of existing investments and could also provide for ‘transactional evidence.’ The investment so done must provide for contractual benefit of economic value to the host state 669and

Portugal v. Australia, Methanex v. Spellman 666 Moot Proposition, 16, art 3,4.

667 CSOB. v. Slovak Republic 668 Noah Rubins, 283, 286.

669 Salini v. Morocco 664 665

226

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

could have any claims to money attached for its performance.

[SGS v Pakistan]. (¶9.)

It is not necessary that the acquisition of control of the party to be wholly financed within the Host State. The mere registration of a subsidiary could also be taken as a substantial contribution in the host state670. (¶10.)

In the decision of Lesi Dispenta671, the tribunal held that even the expenditure in preparation of investment made in the national country could justify assumption of financial contributions.

(¶11.)

The span of investment is sometimes considered as a pre-qualification for investment. Therefore, the moment the investor starts spending money would be considered as the beginning of investment, inclusive of the time period of pretender stage672. (¶12.)

As per the terms of investment of BIT, the Claimant has made a commitment of capital and resources in good faith and possess the assets so specified as per Article 1.4 of BIT673.

These include authorisations and permits to manufacture the UAVs and the related intellectual property rights.674 There is also substantial financial investment with equity instruments in the GOW675 (¶13.)

The substantive qualification of period of investment the Claimant from the pre-tender stage is approximately 3 years. Moreover, there has been transactional evidence to the existing investment with the transfer of 50 million, post the delivery of 25 UAVs to the Government676.

RFCC v Morocco LESI v Algeria 672 Jan de Nul and Dredging International v Egypt 673 Moot Proposition, 12 674 Moot Proposition, 3 675 Clarifications to Moot Proposition, 3 676 Moot Proposition, 4 670 671

227

The Collection of the Best for IMAIL 2021

(¶14.)

Therefore, in the present context, the Claimant by following all the necessary procedures can considered to have done ‘investment” within the territory of the GOW. (¶15.)

Disputes could arise in investment where “central investment transaction” is accompanied by ancillary transactions in separate contracts.677 Even if it is suggested that the dispute do not arise directly in respect of investment, as long as they arise from “transactions to the investment,” they are still to be determined by ICSID. The only necessary condition is that the right must have a financial value must be considered dispute to investment 678 (¶16.)

Moreover, the degree of contractual and operation risks that impact the dispute and related to an investment, depend on the degree of complexity of the contract679.This could also include payment of principal and interest to riskholder to carry out the operational tasks680 and the involvement of sovereign power that separates the contract from commercial contracts681. The Claimant having established a local subsidiary manufacturing unit and branch office in the territory of Winidiva682, the same qualifies as investment.

Thereby a breach of the terms of agreement between the Claimant and Respondent, would invariably lead to breach of contract underlying BIT683. (¶17.)

Aside from “rationae materia”, ‘consent’ of the parties to the agreement is also a key determinant to agreement under BIT. As per Art 25, the jurisdictional scope of ICSID extends on consent based to “investment transaction. 684

Fedax v Venezuela, para 43 William Nagel v. Czech Republic 679 Jan de Nul v Egypt, n(10).

680 Fedax v.Venezuela, para.30 681 N. Horn 682 Moot Proposition, 3 683 Siemens v Argentine Republic 684 CF Amerasinghe, 231 677 678

228

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(¶18.)

The paramount role of consent in arbitration that arises from the investment contract is only submitted to international arbitration685. Moreover, in interpreting the consent of the parties to the BIT, a technological and liberal approach much be initiated686. (¶19.)

Under the provisions of Article 2(i) to the BIT, whereby, “treaty measures are adopted and maintained by a Party relating to investments of investors of another Party in its territory,” AG and Government of Winidiva having consent to the terms of agreement for sale of UAVs are in factum compliance to BIT. 2.

AG QUALIFIES AS INVESTOR UNDER THE TERMS OF BILATERAL INVESTMENT TREATY (¶20.)

An investor vide reference to Article 1.5 to the BIT can be a juridical person i.e. a legal entity that is constituted, organised and operated under the law of that Party and that has substantial business activities in the territory of that Party. (¶21.)

Under the general practice of modern international law, the scope and rights of business entities mention “state of incorporation” or ‘place of registered office’ as a key determinant to nationality. The “rationae personae” principle687 determines the standard test to nationality of incorporation688, and suggests that aside from the place of incorporation, ‘siege social’ must also considered. (¶22.)

This implies that, the place of constitution of the business must be in accordance with the law689 or the country

Jan Ole Voss Malaysian Historical Salvors v Malaysia 687 Kronstein 688 Barcelona Traction 689 Greece-Cuba BIT (1996) ; Canada-Uruguay BIT 685 686

229

The Collection of the Best for IMAIL 2021

of legal establishment690. Hereby, the Claimant company is constituted under the laws of Firel 691. (¶23.)

Furthermore, the control and management that accompanies ownership by the Claimant established in Firel, is also an important factor that determines corporate nationality692. (¶24.)

Since Government of Firel and Government of Winidiva are Contracting parties to the Bilateral Investment Treaty, by fulfilling the conditions of investor, the Claimant equivocally qualifies as an investor.

3.

THE CAUSE OF ACTION HAS ARISEN UNDER THE CONTRACTUAL OBLIGATIONS OF THE PARTIES TO BIT i.State contracts have a general application of international laws (¶25.)

The state contracts arise between a state and foreign company and regulates the public interest measures of a host state that evolve from the BIT.693 They are a part of foreign investment contracts and narrower in scope694. The state contract, here, refers to ‘an agreement between the state or a state agency through a public procurement process695. (¶26.)

They can be directly concluded with sub-state agencies or governmental agencies696. In the present dispute, Claimant’s sale of UAVs to the Ministry of Defence, of the Respondent is a state contract697. (¶27.)

Internationalisation of state contracts provides foreign investment protection through international arbitration. They provide competence to arbitral tribunals in domestic dispute

Autopista v Bolivarian v Venezuela Moot Proposition, 3 692 Aguas v. Bolivia 693 C. Turpin 694 E. Paasivirta, 19-20 695State Contracts, Law Insider 696 P. Bernadini, 61 697 Moot Proposition, 3 690 691

230

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

resolution process and are in relation to international legal order698. (¶28.)

Widely accepted in practice and supported by scholars, the occurrence of circumstances suggests application of international laws in denial of justice. This has been also mentioned without reference to domestic law applications699. (¶29.)

In Sapphire700, the sole arbitrator held that “the quasiinternational character of the state contracts require detachment from a particular legal system [domestic law applications].” Moreover, this provides autonomy of the parties and de-links the positivist grounding of contractual relationship to the municipal law701. ii.The basic standard of conduct of the parties to the agreement suggest the application of BIT (¶30.)

In determining the claims to treaty obligations, an assessment of the parties conduct under the contract require a closer scrutiny. The determination of each violation must also be made independently of each other702 (¶31.)

The treaty claims may not be limited to the exercise of contractual rights703, but a primae facie test of assertions of plausible standard of violation is also considered704. This reasoning has been upheld by many pertinent investment arbitrations across the world. (¶32.)

This is because international agreements require parties to respect the ‘obligations and other sources of international law in conducting any acts. The commission of an ‘internationally wrongful act’ where there was a breach of

R. Lillich ;C. Greenwood C. Amerasinghe 700 Sapphire v. NIOC 701 A. F. M. Maniruzzaman, 141, 146–147 702 B. Cremades 703 S. Alexandrov, 97, 114 704 Joy Mining v Egypt; Bayindir Insaat v Pakistan, paras 264-273 698 699

231

The Collection of the Best for IMAIL 2021

‘state’s international obligations’ can be used as prima facie evidence validates the initial complaint of arbitral dispute705. (¶33.)

Furthermore, it is not important at the at the jurisdictional stage to examine whether the case is against the Respondent and involves the Respondent responsibility706. The determination of jurisdiction is closely attached combining the suggested merits rather than a detailed analysis of the same at the first stage. (¶34.)

Alongside, the obligations of the Respondent to the Claimant, the obligation falls under the purview of Umbrella Clause agreements. The umbrella clause strictly mentions that “"Each party shall observe any obligation it may have entered into regarding investments.707 (¶35.)

Here even a mere breach of contract can be deemed to be a violation of treaty that provides protective regime to investment treaties. As per the terms of BIT, between the Respondent and Claimant Group, there was a violation Article 1.1 by the GOW 708with the transfer of the UAVs to the indigenous companies. Moreover, the denial of equitable treatment under Article 3 and Article 4 of the BIT in relation to the destruction of the branch office and tax regulations against the subsidiary company, provides evidence that treaty obligations are explicitly violated. iii.There was a violation of underlying contract to BIT (¶36.)

The particularity of treaty arbitration must be considered while interpreting the clauses of investment treaties. This implies explicit language in investment treaty must confer the power to international arbitration to take cognizance of the dispute. In the case of SGS v. Pakistan it was

SGS Société Générale v Pakistan, paras 185-189 Jan de Nul v Egypt, supra at 10; Amco v Indonesia, pp. 57, 169, 252, 306; Ethyl Corp v Canada, para 66; Wena Hotels v Egypt 707 Noble Ventures v Romania 708 Moot Proposition, 12.

705 706

232

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

held that “violation of fair and equitable standard of treatment’ arises out of treaty obligations 709. (¶37.)

Firstly, investment treaties are regulatory disputes that impinges the sovereign rights of parties. Secondly, investment treaties are not negotiated by the Foreign investor and the Host State but home state of the investor and host state, impacting the international laws. Unlike commercial contracts between states where foreign investor legal position arises from a contract between host state and investor, the legal positions vary. Thirdly, state responsibility through investment treaty is not the same as civil liability emerging from commercial contracts. (¶38.)

As mentioned earlier, the investor is a national of Government of Firel, whereby the investment in Windiva is under the terms of BIT. The contract between the parties emerged out of the BIT where there has been violation of Article 3 and 4 of the terms of equitable treatment between investors of foreign nationals and host state710. (¶39.)

Moreover, a claim before the domestic courts is often carried out by a local subsidiary against a regional or local administrative authority as opposed between the foreign investor and Host State in the present case711. By the exhaustion of local remedies specified under Article 8.3 and Article 8.4 where Respondent was a party to the dispute resolution process, there can be no contestation that the submission of arbitration to ICSID is legal and valid.

PART 2: MERITS

E. Gaillard, 1, 3 Moot Proposition, 16.

711 Schreuer, 231, 247–248 709 710

233

The Collection of the Best for IMAIL 2021

II.

THE RESPONDENT HAS BREACHED THE CONFIDENTIALITY TERMS BETWEEN THE PARTIES

(¶40.)

Countermeasures are measures taken by a State in response an act which otherwise would have been wrongful and comply the latter State to its legal obligations. This has been specified in Gabcíkovo-Nagymaros Project, 712where the conduct of the investor is taken in response to a previous international wrongful act of another State and [...] directed against that State.” (¶41.)

For any act to qualify as a countermeasure, there are certain conditions established under customary international law that must be specified. [Article 49 ILC Articles on State Responsibility. (¶42.)

Firstly, an injured party can only take countermeasures against another when there has been an internationally wrongful act for the another that it should have initially complied with. Secondly, they are limited to non-performance at the time the international obligations for taking measures towards responsible parties. Thirdly, they must only be taken to the extent to permit the resumption of such obligations if they have not been complied. (¶43.)

Unmanned Aerial Vehicles (hereinafter “UAV”) utilises machine learning components and exhibits the characteristics of portability, lightweight, low cost, low altitude flights, and snapping the objects on the ground without pilot713.

It is important to note that UAV operators, from remote locations, control its functioning and operations. i.e., the human pilot controlling the UAV does not need to sit inside it.

714

Gabčíkovo-Nagymaros Project Asharul Khan & Yaseen AL-Mulla 714 Ibid 712 713

234

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(¶44.)

While hybrid UAV have been evolving the autonomous nature of warfare, they still require human control of some form. The manning of UAVs by engineers with pilot background and experience in flight systems and mission planning provides greater knowledge of basic flight dynamics, weather, and instrument flight rules715. The current UAV architecture also requires 10 people manning one UAV, as vulnerabilities can emerge anytime from satellite communications to kinetic problems716.

1. ALGORITHMIC CAMOUFLAGES OWING TO MACHINE LEARNING COMPLEXITIES CANNOT BE EQUATED TO HUMAN INTELLIGENCE

(¶45.)

Algorithmic camouflages attempt to flatten information, whereby, the target matches the background. This produces general invariances within the environment and dilutes the perceptive faculties. 717 (¶46.)

Algorithmic camouflage involves three computing technological advances. Firstly, they implement machine learning techniques to analyze, study their environments and process information. Secondly, they involve big data of automated and mining of datasets, that can be utilised to train learning capability of machines. Thirdly, the evolution of cloud technology provides them the means to also access board processing and data resourcing to resolve issues. There usually is a direct data link from satellite/ground combination and involves to some degree strategic onboard artificial intelligence. (¶47.)

Fault identification in case of UAV refers to an unexpected failure, including sensor, structural and actuator failures718. The complexities of hybrid machine learning algorithms create time deficiencies where the multiplicity of J.C. Huffman and Charles Kampf, 9, 31-37.

Oriana Palynk 717 Silvia Mollicha 718 X. Zhang 715 716

235

The Collection of the Best for IMAIL 2021

data can consume time. This impact’s fault identification of the dataset and the qualitative and quantitative trade off to a UAV creates a limitation. 719 (¶48.)

Intelligence determining can in these circumstances provide for the critical intent to all operators of UAVs whereby any contact can be discernible, the real-time intelligence provides indicators only during the aerial platform. This increases coordination of resources and can be valuable to the operators. (¶49.)

As opposed to human thinking machines have unpredictability, diverging moreover from human logic in many ways that might lead to casualties or mission failure.

720 UAVs provide measures for control during visual line of sight direct radio waves or beyond the same. While UAVs are important as they provide visual ridgelines, yet engaging environments like restricted vision, flight platforms and cordon gaps reduce their efficacy.

2.

THE USE OF CAMOUFLAGES AGAINST UAV COULD

NOT HAVE BEEN FORESEEN

(¶50.)

Over the recent years, hybrid systems have included the laser range finders, radars and electro-optic systems. This however has concerns of ocular identification where sensors of can only be focused at the imminent point at a time. They also require a highly collimated nature of laser light that needs to be collected within the spectral band of human eye. (¶51.)

The visible, near infrared and thermal sensors require conventional methods of remote sensing. Yet the same also have hindrances in form of coverage area, spectral, spatial and temporal resolution with on-board sensor. (¶52.)

In case of multispectral camouflages, the purpose is to conceal object from identification along several wave ranges.

While initially they were provided and supported by visibility 719 720

Farhan, Laith & Kharel, Rupak Zachary Fryer-Briggs

236

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

spectrum, today they are also capable of contra-measure to detection from infrared and radar721. Thereby, thermal imaging considerably which depends upon weather conditions and have been proved to be effective in adaptive camouflage technique development, with the use of EO.IR guidance sensors can face considerable challenges. These challenges the effectiveness of UAV where armored vehicles utilize the sensor systems to jam the UAV (¶53.)

It is also pertinent to mention, the camouflages used by the main battle tanks or military vehicles jam the devices that approach it using the similar techniques as any missile launched towards it. The signature used the target aircraft are infrared countermeasures that are modulated by IR technology at the detector. They guide use signal processing to determine the missile optics and reticle the course of the targeted object. (¶54.)

In the present case, there could have been a multitude of circumstances which impacted the UAV. However, they emerged under the supervision and control of the Respondent and emerge due to the algorithmic camouflage of the military tank722. The technical difficulties did not emerge on the failure on behalf of the Claimant. Therefore, the technologies utilized and deployed by Respondent for their own military as not developed by the Claimant could not have been foreseen under the present circumstances. (¶55.)

Therefore, the Claimant is not liable for providing after-sales services for countermeasure technology.

3.

THE RESPONDENT BREACHED THE CONFIDENCE

BETWEEN THE PARTIES

(¶56.)

The investment on behalf of the Claimant is by a commitment of resources to the economy of a host state and the assumption of risk in expectation of commercial returns.

Protection of intellectual property within investment allows an 721 722

H. Zhu Moot Proposition, 4

237

The Collection of the Best for IMAIL 2021

investor to challenge domestic regulations including some confidential business and commercial information under investor state arbitration. (¶57.)

As per the provisions of Article 1.1 confidential information refers to 723 business confidential information…..which could result in result in material loss or gain or prejudice a disputing party’s competitive position, and information that is privileged or otherwise protected from disclosure under the law of a Party.

(¶58.)

The Confidential information retained on behalf of the Receiving Party [I.e. the Respondent] is valuable, special, and unique asset proprietary to the Disclosing Party [i.e. the Claimant]. As per the terms of contract related to defence agreements, the Respondent is liable to not “disclose the Confidential Information to any third Party for any reason or purpose whatsoever without the prior written consent” of the Claimant. (¶59.)

Here, third Party refers to any party other than the Claimant or Respondent and their subsidiary companies and agents bound by the provisions of the Agreement. Standard of Care was a key determinant to be observed by both parties in storing and handling the protection of confidential information to prevent any unauthorised disclosure thereof. (¶60.)

Furthermore, every confidential business information that provides an enterprise a competitive edge over another in the similar industry and trade qualifies as a trade secret. The unauthorized acquisition, use or disclosure of such an information in a manner contrary to honest commercial practices, establishes unfair practices and a violation of the trade secret protection724. (¶61.)

While many intellectual property protection targets infringement by uses, investment protection can be invoked in 723 724

Ibid, at 12 ‘FAQ’s on Trade Secrets’

238

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

disputes against a policy measure. Irrespective of the legal title in the sale of UAVs and the development of artificially intelligent characters, the data disclosure does not involve transfer of ownership to the government or third-party nor creates rights for usage based on the submitted data. (¶62.)

The disclosure of data for experimental use by the third party is likely to discover algorithmic camouflages impacting they artificially intelligent UAV does interfere with the investors business activity and can amount to investment expropriation. (¶63.)

The causal relationship between regulatory measures that enable data disclosure and the impediment to commercial viability of investment appears significantly evident in the present case. (¶64.)

In the case of Phillip Morris 725an expropriation takes the effect when it “deprives the company the value of shares heavily dependent upon the ability to use intellectual property on or in relation to its products. The interference upon the exercise of its rights results in a substantial reduction of value of investors enterprise and apprise it of substantial revenue and profit. (¶65.)

The European Convention on Human Rights in Art 1.

Protocol 1. enumerate that Every natural person is entitled to the peaceful enjoyment of its possessions. No one should be deprived of his possessions except in the public interest and subject to the conditions provided for by the law and by the general principles of international law.

(¶66.)

Furthermore, states must ensure that no party shall take measures depriving, directly that states that no Party shall take any measures depriving, directly or indirectly, of his property a national of another Party..” unless conditions are met according to recognised rules of international law. 726Art. 725 726

Philip Morris v. Uruguay OECD

239

The Collection of the Best for IMAIL 2021

3 of the 1967 OECD Draft Convention on the Protection of Foreign Property (¶67.)

The Claimant also holds a patent under PCT process within the GOW for its artificially intelligent unmanned UAVs727. The disclosure of the data which interferes with patent holders’ rights and interests in exercise of those rights, contradicts validity and ownership of the patent holders’ rights.

With the transfer of UAVs to the indigenous companies specialised in defence technology, there has been a breach of confidentiality. (¶68.)

There has also been a breach of legitimate expectations. This concept is invoked when the Respondent derogates from reasonable and justifiable expectations on part of their part to act in reliance to conduct where such a failure would lead the Claimant to suffer damages728. (¶69.)

For legitimate expectations to be enforced, the liability threshold would constitute a violation when a state would transform and alter the legal and business environment under which the investment was decided and made or completely dismantle the very legal framework constructed to attract investors729. (¶70.)

Furthermore, the Respondent has also derogated against the “good faith” standards in treaty performance. The “re-instatement of the fundamental principles of pacta sunt servanda” which mentions that every treaty in force is binding upon the parties to it730 calls for honest and fair dealing between the parties731. (¶71.)

In honest and fair dealing of good faith standards732,

Clarifications to the Moot Proposition, 4 Thunderbird v. Mexico 729 CMS v. Argentina; LG&E v Argentina 730 Vienna Convention, art 26.

731 Draft Declaration on the Rights and Duties of States, art 13 732 Harvard 727 728

240

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

[t]he obligation to fulfill in good faith a treaty engagement requires that its stipulations be observed in their spirit as well as according to their letter, and that what has been promised be performed without evasion or subterfuge, honestly, and to the best of the ability of the party which made the promise.

(¶72.)

Therefore, the Respondent without communicating the delivery of the UAV to indigenous companies derogated the standards of good faith and violated the basic principles of International Law. III.

THE RESPONDENT VIOLATED THE SUBSTANTIVE PROTECTIONS OF THE TREATY ENUMERATED IN ART. 3 OF THE BIT

(¶73.)

GOW violated its obligations under the BIT between Windivia and Firel. Vide Art. 3 of the same, the Respondent had a duty to grant full protection and security in the host country. The standard was breached in the event of GOW’s failure to protect the AG’s Indian branch office during civil unrest and violent protests in Mekhli. (¶74.)

In furtherance of this, the Claimant argues, firstly, The Respondent’s failure to act resulted in a breach of Art. 3 of the BIT [1.1]. Secondly, The Respondent cannot claim that the breach of Art. 3 was due to a Force Majeure Event [1.2].

Thirdly, in arguendo, The Claimant is entitled to compensation on account of damage caused [1.3].

1. THE RESPONDENT’S FAILURE TO ACT RESULTED IN A BREACH OF ART. 3 OF THE BIT (¶75.)

The FPS clause in a treaty imposes an obligation on the State to actively protect the foreign investor’s investment from adverse effects733 which may stem from actions of the State, its organs, agents or from private parties, e.g., in the course of civil unrest, as well as actions or inactions.734 733 734

Christoph Schreuer Frontier v. Czech Republic, para 261; Parkerings v. Lithuania, para 355

241

The Collection of the Best for IMAIL 2021

(¶76.)

The standard of protection or extent of treatment owed under the clause unless otherwise stated explicitly is limited to physical protection and security of the investor and his investments735. The FPSS establishes a dual obligation for the states: on the one hand, there is the obligation to actively participate in preventing and remedying violations or penalization of the wrongdoer, and on the other hand there is the obligation to refrain from any activities, “direct or indirect, with or without approval, that would infringe the foreign investment”.736 (¶77.)

For instance, the Tribunal in Saluka held that the standard essentially comes into play when the investment has been affected by civil strife or violence.737 Further, in numerous cases, Tribunals have observed that the host State has a duty to protect the investor against violence directed at persons and property stemming from State organs or private parties.738 In Eastern Sugar, the Tribunal suggested that the standard protected investors against violence stemming from third parties in cases of mobs, thugs and others engaged in physical violence and failure to prevent such actions by third parties is violative of the FPS standard.739 (¶78.)

The standard of liability imposed on a State is not strict or absolute, but that of ‘due diligence’.740 The implication of this is that a State is required to take such measures as are reasonable under the given circumstances.741 Under modern investment treaty jurisprudence, the Investment arbitration tribunals have sometimes characterised this obligation as one Eurus Energy v. Spain, para.385; IMFA v. Indonesia, para 267; Crystallex v. Venezuela, para.632-34; See also Rumeli v. Kazakhstan, para 668 736 Josefa Sicard-Mirabal, Yves Derains, 737 Saluka v. Czech Republic, para.483 738 PSEG v Turkey, paras 257–259; Enron v. Argentina, paras 284–287; BG Group v.

Argentina, paras 323–328; Sempra v. Argentina, paras 321–324 739 Eastern Sugar v Czech Republic, para 203 740 Infinito Gold v. Costa Rica, para.627; Eskosol v. Italy, para.481; Tulip v Turkey, para.430, Frontier v. Czech Republic, paras.269, 270 741 Christoph Schreuer 735

242

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

calling for 'vigilance', 'prudence', 'reasonable care', 'best efforts' or responsiveness.742 Moreover, some tribunals held that the host states are required to use 'all possible measures that could be reasonably expected' for purposes of protection and security of investment.743 (¶79.)

For instance, in AAPL, which was the first case to invoke the standard of FPS, the tribunal held that Sri Lanka had violated its obligation by not taking “all” possible precautionary measures to prevent the killings of the Claimant’s employees and destruction of investment by its security forces and found Sri Lanka liable for its failure.744 Similarly, AMT v. Zaire which involved a similar conflict scenario, the Tribunal had found that Zaire had taken no action whatsoever to protect the claimant’s property during riots, observing that Zaire had an “obligation of vigilance,” and thus was held respondible for violation of full protection and security and for losses owing to riots and violence.745 The overall position thus emerges to be that Tribunals have assumed an independent treaty standard that imposes a high degree of diligence in what is expected from a welladministered government.746 (¶80.)

Max Huber in the British Property in Spanish Morocco confirmed the principle that in the event of mob violence, riots or civil unrest, States have a duty of vigilance towards aliens.

The Tribunal further held that while the State is not responsible for the revolutionary events themselves, it may nevertheless be responsible for what the authorities are doing or not doing to avert, to the extent possible, the consequences.747 Thus, the State in order to not breach the FIND THE LEXOLOGY SOURCE ibid.

744 AAPL v. Sri Lanka 745 AMT v. Zaire 746 Mahnaz Malik 747 British Claims in the Spanish Zone of Morocco, para. 642-645; See also Great-Britain United States Mixed Commission 742 743

243

The Collection of the Best for IMAIL 2021

protection of the FPS clause must show that the State’s conduct was not inconsistent with the minimum standard and objective of protection.748 (¶81.)

The degree of reasonableness of the measures and its justifiability has been dealt with by various Tribunals and it has been observed that the FPS standard prescribes a uniform standard of diligence, regardless of the conditions in a particular state. In AAPL, the Arbitration Tribunal set up the standard of “reasonably well-organized modern State”749 or, as the Arbitration Tribunal found in Al Warraq v. Indonesia, the recipient state has no obligation to provide a higher level of protection than that which “a well administered government could be reasonably expected to exercise in similar circumstances”.750 In Glamis it was held the standard is not meant to vary from state to state or investor to investor”.751 (¶82.)

In the instant case, Art. 3 of the BIT sets out the FPS obligations of the parties.752 Moreover, when read substantively, the clause imposes an obligation on the State to ensure the physical security of investors and to investments. GOW’s inaction in the event of civil unrest and violated the FPS obligation owed to AG was breached and the same amounts to a violation of Art. 3 of the Treaty. (¶83.)

Further, the words "full protection and security" imply a particularly high standard of treatment which GOW did not take. Moreover, going by the ratio of the Tribunals in AAPL and AMT, the GOW was responsible to exercise a reasonable level of due diligence to accord to AG’s branch office protection from the civil unrest and protests.

Gas Natural v. Colombia, para 571 AAPL v. Sri Lanka, para 77.

750 Al Warraq v. Indonesia, para. 625 751 Glamis Gold Ltd v USA, para. 61 752 Moot Proposition, 16.

748 749

244

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(¶84.)

Therefore, GOW’s inaction were not just violative of Art. 3 of the Treaty, but also resulted in damage worth 1.5 mil USD and is hence liable to compensate AG for the same.

2.

THE RESPONDENT CANNOT CLAIM THAT THE BREACH OF ART. 3 WAS DUE TO A FORCE MAJEURE EVENT (¶85.)

The International Law Commission's Articles on State Responsibility recognizes ‘circumstances precluding wrongfulness’ of States which include circumstances which may excuse non-performance on account of a ‘force majeure’ event or other such measures.753 (¶86.)

To successfully invoke ‘force majeure’, States must fulfil three conditions, which is not present in the instant case.754 i. The occurrence of an Irresistible Force or an Unforeseen Event (¶87.)

The defence can only be equipped in cases wherein the act is attributable to an ‘unforeseen’ and ‘irresistible’ event. The underlying notion behind this qualifying condition is that it is the event at hand which compelled the State to act in a manner which does not conform to its international agreements and the State had no element of free choice left.755 With respect to ‘irresistibility’, the International Law Commission (ILC) explained in the Commentary to ARS ‘that there must be a constraint which the state was unable to avoid or oppose by its own means’.756 (¶88.)

Further, the Tribunals have set the bar of ‘foreseeability’ high. For instance, in Aucoven, the tribunal dismissed the plea of FM on the ground that the protests had been foreseeable. The tribunal interpreted ‘foreseeable’ as not something which was probable or likely to occur, but rather it is enough that it could not be ruled out as a possibility. Furthermore, the tribunal used

James Crawford, ibid 172–73, 178.

755 OHB 756 International Law Commission. See LG&E v. Argentina, ICSID Case No. ARB/02/1, Award (25 July 2007) para 254.

753 754

245

The Collection of the Best for IMAIL 2021

the country’s previous record of conflict as the ultimate yardstick for the foreseeability considered in this case.757 ii.Beyond the Control of the State (¶89.)

This condition implies that the acts or omissions in question cannot be attributed to him as a result of his own wilful behaviour758 and arises in conjunction with the duty to act or prevent certain events from occurring.759 Tribunals can reject force majeure if the impossibility was a consequence of the decision of the State and not the result of ‘an external event beyond’ its control.760 (¶90.)

Further, on this ground claims relating to mob violence, riots, civil war often fail, depending on the level of responsibility attributed to the State for failing to prevent the crisis from arising.761 Various scholars have also held that this is the qualifying condition which bars States from successfully invoking the defence as a government ought never to be able to exculpate itself on the grounds of civil war or riot, since it is the duty of government to prevent such situations from arising.762 The Government is liable where it fails to exercise due diligence in averting or suppressing the riot, or where the situation point to an inadequacy of protective measures.763 iii.Material Impossibility of Performance (¶91.)

The event should render the possibility of performance ‘materially impossible’. While the requirement is not that of absolute impossibility, it is still quite stringent.764 Further, mere increased difficulty in performance is insufficient for a successful invocation.765

Aucoven v. Venezuela, para.118 ‘Study by the Secretariat, 209-19 759 ibid.

760 Libyan Arab Foreign Investment Company v Burundi, para 55 761 OHB. 762 ‘Study by the Secretariat 763 Edwin M Borchard, 224 764 Jure Zrilič 765 ILC Commentary, Article 23, para. 3.

757 758

246

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

(¶92.)

In Rainbow Warrior, the tribunal held that the test of Force Majeure’s applicability is of absolute and material impossibility, and a circumstance rendering performance more difficult or burdensome does not constitute a case of force majeure.766 While it is now agreed that the standard is not of absolute impossibility, what is expected is a high standard of impossibility. (¶93.)

Outbreak of armed conflict does not justify invocation of force majeure as conditions which make the performance of an obligation impossible are absent.767 Even where due to outbreak of a civil war FM was invoked, the cases were assessed on the basis of the due diligence exercised by the government.768 The determinant factor in such a case would be the due diligence exercised by the State which would establish whether the event was controllable by exercising reasonable measures or was irresistible in nature.769 (¶94.)

Moreover, in Ampal-American Israel Corp, the tribunal treated the duty of due diligence as a standard that can replace force majeure, and it held Egypt liable awhile assessing whether it had fulfilled its international obligation rather than whether it should be excused for having breached that obligation.770 In ascertaining the content of due diligence, commissions and tribunals typically highlighted the following factors: the type of conflict situation, the degree of the state’s control over parts of its territory, the state’s resources and the foreseeability of the harm.771

Rainbow Warrior (New Zealand v France), para 253 ‘Study by the Secretariat 768 Spanish Zone of Morocco (Great Britain v. Spain), para 639, 642 769 Gould Marketing, Inc v. Iran; General Dynamics v Iran 770 Ampal v Egypt 771 AAPL, n __, para. 85B; AMT v. Republic of Zaire, n__, paras. 6.05-6.06, 6.11, 6.14; Wena Hotels Limited v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award (8 December 2000) para 84; Pantechniki v Albania, para 77; Joseph Houben v. Burundi, para 16; Peter Allard v. Barbados, paras 543, 544.

766 767

247

The Collection of the Best for IMAIL 2021

(¶95.)

In the instant case, GOW’s reliance on FM is false and without merit. Further, GOW is misusing the exception of FM as guaranteed under Art 3.3 to escape liability for its failure to extend protection and security to AG and its investments. (¶96.)

Moreover, the Respondent cannot successfully invoke FM as the conditions stated in ILC’s Articles on State Responsibility qualifying the defence have not been fulfilled in as much as the protests and civil unrest as already established in Autopista do not constitute unforeseen and irresistible events. Moreover, the degree of forseeability while invoking the defence is high and would imply an event the happening of which could not have been ruled out.772 The event at hand does not fall in that category. GOW could have easily predicted the same not just because of Windivia’s prior history with respect to protests and civil unrest, but also because any democracy can reasonably expect unrest upon introducing a bill which seeks to restrict an individual’s right to life and liberty by imposing a restriction on the number of children a person is allowed to have. (¶97.)

Further, GOW cannot claim that the events were beyond its control. Any government as a part of its regulatory duties is required to ensure an atmosphere of peace and harmony.773 The Windivian government, despite being the 7 th largest democracy in the world failed to take reasonable precautionary and preventive measures in its very capital, i.e., Mekhli. GOW cannot, in good faith be allowed to benefit from its own failure and evade responsibility via FM as the same would amount to a gross miscarriage of justice. (¶98.)

Moreover, the events did not make it materially impossible for Windivia to respect its obligations under Art. 3.

What was expected was not a guarantee that the investment won’t be harmed in any possible scenario, but rather a duty of prevention and reasonable measures of due diligence. GOW, 772 773

248

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

however, failed to exercise any measures and therefore cannot cover up the apparent administrative failure and gross negligence that arose.

3.

IN ARGUENDO, THE CLAIMANT IS ENTITLED TO COMPENSATION ON ACCOUNT OF DAMAGE CAUSED (¶99.)

The Tribunals in CMS, Enron, and Sempra have observed that invoking a defence only relieves the State of its international obligations only for the time period during which the circumstances which precludes wrongfulness is in force, not permanently.774 (¶100.)

The issue of compensation is dealt with under Art. 27 of the ILC Articles which itself leaves room open for compensation despite successful invocation of a FM defence in the following words.775 Further, Professor Vaughan Lowe emphasized on treating the defences as excusing rather than exculpating as employing the former approach gives States the flexibility in determining the consequences of any particular wrongful act. If one considers the State as having been exculpated, then it is much more difficult to address the consequences of the act and potential obligations owed to third parties.776 (¶101.)

The Tribunal in CMS observed that the wrongfulness of an act may be precluded, but it does not exclude the duty to compensate the owner of the right which had to be sacrificed777. In Gabčíkovo–Nagymaros Project778 and Enron779, the

774 CMS Gas

Transmission Co v. The Argentine Republic, ICSID ARB/01/8, (Award) (12 May 2005) para 317, Enron Corp v. The Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007)semp para. 343, Sempra Energy Int'l v. Argentina, ICSID Case No. ARB/02/16, at paras 346, 355 (Award) (28 September 2007).

775 OHB 776 Vaughan Lowe 777 CMS Gas Transmission Co v. The Argentine Republic, ICSID Case No. ARB/01/8, Award (12 May 2005) para 317.

778 Gabčíkovo–Nagymaros Project, 1997 ICJ 7, para. 39 779 Enron Corp v. The Argentine Republic, n__, para. 345

249

The Collection of the Best for IMAIL 2021

Tribunal observed that a successful invocation of a defence would not exempt the State from its duty to compensate. (¶102.)

ILC's recognizes that compensation may still be owed in circumstances of necessity or force majeure. Under this approach, a State would be temporarily relieved of its obligation. At some point, however, the obligation and duty to compensate for damages sustained during the suspension would be resuscitated.780 (¶103.)

Thus, even if the events in question constitute a FM event, GOW is still liable to compensate AG for the damage caused to its Indian branch office.

IV.

THE RESPONDENT VIOLATED THE SUBSTANTIVE PROTECTIONS OF THE TREATY ENUMERATED IN ART. 4 OF THE BIT

(¶104.)

Through the revocation of the taxation exemption, the Respondent has breached its obligations under the BIT. Vide Art. 4, the Respondent had a duty to not accord less favourable treatment to foreign investors than it accords to its own nationals. (¶105.)

In furtherance of this, the Claimant argues, firstly, the actions of the Respondent lead to a breach in the guarantee of national treatment as provided under the Treaty [2.1]. Secondly, the Respondent breached the substantive protection of treating the claimant fairly and equitably [2.2].

1. THE RESPONDENT BREACHED THE PROTECTION OF NATIONAL TREATMENT ENUMERATED IN ART. 4 OF THE TREATY. (¶106.)

A National Treatment standard refers to a treaty standard which imposes an obligation on the host State to not

780

International Law Association, 20, 22

250

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

accord treatment less favourable than what is accorded to its own investors or to their investments781. (¶107.)

The purpose of the standard is to ensure that while enacting its rules and regulations, the State makes no negative differentiation between the foreign and domestic investors782.

It seeks to promote and protect the interests of the foreign investor by ensuring they are placed on equal footing vis-à-vis national investors.783 (¶108.)

In order to successfully invoke the protection of the NTS, the investor needs to establish, (i) the relevant comparator, and (ii) comparison between the treatment accorded to the foreign investor or investment and the domestic comparator784. (¶109.)

Firstly, the Claimant needs to establish that there is a basis for comparison or that the foreign and domestic investor are placed in a comparable setting, or ‘like circumstances’785 as the investor or investment is entitled to the best level of treatment available to any other domestic investor or investment operating in like circumstances786. (¶110.)

The phrase has been interpreted by Tribunals in distinctive ways. The Tribunal in Feldman v. Mexico interpreted ‘like circumstances’ as the same business787, whereas the Tribunal in Occidental (I) referred to local producers in general while observing that a comparative analysis cannot be done by confining the same to exclusively the sector wherein the particular activity is undertaken788. Tribunals have further Dolzer and Schreuer LG&E v. Argentina, n__.

783 Casinos Austria v. Argentina, para 250 784 Gavrilovic v Croatia, para 1170; Bayindir v. Pakistan, paras.389 390; Champion Trading v Egypt, para 128 785 Newcombe and Paradell, 159; Gavrilovic v. Croatia,.1170, Bayindir v. Pakistan, n__, paras.389-390; Champion Trading and Ameritrade v. Egypt n__, para.128 786 OHB 787 Feldman v Mexico; Vento Motorcycles v. Mexico, paras 241-242 788 Occidental v Ecuador, para.173, RDC v. Guatemala, para 153 781 782

251

The Collection of the Best for IMAIL 2021

enhanced the scope of ‘like circumstances’ by introducing the ‘Direct Competition’ criteria. This was applied in ADF v. U.S, wherein the Tribunal construed the parameter simply because the foreign and the domestic investor were in direct competition with each other and the basis of comparison was the ‘inventory’ being produced789. The Tribunal in SD Myers stated that “likeness” implied the “same sector”790. (¶111.)

The general position thus emerges to be that Tribunals have not construed ‘like circumstances’ too narrowly so as to open way for full review of a measure under the NTS791. (¶112.)

Secondly, in order to establish a breach of the NTS, the Claimant needs to establish that their investment have been treated less favourably as against a national investor792. In Olin v. Libya, the Tribunal held that Libya violated its NTS by according to Olin, treatment less favourable than it accorded to Libyan nationals’ investments as it exempted two Libyan competitors of the same business sector from the expropriation order, but refused to exempt Olin from it793. (¶113.)

Moreover, in SD Myers v. Canada, the Tribunal held that the Canada’s Order prohibiting the export was not driven by environmental concerns, as asserted by Canada, but intended primarily to protect the Canadian industry from U.S. competition and favoured Canadian nationals over nonnationals and thus violated NTS794. Similarly, in Clayton v.

Canada, the Tribunal held that projects belonging to Canadian investors in ‘like circumstances’ received more favourable treatment as during the assessment procedure, they were not

ADF v USA. SD Myers v Canada, para 250; Apotex v. USA, para 8.15; Corn Products v. Mexico, para 121, Methanex v. USA, para 19 791 Dolzer and Schreuer 792 South American Silver v Bolivia, para 719; Cargill v Mexico, para 410; Corn Products v.

Mexico, n__, para. 193 793 Olin v. Libya, para 237 794 SD Myers v. Canada (n ), para 138.

789 790

252

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

evaluated in terms of “core community values”, as against the procedure imposed on Bilcon.795 (¶114.)

Further, in Occidental (I), the Tribunal held that OEPC received treatment less favourable than that accorded to national companies. The Tribunal further held that even though the intention behind the order was not discriminatory, the result of the policy led to the investor being adversely affected and thus was a violation of the NTS796. (¶115.)

Thus, it is irrelevant whether the treatment in question was de facto or de jure discriminatory797, or whether the discriminatory treatment was intended or not798, an investor just needs to establish that he was treated in a manner less favourable than a national competitor and that the investment was adversely affected799 in order to successfully invoke the protection of the NTS. (¶116.)

Once the Claimant has successfully discharged the burden, the State will be held liable for violating the protection of NT guaranteed under the treaty unless the circumstances would justify governmental regulations that treat them differently in order to protect public interest800. The Pope tribunal suggested that it would look for a ‘reasonable nexus’ between the measure and a ‘rational, non-discriminatory’ policy goal, in order to determine whether a prima facie breach may turn out to be justified.801 Bilcon of Delaware Inc. v Canada, para 274.

Occidental v. Ecuador (n ), paras177-79.

797 Corn Products v. Mexico, (n ), para.115; ADM . United Mexican States, para 193; Lim, C.L, Jean and Paparinskis 305; Andrea B.K., 31.

798 Copper Mesa v Ecuador, para.6.71; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v.

Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para 390; Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8 Award (6 February 2007), para.321; Thunderbird v. Mexico, UNICITRAL, Arbitral Award (26 January 2006), para 177; Occidental v. Ecuador (I), (n ), para.177.

799 ADM v. Mexico, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007), para 209; Pope & Talbot, (n ). Para 43, Myers, (n ), para 252.

800 SD Myers, (n ), para 255.

801 Pope & Talbot, (n ), para 67.

795 796

253

The Collection of the Best for IMAIL 2021

(¶117.)

In the instant case, Art. 4 sets out the national treatment obligations in respect of the investor or investments.802 When read substantively, the national treatment obligation ensures that all companies, whether domestic or foreign, are treated equally and without discrimination. The Notification issued by the GST authorities stating the reversal of the IGST exemption and holding AG liable to pay IGST on the January 2024 consignment constitutes disguised discrimination and is contrary to Art. 4 of the BIT. (¶118.)

Further, the Notification discriminated against AG by withdrawing the exemption and thereby giving indigenous manufacturers a competitive edge as the CGST exemption granted to them in April 2023 was not reversed in January 2024. AG was thus not permitted to operate in Windivia in the same fashion as the indigenous manufacturers. GOW limited AG’s ability to carry out its operations on an arbitrary and discriminatory basis. Therefore by granting better treatment to domestic competitors in the same economic sector, GOW breached its national treatment obligations. (¶119.)

Moreover, when preparing and effecting the measure, AG had a local manufacturing unit which had been operating in Windivia despite which AG was not granted the benefits of the exemption granted to domestic competitors. GOW knew that reversal of exemption would affect the AG and its investment and put it at a less advantageous position. (¶120.)

Further, the Notification was intended to curtail AG’s operations and its investment in Windivia and protect the indigenous manufacturers against competition by according onto them favourable treatment and benefits. Therefore, GOW has breached its obligations under Art. 4 of the BIT and is accordingly liable to compensate AG for the same.

802

Article 4: National Treatment, Annexure, BIT, Moot Proposition.

254

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

2.

THE RESPONDENT BREACHED THE SUBSTANTIVE PROTECTION OF FAIR AND EQUITABLE TREATMENT (¶121.)

The Claimant submits that there was a duty upon the Respondent to treat the Claimant fairly and equitably under the Treaty [2.2.1]. Further, the actions of the Respondent amounted to a violation of the FET standard as the imposition of IGST on the January 2024 consignment was a breach of the legitimate expectations of the Claimant to be treated at par with the domestic manufacturers [2.2.2]. i.

The present Treaty incorporates the protection of FET (¶122.)

The FET standard is considered a bedrock of all BITs803. One of the primary responsibilities of a state towards the investor is guaranteeing a treatment which is not only just, but also conducive to fostering the promotion of foreign investments.804 (¶123.)

The FET or the minimum treatment standard is often termed in a manner which represents the pro-active intentions of the states to, ‘to promote’, ‘to create’, ‘to stimulate’805 or can also be interpreted as a standard which imposes onto States an obligation to not act in manifestly inconsistent, nontransparent, unreasonable or discriminatory manner.806 (¶124.)

The standard is broad807 and flexible808 and if mentioned explicity in certain BITs, its essence can be found in the preamble of the same through phrases like ‘ … desirable in order to maintain a stable framework for investment’ which makes clear the parties’ intentions to extend FET and has been interpreted that way.809

R Dolzer and C Schreuer, 149, 150.

MTD v Chile, para164 805 ibid.

806 Saluka, (n ), para 276.

807 R Dolzer and C Schreuer, Principles of International Investment Law, (2nd, OUP 2008), 149, 150.

808 Waste Management v. United Mexican States, para 98 809 Occidental V. Ecuador (I), (n ), para 180.

803 804

255

The Collection of the Best for IMAIL 2021

(¶125.)

In the instant case, the preamble states that Windivia and Firel have entered into the present BIT for the ‘promotion and protection of investments.’810 Further, the Treaty is envisaged to be conducive to the “stimulation of mutually beneficial business activity”, the “development of economic cooperation” and “promotion of sustainable development”. 811 Following the tribunal decision in MTD812 and Occidental [I]813, it is submitted that the preamble in the instant Treaty plainly implies the protection of Fair and Equitable Treatment to investors. (¶126.)

Further, the standard of FET is inherently a part of all treaties as it flows from basic norms of equity and fair dealing that are common to international law and to most domestic legal systems814. FET is now considered a customary international law norm and principle of international law.815 Various Tribunals have established that these words import the customary international law minimum standards816, rather than any autonomous higher standards.817 (¶127.)

Moreover, this approach has been consistently been taken by NAFTA Tribunals in a wide array of cases818 based on the binding interpretation of NAFTA FTC819 and the same has been echoed in various other cases in the recent times. Moreover, as was held by the tribunal in Azurix820, investments shall in no Moot Proposition, 11. ibid 812 MTD (n ), para 167.

813 Occidental V. Ecuador (I), (n ), para 183.

814 Todd J Grierson-Weiler and Lan A Laird, Standards of Treatment, in R Dolzer and C Schreuer, Principles of International Investment Law, (2nd, OUP 2008), 497.

815Fair and Equitable Treatment Standard in International Investment Law 816 Gann; Huu-Tru, ‘Le Réseau Suisse D’accords Bilatéraux D’encouragement; Paterson 817 Koch Minerals V. Venezuela, para 8.42; Infinito Gold V. Costa Rica, Para 81 ; Al Tamimi V. Oman, para 380 818 Pope & Talbot, (n ), para 17-69; UPS (n ), para 97; ADF Group, (n ), para 97; Waste Management, (n ), para 90-91; Thunderbird, (n ), para 192, 193.

819 Foy, P.G. & Deane, R.J.C., 299.

820 Azurix v. Argentina, para 365-368 810 811

256

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

case be accorded treatment less than what is required by international law. Thus, this particular expression, ‘fair and equitable’, is now commonly seen as encapsulating the level of minimum ‘treatment’ now required under both customary international law.821 (¶128.)

In the instant case, Art. 9.3 of the Treaty provides that general principles of public international law, principles of international economic law, and customary international law are applicable to interpreting the treaty. As noted by Professor Weil, ‘the standard of “fair and equitable treatment” is certainly no less operative than was the standard of “due process of law,” and it will be for future practice, jurisprudence and commentary to impart specific content to it’.822 (¶129.)

In the light of the same, it can be easily concluded that the BIT in question imposes onto the state an obligation to accord fair and equitable treatment through the preamble.

Further, FET is a principle of customary international law which in itself is applicable to the parties under Art 9 of the BIT. ii.That through its acts, the Respondent has violated the Legitimate Expectations of the Claimant (¶130.)

The principle of ‘legitimate expectations’ is considered a sub-category or a guiding principle of the FET standard. 823 It is a settled principle of international law that breach of the investor’s legitimate expectations amounts to a breach of the FET standard as the same encompasses protection of legitimate expectations824. Further, investor’s legitimate Todd J Grierson-Weiler and Lan A Laird, Standards of Treatment, in R Dolzer and C Schreuer, Principles of International Investment Law, (2nd, OUP 2008), 499.

822 Ibid.

823Saluka (n ), para , Agility v. Iraq, para 162; Cairn v. India, para 1722; Cavalum SGPS v Spain, para 404; Operafund v. Spain, para 426; Anglo American v. Venezuela, para 443; Unión Fenosa Gas v Egypt, para 9.5 824 Infinito Gold, (n ), para 355, Eurus Energy v. Spain, para 316, 317; FREIF v. Spain, para 540; Silver Ridge Power v Italian Republic, para 445; Agility v. Iraq ICSID Case No. ARB/17/7, Final Award (22 February 2021), para162.

821

257

The Collection of the Best for IMAIL 2021

expectations are protected even without the treaty guarantee of FET.825 (¶131.)

As established, legitimate expectations refer to the conduct the investor can reasonably and justifiably expect on the part of the State and includes the situation relied upon by the investors when investing in the host state.826 More specifically, the investor’s legitimate expectations are dependent on the legal order of the host state at the time of investment827 or the law as it operates at the time of making the investment828 or as held in Feldman829, a regulation that had existed at all times relating to the investor and had not de jure been changed. (¶132.)

In Occidental830, the same was held wherein the inconsistent practice of the State w.r.t. its tax law and changing it without providing any clarity about its meaning and extent was held to be violative of the FET standard and the investor’s legitimate expectations. (¶133.)

The FET standard goes even beyond the principle of legitimate expectations as pointed out by Dr. Mann and agreed upon by other, the FET standard is broad enough to enough to cover most conceivable investment disputes and various substantive protections offered by the agreement or the BITs are just an extension of the FET standard.831 (¶134.)

The convergence between the NTS and the FET standard is because any treatment which is arbitrary and discriminatory in nature will inherently be unjust, unfair and

SPV v. Egypt, para 382 Thunderbird, (n ), para 177 827 Gami v. Mexico, para 114.

828 SD Myers, (n ), para 250.

829 Feldman, (n ), para 165.

830 Occidental V. Ecuador 831 F.A. Mann, “British Treaties for The Promotion and Protection of Investments”, (1981) 52 Brit. Y.B. Int’L. 825 826

258

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

inequitable.832 The Tribunal in Nykomb v Latvia833 held that Polish government’s selective and biased treatment in respect of local companies and exclusion of Nykomb without any valid justification violated the fair and equitable standard and also discriminatory. (¶135.)

Further, in Saluka, the tribunal held that “State conduct is discriminatory [in the sense of it breaching “fair and equitable treatment” and “discriminatory impairment” standards, when] (i) similar cases are (ii) treated differently (iii) and without reasonable justification” in a case wherein favourable treatment was given to locally situated banks. Moreover, Saluka held that if one was unaware of the absence of a national treatment provision in the BIT, and ignored the reference to the fair and equitable treatment obligation, one could readily assume was summarizing a breach of national treatment.834 (¶136.)

Further, the same approach was taken by Tribunals in Occidental and S.D. Myers. In both instances, the treatment was held to breach the FET standard as the investors at the time of investment, the investors had a legitimate expectation to be treated in a just and fair manner which was subsequently violated because of the discriminatory treatment meted out. (¶137.)

Thus, it can be concluded that the concept of legitimate expectation appears to be moving from its narrower application to an application regarding the entirety of the regulatory experience, where transparency, predictability, the rule of law and non-discrimination are the promise that induce reasonable reliance.835 (¶138.)

In the instant case, AG when investing in Windivia, had a legitimate expectation that the investment environment would be one that would be conducive to its business interests S. Vascaine, 133 Nykomb v. Lativa, para 187 834 Todd J Grierson-Weiler and Lan A Laird, Standards of Treatment, in R Dolzer and C Schreuer, Principles of International Investment Law, (2nd, OUP 2008), 503.

835ibid 832 833

259

The Collection of the Best for IMAIL 2021

and that Windivia would act in a just and equitable manner during the subsistence of the contract. However, Windivia’s actions were not just manifestly illegal as they violated numerous treaty standards, but also amounted to a breach of the legitimate expectations that AG had of being treated in a non-discriminatory manner.

V.

THE CLAIMANT IS ENTITLED TO AN AMOUNT OF US$ 670 MILLION IN THE FORM OF DAMAGES AND COMPENSATION FROM THE RESPONDENT.

(¶139.)

The Claimant respectfully requests the Tribunal to find that it is entitled to payment of an amount of US$ 670 Million by the Respondent for breach of contract, breach of the provisions of the BIT, patent infringement and the loss of goodwill caused to the Claimant. The break-up of the amount claimed by the Claimant is given below.

1. THE CLAIMANT IS ENTITLED TO DAMAGES OF US$ 158.25 MILLION FOR BREACH OF CONTRACT

BY THE RESPONDENT. (¶140.)

The Claimant respectfully requests the Tribunal to find that it is entitled to the outstanding payment of the amount US$ 158.25 Million. (¶141.)

The Claimant, under the terms of the contract, was due an amount of US$200 million to be paid in four tranches of US$ 50 million each. However, only the first tranche was credited to the Claimant. Pursuant to the recent decisions of the Tribunal836, the Claimant has calculated a compound interest of US$ 8.25 million @11% per annum837, a rate which ADC Affiliate Ltd. v Hungary, para 522; Continental Casualty v. Argentina, para 309; Santa Elena S.A. v. Republic of Costa Rica 837 RBI- Base Lending Rate 836

260

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

is approximately 2% more than the prevalent base lending rate in the host country. The compound interest has been charged for a period of 1 year on US$ 50 million on the tranche of payment due in December, 2023, for a period of 6 months on US$50 million on the tranche of payment which became due in June, 2024 and no interest has yet been charged on the tranche of payment of US$ 50 million which became due in November 2024. However, the Claimant requests the Tribunal to grant the Claimants the interest ccrued as determined on the date of passing of the award. (¶142.)

The essential principle contained in the actual notion of an illegal act- that reparation must as far as possible wipe out all the consequences of the illegal act and re-establish the situation which would have in all probability existed had the illegal act not been committed.838 Further, the Tribunal in Petrobart v. Kyrgyz Republic839 observed that so far the damage suffered is a result of breach of the contract; the claimant is to be put in a position as far as possible financially in the position in which it would have found itself, had the breaches not occurred.” (¶143.)

Moreover, the Respondent cannot absolve its liability by making a claim that the loss incurred by the Claimant was due to the actions of a 3rd party. The tribunal iterated the same in CME v Czech Republic840 whereby it rejected the government's contention that since third party had also contributed to the loss of the investor, the government should be absolved.

2.

THE CLAIMANT IS ENTITLED TO A COMPENSATION OF US$ 370 MILLION FOR BREACH OF BUSINESS CONFIDENTIALITY AND PATENT INFRINGEMENT BY THE RESPONDENT

(¶144.)

The Claimant respectfully requests the Tribunal to find that it is entitled to compensation of the amount US$ 370 Million.

Factory at Chorzow, 47 Petrobart v Kyrgyz Republic 840 CME v. Czech Republic, para 583 838 839

261

The Collection of the Best for IMAIL 2021

(¶145.)

The Respondent’s act of sending the UAV’s to an indigenous company has resulted in patent infringement and breach of business-related confidential information. Further, this has resulted in the Claimant losing its competitive edge in the relevant market thereby resulting in a loss of profits. (¶146.)

The Claimant has used the Face Value Method841 for computing the value of compensation for patent infringement which is USD 320 Million and has quantified the losses arising out of breach of business confidentiality by the Respondent @25% of the value of the contract between the parties i.e USD 50 million. On infringement of a patent, generally, damages are calculated on the basis of the pecuniary equivalent of the injury resultant as natural or direct consequences of the infringement842.

3.

THE CLAIMANT IS ENTITLED TO A COMPENSATION OF US$ 26.5 MILLION FOR THE BREACH OF ARTICLE 3 OF THE BIT (¶147.)

The Claimant respectfully requests the Tribunal to find that it is entitled to compensation of the amount US$ 26.5 Million. (¶148.)

The Respondent’s failure to provide full protection and security to the Claimant’s Indian branch office in the city of Mekhli has resulted in a breach of Article 3 of the BIT and has resulted in damages of USD 1.5 million to the assets of the Claimant. As held by the Tribunal in Saluka v. Czech Republic843 the full security and protection’ clause is not meant to cover just any kind of impairment of an investor’s investment, but to protect more specifically the physical integrity of an investment against interference by use of force”. The breach has further resulted in a consequential loss of US$ 25 million to the Claimants for the time period that the operations of the head office had to be suspended for repairs and due to the tense Oil Field of Texas Inc v Iran, Phillips Petroleum Co Iran v Iran P. Narayanan 843 Saluka v. Czech Republic, ICGJ 368 (PCA 2006) (OUP reference), Partial Award (17 March 2006) para 484 841 842

262

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

situation in the capital city of Mekhli. The claimant is entitled to consequential losses incurred as a result of the breach of BIT as “to the extent restitution or its monetary equivalent alone do not make the injured party whole, the full reparation standard requires that the investor also receive damages for consequential losses stemming from the unlawful conduct.”844 4.

THE CLAIMANT IS ENTITLED TO COMPENSATION OF US$ 20 MILLION FOR THE TAXES ILLEGALLY CHARGED AND RECOVERED BY THE COURTS OF THE RESPONDENT (¶149.)

The Claimant respectfully requests the Tribunal to find that it is entitled to compensation of the amount US$ 20 Million. (¶150.)

The Respondent’s actions of charging tax from the Claimant has resulted in the violation of the principle of national treatment and breach of legitimate expectation on the fair and equitable standard as there was differential treatment in indirect tax imposition between the Claimant and the indigenous manufacturers of defence equipment. In such a situation, as held by the Tribunal in similar cases845, the suffering party is entitled to a refund or to be put in the same position as the parties benefitting from such differential treatment.

5.

THE CLAIMANT IS ENTITLED TO A COMPENSATION OF US$ 70 MILLION FOR THE PROJECTED LOSS OF REVENUE DUE TO BREACH OF ARTICLE 4 OF THE BIT BY THE RESPONDENT (¶151.)

The Claimant respectfully requests the Tribunal to find that it is entitled to compensation of the amount US$ 70 M. (¶152.)

The Respondent has breached Article 4 of the BIT by according less favourable treatment to the Claimant than it accords to its own investors by revoking the Integrated Goods and Services Tax (IGST) exemption granted to import of Factory at Chorzow, Merits, 1928 PCIJ, Series A, No. 17, 47 Nykomb v Latvia, SCC Case No. 118/2001, Award (16 December 2003) para 34; Occidental Exploration v Ecuador, LCIA Case No. UN3467 Final Award (1 July2004) para 205 844 845

263

The Collection of the Best for IMAIL 2021

defence equipment whilst continuing to provide exemption to indigenous manufacturers.

A financial remedy in this context should place foreign investor in a financially equivalent position either as if they were treated as well as the best-treated domestic investors846. Further, The Tribunal in Nykomb v.

Latvia847 awarded all future payments owed, and one-third of past payments not paid, to the claimant for unfavourable treatment to foreign companies in regard to double electricity purchase tariff.

6.

THE CLAIMANT IS ENTITLED TO COMPENSATION OF US$ 25 MILLION FOR LOSS OF GOODWILL ARISING OUT OF RESPONDENT’S CONDUCT (¶153.)

The Claimant respectfully requests the Tribunal to find that it is entitled to compensation of the amount US$ 25 Million. (¶154.)

The Respondent’s Actions and conduct have caused damage to the reputation of the Claimant and has further resulted in a loss of goodwill to the Claimant. The same were granted by the Tribunal in Tidewater Inc v. Bolivarian Republic of Venezuela 848.

7.

THE CLAIMANT IS ENTITLED TO THE FULL COSTS OF ARBITRATION PROCEEDINGS

(¶155.)

The Claimant respectfully requests the Tribunal to find that it is entitled to the full costs of the arbitration proceedings incurred by it. (¶156.)

Article 11 of the BIT849and Article 61(2) of ICSID Convention, Regulations and Rules850 gives the Tribunal the discretion to direct the proportion in which the costs and expenses incurred in connection with the proceedings may be SD Myers v Canada, UNCITRAL Arbitration, IIC 249 (2000) (OUP reference), Award (13 November 2000) para 130; Feldman v Mexico, ICSID Case No.ARB(AF)/99/1, Award (16 December 2002) para 166 847 Nykomb Synergetics (n 10) para 34 848 Tidewater Inc. v Venezuela, para 145 849 Article 11, BIT 850 ICSID Convention, Regulations and Rules (ICSID Arbitration Rules) (April 10 2006) 846

264

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

borne by the parties. Further, in Togo Electricité v. Togo851, the Tribunal held that “under Article 61(1) unlike conciliation, no rule exists with regard to arbitration proceedings, suggesting that the tribunal shall apportion the costs rather than split them. Moreover, in Nations Energy v. Panama852, the Tribunal stated that “Even tribunals strictly applying the PYOWA have recognized that it would be unfair to leave the winning party to bear all of its costs.”

851 852

Togo Electricité v Togo, para 257 Nations Energy v Panama, para 709

265

The Collection of the Best for IMAIL 2021

RELIEF REQUESTED

The Claimant requests this tribunal to adjudicate and declare that: I. II. III. IV. V. VI.

VII.

This Tribunal has jurisdiction over the dispute pursuant to upholding the underlying contract to the BIT. The Respondent is liable for the non-fulfilment of contractual obligations, patent violation and breach of the confidentiality agreement.

Respondent failed to accord Claimants’ investments full protection and security in breach of Article 3 of the BIT. The Respondent has failed in its duty to afford the standard of national treatment required as per Article 4 of the BIT. Respondent failed to accord Claimants’ investments fair and equitable treatment in breach of the BIT; The Claimant must be awarded compensation by the Respondent amounting to no less than USD 670,000,000 plus interest as of the date of the violation; and The Respondent must compensate the Claimant and solely bear the costs of this arbitration.

Submitted on July 25, 2021 By: Team - T-O4N-DASL-AR On Behalf of Claimants

266

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

The Respondent Memorial – Amity Law School, Delhi Amity Law School, Delhi

Ayesha Mohanty, Devanshi Sharma, & Akshat Arora, Authors

267

The Collection of the Best for IMAIL 2021

INDIAN MOOT ON ARTIFICIAL INTELLIGENCE & LAW, 2021 T-04N-DASL-AR-C (R) INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

AVEERON GROUP, Claimant, v.

GOVERNMENT OF WINDIVA Respondent.

ICSID Case No. ARB/XZ/A RESPONDENT’S MEMORIAL 05.08.2021

268

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

SUMMARY OF ARGUMENTS 1. GOVERNMENT OF WINDIVA HAS GROUNDS FOR REFUTING ARBITRAL PROCEEDINGS BEFORE ICSID ¶ The Claimant needs to qualify three conditions for the tribunal to exercise its jurisdiction. This includes subject matter jurisdiction [or rationae materia], parties to the dispute [ rationae personae] and the terms to the BIT. The Claimant does not qualify as an investor as per the terms of BIT [i]. The agreement between the Claimant and Respondent is not as per the terms of BIT [ii] but arises as contracts under domestic legislative framework [iii] ¶ Furthermore, the action is inadmissible before the Tribunal as it violated the Tripe Identity Test [iv] – res judicata, lis pendens and fork in the road.

2. THE RESPONDENT HAS NOT BREACHED THE TERMS OF CONFIDENTIALITY BETWEEN THE PARTIES. ¶ The sale of hybrid UAVs must provide for efficient and reliable technologies[i]. The failure of UAVs could be clearly foreseen by the Respondent [ii]. Since there was no further communication on behalf of the Claimant to provide for aftersale services, there was no breach of confidentiality on behalf of Respondent with the delivery of the UAVs to indigenous companies. [iii] 3. THE RESPONDENT IS NOT LIABLE FOR BREACH OF ART. 3 OF THE BIT ¶ The Respondent submits that they are not liable for breach of Art. 3 of the BIT. It is submitted: Firstly, the loss suffered by the Claimant were due to a Force Majeure event [1.1].

Secondly, In Arguendo, Art. 3 of the Treaty has not been breached as the standard of protection required by the FPS clause is not that of absolute protection, but just that of due diligence [1.2]. Thirdly, in conclusion, the AG cannot ask for compensation in the absence of any breach of the Treaty.

4. THERE HAS BEEN NO BREACH OF ART. 4 OF THE BIT ¶ The Respondent submits that they are not liable for breach of 269

The Collection of the Best for IMAIL 2021

Art. 4 of the BIT. It is submitted: Firstly, the claims of the Claimant are in respect of an event which pre-existed the Treaty [2.1]. Secondly, In Arguendo, even if the treaty provisions are applicable, the standard of national treatment has not been violated [2.2]. Thirdly, the Claimant cannot claim for violation of any Legitimate Expectations and of any duty of Fair and Equitable Treatment [2.3].

5. THE RESPONDENT IS ENTITLED TO THE FULL COSTS OF ARBITRATION PROCEEDINGS

270

The Collection of the Best for IMAIL 2021

ISSUES I. II.

WHETHER GOVERNMENT OF WINDIVA

HAS GROUNDS FOR REFUTING ARBITRAL PROCEEDINGS BEFORE ICSID?

WHETHER THE RESPONDENT HAS BREACHED THE TERMS OF CONFIDENTIALITY BETWEEN THE PARTIES?

III. IV. V.

WHETHER THE RESPONDENT IS LIABLE FOR BREACH OF ART 3 OF THE BIT? WHETHER THE RESPONDENT IS LIABLE FOR BREACH OF ART 4 OF THE BIT? WHETHER THE RESPONDENT IS ENTITLED TO DAMAGES AND THE FULL COSTS OF ARBITRATION PROCEEDINGS?

271

The Collection of the Best for IMAIL 2021

ARGUMENTS ADVANCED PART I: JURISIDCTION 1. GOVERNMENT OF WINDIVA HAS GROUNDS FOR REFUTING ARBITRAL PROCEEDINGS BEFORE ICSID A. THE CLAIMANT DOES NOT QUALIFY AS AN INVESTOR AS PER THE TERMS OF BIT ¶ While its traditional test of incorporation was utilised earlier to determine the nationality of the controlling entity, over the years there has been derogation to its general application.

Nationality requirement’ principles where host government insists the foreign controlled company to be locally incorporated are existing exceptions to this1. Therefore, a company can be incorporated or constituted under laws of host state despite having majority of shares owned by nationals of companies of other Contracting Party. 2 ¶ The effective test of control and management is applied by many tax authorities3, including the CBDT of Government of Windiva. Here, a company will be considered as a tax resident of Windiva, if it is incorporated in Windiva4 or if incorporated outside of the Windiva, if effective control lies within the territory of Windiva. ¶ Further to this, is that if the host state is needed to be treated as a national of another Contracting State, the same must be explicitly in a form of subsidiary agreement. Except knowledge to the host state, there is no formal requirement on the state to treat one of its own nationals as a national of another contracting state due to foreign control.5 ¶ The Claimant established a local subsidiary company, within ICSID Arbitration Rules Aguas v. Bolivia 3 Laerstate BV. 4 Companies Act 2013, Government of Windiva, s 4(7) and 380 5 Amco Asia Corp. v Republic of Indonesia; Klöckner Industries v. Cameroon; 1 2

272

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

the territory of Windiva. This implies that subsidiary company is incorporated and has a separate legal standing, as the corporate documents filed as per the laws of the Windiva6.. ¶ The local subsidiary company, not the same as the Claimant, do not qualify as a national of another Contracting party to the BIT provisions of Article 1.5. 7Thereby, it invariably fails to qualify as an investor as per the terms to BIT. B. THE AGREEMENT BETWEEN CLAIMANT AND RESPONDENT IS NOT IN COMPLIANCE WITH THE BIT ¶ The subject matter jurisdiction, also known as rationae materia, is necessary to establish scope of arbitral tribunal in presiding over the present case. ¶ Firstly, there must be existence of a dispute. This dispute needs to be a ‘disagreement on a point or fact of law8’ where the views result in a legal resolution process910. ¶ Secondly, the said dispute must be legal in nature. The legality of disputes needs to be separated from purely commercial or political contracts to avoid conflicts11. This means that any matter arising out of ‘validity, expropriation or termination of an agreement’ are legal matters, and those involving ‘accounting and fact-finding’ fall outside the scope of ICSID Convention12. Furthermore, a dispute can be legal but nonjusticiable where they must be resolved by the acts of state13. ¶ Thirdly, there must have been an investment and fourthly, the said dispute must arise from the investment. The investment here must mean that any contribution of money or other asset of economic value for an indefinite period. If the period is not defined, the same must not be for less than 5 years14. Even in Moot Proposition, 3.

Moot Proposition, 14.

8 Portugal v Australia; 9 ibid.

10 Methanex Motunui Ltd v Spellman; 11 Michael Tupman; 12 Georges R Delaume; 13 Malcolm Shaw 14, IBRD Convention; 6 7

273

The Collection of the Best for IMAIL 2021

¶

¶

¶

¶

¶

the least of considerations, the investment must be a minimum of three years15.

The investment must of such nature to cause instability. This impacts the application of the principle of state sovereignty where the benefits of investment protection treaty extend to only on property rights. To do anything beyond this. would be to betray the intent and consent of the parties to arbitrate disputes16.

In the case of Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka17, it was held that where the ‘preliminary development, investigative, and other costs in relation to a governmental project which ultimately never proceeded, were held not to be an investment.

The element of risk which impacts investment must also be placed upon the investor. If the risk is placed through a service agreement where substantial prior payment is requisite for the performance, it cannot be considered an investment18. The risk must be justified to the protection sought under treaty obligations19. If the state entity put its own money into the project, the same is not considered an investment.

In the present case, as per the terms of contract between the parties, the manufacturing of the UAVs is entirely funded by the Government of Windiva, where the Claimant only delivers the said UAVs after the payment20.

The term of contract between the said parties is only for 2 years21. Therefore, through this agreement, there is no substantial contribution of money for an indefinite period by the Claimant to the Host State. Moreover, even if we assume the Claim is an investor as per terms of BIT, the said agreement has not caused any instability. The said dispute does arise on Salini v. Morocco; CME v Czech Republic; 17 Mihaly v Sri Lanka;.

18 Schreuer,140.

19 Noah Rubbins, para 283–324.

20 Moot Proposition, 4 21 ibid.

15 16

274

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

the issues pertaining to validity, expropriation, or termination of the agreement. Therefore, the failure of the agreement to qualify as investment negates the said protection under investment treaty.

C. THE SAID AGREEMENT ARISES UNDER THE DOMESTIC LEGISLATIVE FRAMEWORK

¶ A breach of contract and violation of treaty are substantially different. While international obligations on state are enforced through an investment treaty, contracts are under domestic control22. The breaches conducted as an ordinary commercial partner in commercial agreements thereby, are not susceptible to invoke State international responsibility23. ¶ As per the Companies Act24, a subsidiary company refers to a subsidiary of a holding company which may or may not be incorporated within India25. The subsidiary company of the Claimant is said to have a separate legal standing of its own, with its source of income being generated26 and place of effective management being within India27. Paragraph 3 of ¶ Centrally managed and Control is one of the widely accepted taxation residency tests. In the De Beers Case28, it was held that place of CM&C is where the company “really keeps house and does business” and includes place where business operations and financial dealings take place. ¶ For clarifying the doctrine of place of effective management, Para 24 in the Commentary to Article 4 of OECD Model Tax Convention29 suggest that “The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the Jan Ole Voss, 173.

Crawford, p. 96.

24 (2013), s 2(87).

25 n 24, s 2(46).

26 Information Technology Act 2000, s. 6(3) 27 OECD Model Tax Convention 28 (1906) AC 455 29 OECD, n 25.

22 23

275

The Collection of the Best for IMAIL 2021

enterprise’s business are in substance made.” ¶ It is important to understand the place where key decisions are made, including the place where business operations are conducted, and legal factors like where the local offices are registered.30 ¶ The Claimant, in the present case, has also complied with the separate registration process for the subsidiaries in the Special Economic Zone, where the legal standing of the company is different from the place of business located outside the SEZ31. ¶ Even if the Claimant asserts that outcomes of the regulations under taxation are discriminatory in comparison to indigenous industries, the Model BIT of the Government of Windiva, restrict the scope of taxation to arbitral proceedings. Such decisions are only limited in their application under domestic proceedings. ¶ Furthermore, in the case of Salini v. Jordan32, it was held by the tribunal that “An investment protection treaty cannot be used to compensate an investor deceived by the financial results of the operation undertaken, unless he proves that his deception was a consequence of the behaviour of the receiving State acting in breach of the obligations which it had assumed under the treaty.” ¶ Even, if we assume that the Claimant qualifies as an investor under BIT, the nature of violation is still subject to puissance publique test.33 ¶ Here, the Respondent In the exercise of its sovereign authority (“puissance publique”), and not as a contracting party, may breach the obligations assumed under the BIT. In other words, the Ibid, CGST (Amendment) Act 2018, art 25 (1) 32 Salini (n 15).

33 Bayindir v. Pakistan; Waste Management,172–74; 30 31

276

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

investment protection treaty only provides a remedy to the investor where the investor proves that the alleged damages were a consequence of the behaviour of the Host State acting in breach of the obligations it had assumed under the treaty34.

¶ Even if we assume that the Respondent failed to perform their contractual obligations, yet this will not result in a breach of treaty provisions, “unless it be proved that the state… has gone beyond its role as a mere party to the contract, and has exercised the specific functions of a sovereign35”. Therefore, the assertion that the Respondent failed to protect the legal possession of the Claimant and changing the taxation regulatory framework, does not prima facie establish jurisdictional proceedings under ICSID36. ¶ Defense contracts, like the one generally attached with offset agreements where the privilege in the main contract are offset by additional contract37. They directly accompany the main contract where it is obligatory on the supplier to invest half of its stakes in a locally incorporated industry or in research and development under the Buy [Global-Manufacture in India] Agreement38. ¶ Moreover, under the recent FEMA regulations39, defencerelated industries which will result in access to modern technology is currently set at 74%. However, this is still subject to compulsory licensing under the Industries Development Regulation Act’1951. The final authoritative control of the related manufacturing industries in defence sector is also within the control of the Government of Windiva40. ¶ All the afore-mentioned provisions suggest that the contracts emerge under the domestic legal framework and do not raise Impregilo v Pakistan; Azurix v Argentina, p.53; 36 Toto v Lebanon, p. 201-02.

37 Hail Rahman;.

38 DPP 2020; 39 Press Note 4 of 2020 40 Industrial Development and Regulation Act 1951, Schedule 1.

34 35

277

The Collection of the Best for IMAIL 2021

investment-related contract under the BIT. Thereby, the jurisdictional scope and validity of the breaches of such agreements are limited to the Courts of Windiva.

D. THE CLAIMANT’S CLAIMS ARE INADMISSIBLE BEFORE THE ARBITRAL TRIBUNAL AS LAWSUIT IS FILED BEFORE THE DOMESTIC COURTS OF WINDIVA 1. The Claimant Actions violate the Triple Identity Test ¶ The triple-identity test is usually utilised by tribunals to determine the application of treaty arbitration and differentiate them from contractual claims41. They are primarily used to describe the legal doctrines of lis pendens, res judicata and fork in the road clause. ¶ The doctrine of lis pendens applies where actions are identical if their procedural circumstances are, on the same cause of action and between the same parties42. Parallel proceedings of courts on same subject matter and between same parties have been applied in stricto sensu where the jurisdiction of the first court is held valid and any court other than first court is denied of the opportunity to hear the case until a decision is met43. ¶ The fork in the road clause requires an investor to make the claim either before the international tribunal or before the domestic court. This has been done to avoid the duplication of proceedings concerning the same dispute with same cause of action. ¶ This has also been specified under Article 26 of the ICSID 44 that states “Consent of the parties to arbitration under this Convention shall, unless otherwise stated, be deemed consent to such arbitration to the exclusion of any other remedy. A Contracting State may require the exhaustion of local Azurix (n 33) para 53-54; Occidental v Equador; Maschinenfabrik v Palumbo; 43 Brussels Regulation; 44 ICSID Convention (n 1) art 26 41

42Gubisch

278

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

administrative or judicial remedies as a condition of its consent to arbitration under this Convention.” ¶ Furthermore, claims brought before local courts are claim are usually by locally established subsidiary against a regional or local administrative authority as against a foreign investor45. ¶ In the present context, the dispute if brought to the notice of the domestic courts would be by the local subsidiary company of the Claimant. As per the afore-mentioned paragraph, the Claimant does not qualify as an investor to the treaty, thereby the same cannot be even initiated under treaty claims before ICSID. ¶ To avoid procedure of duplication by dismissal of claims46, obligation is on the Claimant to select a ‘dispute resolution mechanism ab initio’ where once one of the routes is selected, the possibility of choosing the other is excluded47. Hence, even if the Claimant is considered an investor, he cannot pursue the same dispute where domestic recourse is still available to him. ¶ The pursuance of local remedies and the rule of exhaustion also emphasise a time-limited requirement mandatory as a condition to BIT, if not complied with by the investor prompt a tribunal to dismiss case on jurisdictional grounds 48.This alternative jurisdictional ground includes local litigation pursued in the domestic courts49. ¶ For a court to amount to a denial of justice at international level, the same must have been issued by the judiciary as a measure of last resort. A mere failure of dispute resolution process where effective and adequate appeals are reasonably available could not engage the state international responsibility50. ¶ Even if a breach of contract violated the FET standard, “the Schreuer, 231, 247–248 Pantechniki v Albania; 47 Supervision v Costa Rica 48 Emilio v Kingdom of Spain, Impregilo ; Siemens v Argentine.

49 Omer v Romania; 50 Loewen v United States of America; Jan de Nul v Egypt;.

45 46

279

The Collection of the Best for IMAIL 2021

continued unhindered availability of a contractually agreed forum… would be a significant factor imposing an additional hurdle for a claimant to overcome51 ¶ Thus, the notion of exhaustion of local remedies must be incorporated as a substantive standard and not a procedural requirement, where the domestic judicial system have been tried and failed,52 and a denial of justice does not arise until a there is a reasonable opportunity to correct aberrant judicial conduct has been given to the system as a whole. 53 ¶ The Claimant filed for breach of contract before the Courts of Windiva, where the possible appeal of decision could have been pursued through various legal institutional processes. Yet, despite the existing local remedies, the failure of the Claimant to take affirmative actions in regard to the same and initiate parallel proceedings negates the fundamental principles of justice.

PART 2: MERITS 2. THE RESPONDENT HAS NOT BREACHED THE TERMS OF CONFIDENTIALITY BETWEEN THE PARTIES ¶ For any act to qualify as a countermeasure, there are certain conditions established under customary international law that must be specified54. Here, the conduct of the investor is taken in response to a previous international wrongful act of another State and [...] directed against that State55. ¶ In the present case, the sale of hybrid UAVs must have been provided with efficient and reliable technologies[i]. The failure of UAVs could be clearly foreseen by the Claimant [ii]. Since there was no further communication on behalf of the Claimant to provide for after-sale services, there was no breach of Bureau Veritas v Paraguay,.

Waste Management (n 31).

53 Pantechniki (n 46) para 9.

54 International Law Commission, art 49.

55 Gabčíkovo-Nagymaros Project.

51 52

280

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

A. ¶

¶

¶

¶

¶

confidentiality on behalf of Respondent with the delivery of the UAVs to indigenous companies. [iii] THE SALE OF UAVS MUST PROVIDE FOR RELIABLE AND EFFICIENT TECHNOLOGIES. Firstly, an injured party can only take countermeasures against another when there has been an internationally wrongful act for the another that it should have initially complied with.

Secondly, they are limited to non-performance at the time the international obligations for taking measures towards responsible parties. Thirdly, they must only be taken to the extent to permit the resumption of such obligations if they have not been complied56.

The Unmanned Aerial Vehicles require open channels to protect and secure transmission of data and provide strong efficient information security systems. This usage of information security system thereby requires two dimensionsCryptography and information hiding57.

Cryptography can be used for encryption and decryption of the data into ciphertext which makes the subject meaningless and hard to understand. This mechanism provides secret data to remain undetected and can be further subdivided into digital watermarking, noise detection, signal audio, image, video, etc58.

In cases of camouflages, reverse embedding is required for military applications where the embedding secret message bits are covered and lose the original message59. This data that is usually irreversible, becomes reversible60.

The evaluation of such image reverse embedding using stenography methods and is based on parameters like hiding capacity, visual quality, imperceptibility, security, and detectability parameters61. This secure high-capacity image stenography can be used for high embedding capacities and 56Ibid.

Khan Muhammad & Ors, 81-91.

Km Pooja & Aravind Kumar, 120-25.

59M Douglas & Ors., 17333–73.

60 Farzan Aziz, 61 Ratnakriti Ro, para179-196.

57 58

281

The Collection of the Best for IMAIL 2021

¶

¶

¶

¶

¶

¶

additional six quality of hidden content pixel optimisation provide for enhance capacity and improved visual quality.

Camouflages as an element of military deception permits state to retain its security and to remain hidden within striking distance of the enemy, during situations of conflict. This concealment and deception increase the defensive action to mislead enemy inflicting from damages62. However even if an MBT is perfectly camouflaged, the possibility of eventual deception can always be intercepted by UAVs. This takes place through indirect observation, the use and study of a photograph or image of the subject. The cameras used by the Unmanned Aerial Vehicles are equipped with different types of lenses and technologies that have provided greater scope to travel distance and observe clearly, even imperceptible to many military bases63.

The notion of legitimate expectations is a result of balancing interests and rights and varies according to context64. It is assessed in due regards to the rights of the state. In Oostergetel65, the stability of legal and business environment does not equate immutability of legal framework and less to meet expectations must be measured through a balancing test taking account to specific circumstances.

In the present case, the procurement of Unmanned Aerial Vehicles was done through a highly competitive bidding process66. The Respondent decided to secure a contract with the Claimant owing to the expertise they have with manufacturing of Unmanned Aerial Vehicles within the host country.

Furthermore, the sale of unmanned aerial vehicles on behalf of the claimant were of hybrid quality. They do not require human intelligence at the very core of monitoring operation activities.

Thereby, there exists legitimate expectation on behalf of the Report of the Department on Field Lumenera Corporation Report 64 El Paso v Argentina, ICSID Case No. ARB/03/15, Award (27 th April 2006).

65Oostergetel; 66 Moot Proposition, 3.

62 63

282

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

Respondent that they shall be endowed with advanced and reliable technology, effective for use without failures.

B. THE

FAILURE OF UNMANNED AERIAL VEHICLES COULD BE CLEARLY FORESEEN BY THE CLAIMANT

¶ The network centrality analysis provides unmanned aerial vehicles create avenue for managing the navigation systems and communication technologies.

Flight control communication, technology control and function further need high connection centrality areas and provide the UAVs better navigation control67. ¶ Many UAVs use cloud computing proponents which are resilient, secure, scalable, agile, responsive, and supportive of information sharing than many computer hard drive storage or servers over network areas. ¶ Big data or large data sets in artificially intelligent vehicles can be computed and analysed to reveal patterns, trends and associations and are composed of large volumes of data, velocity of data flows and integrate variety of sources68.

Artificially unmanned aerial vehicles have the capabilities to analyse big data faster than humans speeding the decisionmaking process. Thereby, it is extremely crucial that the defence systems respond to threats at a machine speed. ¶ Automatic target recognition has been extensively used over the last decades to reduce collateral damage and fratricide targetin69g. This pattern and data domains have been increased due to IR technologies. ¶ The current camouflage counter techniques utilise appealing features that enhance portability of detection and reduce false alarm rate. This is due to the improve weapon effectiveness against camouflage concealment and deception techniques ¶ Laserbeam like small spot size, enables penetration of sparse structures providing UAVs easier identification. They can Ganchimeg Battsengel & Ors. Uthayasankar Sivarajah and Ors, 263-286.

69 Nabil Auof & Ors., 47, 49.

67 68

283

The Collection of the Best for IMAIL 2021

¶

¶

¶

¶

successfully handle missiles at various altitude obliquity is distances to target unseen resolutions. Regardless of the operational scenario many algorithms can be exploited and a broader potential for time critical intelligence systems provide for space and ground environments for military enforcement. Multispectral camouflages can also conceal objects from detection from several wavelength of electromagnetic spectrum. Using calibration spectra stimulated images and operation backgrounds, concealed objects can be identified in an operational environment.

Even if there exist challenges in navigation systems, reliability of unmanned aerial vehicles with regards to maintenance and safety, have become important over the years. The probability that a subsystem can perform a specific function in a preestablished time in a pre-established condition expresses its reliability.

It reduces repair and maintenance costs over the years for the UAVs. Furthermore, it at suffices all critical elements that increase the failure rate and assess the value of failures and related system preventing predictability of overall number of components due to such failures.

Yet reliability studies are intrinsic apparatus conducted after the design phase and require a series of recommendations that can impact the product quality by its designer70s. This quality assurance responsibility and aim to find minimum limits of requirements to have least magnitude offer for better reliable conditions.

Despite the navigation systems of having higher failure rate due to high level of electronic miniaturisation it is possible to replicate many sub-subsystems making it intrinsically reliable.

Furthermore, upon the failure of primary systems due to strong integration and the development of automated applications, highly reliable electronic components can be benefited using computing capacities.71 70 71

Ambar Israr & Ors.,p 1-15 ibid

284

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶ In case of after sale services, primarily three conditions are needed to be fulfilled –Firstly, project basis of durable goods or capital goods with complex technical systems. Secondary configuration provider provides for distribution and disposition of life-cycle support. Thirdly, the impact quality and logistics issues in new technologies and develop new support approaches. Procurement repair and maintenance services increase transition of resource base contracting and material contracting to performance-based logistics which are an integral part of after sales services72. ¶ Moreover, the benchmarking of data collected as a best practice can also improve the performance of the companies and determine future market trends thus increasing industrial learning. Consequently, network optimisation functions for performance levels provides for stimulus to demonstrate are of technological considerations to develop future security. ¶ The transfer of technology for maintenance infrastructure requires the maintenance to be carried out through an Indian manufacturing unit73. They shall be responsible for the entire life-cycle support of the equipment and has been clearly specified under the procurement rules. ¶ The capability substance along with capability acquisition that aligns maintainability performance and reliability of the operational life of the product requires 3 to 5 years beyond the warranty period. This is also inclusive of performance-based logistics and maintenance and repair services ensures serviceability of equipment for predetermined annual periods.

It also requires the claimant Indian subsidiary stock a specified class of equipment to carry out repairs, as per requirements74. ¶ The lack of Claimant’s responsibility to provide for reliability assurance for the Unmanned Aerial Vehicles shows their disinterest in fulfilling the terms of contract. Moreover, when Andrzej Szymonik, Logistics and Supply Management, Lodz University of Technology, A Series of Monographs (2012) 73 DPP 2020 74 ibid 72

285

The Collection of the Best for IMAIL 2021

studies mention clearly that hybrid UAVs have efficient technologies that can intercept the camouflaging, the delivery of sub-standard manufactured UAVs on behalf of the Claimant provides evidence that they do not want to meet the basic terms of the agreement.

C. THERE

WAS NO BREACH OF CONFIDENTIALITY WITH THE TRANSFER OF UAVS TO INDIGENOUS COMPANIES

¶ Confidential information includes information that a company or an individual creates, discovers, acquires through confidence and the improper disclosure of which would be harmful to the owner. This can be inclusive of software programs, business plans marketing plans, formulas, etc. Trade secrets can be understood as information or instruments where the responsibility lies on the owner to protect, and they’re not disclose to anyone including the government and it kept strictly confidential75. ¶ With reference to trade secrets the same does not offer protection under the legislative measures of the government of Windiva, neither are they recognised under the TRIPS agreement. ¶ Art. 3976 explicitly recognises the protection of undisclosed information, and exceptions to such is limited to 3 conditionsFirstly products that are pharmaceutical, chemical and agricultural products. Secondly, the product is provided protection against unauthorised commercial use and thirdly, government authorities exempted from the requirement of confidentiality in public interest. ¶ The information itself must certain standard and quality of confidence to be considered a trade secret alongside the circumstances of importing an obligation of confidence.

Thirdly, there must be unauthorised use of information detriment to the party communicating it. Here, the purpose of assessing an intellectual property asset must be analysed in 75 76

Frequently Asked Questions on Trade Secrets; TRIPS Agreement (1995)

286

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

¶

¶

¶

relation to the claimant’s economic activity in the host state77.

Trade secrets unlike other intellectual property however do not confer any right on the holder78. So even if under the patent protection the rights are given to the patent holder, they impose no duty on the other person to protect them. Cause of action in case of misuse of trade secrets can only arise in case of breach of contract and not in just enrichment of trade secrets.

Furthermore, trade secrets are not offered protection in the form of exclusive rights79. The scope of investment must cover a wide range of economic operations confirming the broad scope of application. The limits must not in compass a single commercial transaction like the mail delivery of goods against payment of price.

The treaty protection of foreign investment cannot exclusively be determined by foreign investors subjective motivations and expectations that must be protected and rise to the level of legitimacy and reasonableness in the light of circumstances80.

Inappropriate and unrealistic assessment may suggest the application of the tentative rule of thumb to determine whether expectation of protection extend beyond the scope of the state’s discretion to regulate the areas of public concerns.

In the present case, there has been repeated attempt on behalf of the Respondent to communicate and inquire the causes of failure of the Unmanned Aerial Vehicles81. The Claimant while dismissing the failure of UAVs as counter measure, did not respond after further clarification on the qualification of countermeasure and their liability to provide for after-sales services.

For 4 months, with no further communication on behalf of the Claimant to carry out after-sales services which they had

Adity Chaudhary and Ors, Tania Voon,.

79 ibid 80 Myers v Canada, p. 250.

81 Moot Proposition, 4.

77 78

287

The Collection of the Best for IMAIL 2021

promised to fulfil as a part of their contractual obligations82. ¶ The circumstances around the Respondent to deliver the unmanned aerial vehicles to the indigenous companies was of last resort, to understand the challenges to algorithmic camouflages. There has been no further information provided on behalf of the Respondent to the companies which would result in breach of confidential information and thereby cause material loss to the Claimant. ¶ In the light of present circumstances there has been no breach of confidentiality on behalf of the Respondent.

3. THE RESPONDENT IS NOT LIABLE FOR BREACH OF ART. 3 OF THE BIT ¶ The Claimant’s contention that GOW breached its obligations under Art. 3 of the BIT is without merit as the loss suffered by the Claimant were due to a Force Majeure event [1.1], In Arguendo, Art. 3 of the Treaty has not been breached as the standard of protection required by the FPS clause is not that of absolute protection, but just that of due diligence [1.2]. In conclusion, the Claimant cannot ask for compensation in the absence of any breach of the Treaty [1.3].

A. THE LOSS SUFFERED BY THE CLAIMANT WERE DUE TO A FORCE MAJEURE EVENT ¶ ILC’s Articles on State Responsibility provide for ‘circumstances precluding wrongfulness’83 which include circumstances where a State is compelled or coerced by external supervening events outside the state’s control, for e.g., a force majeure event.84 ¶ In order to successfully invoke the defence of ‘force majeure’, the State must fulfil three conditions. First, the event of force majeure must be due to either an irresistible force or an unforeseen event. Second, the force majeure act must be beyond the control of the state. Lastly, the unforeseeable, irresistible ibid Draft Articles on Responsibility of States.

84 Jure Zrilič, 28, 56.

82 83

288

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

and uncontrollable event must make it materially impossible for a state to perform the obligation.85

1. The occurrence of an Irresistible Force or an Unforeseen Event ¶

¶

¶

The ICC Clause, which amalgamates elements of the previous ICC Force Majeure Clause 1985, the CISG, the Principles of European Contract Law (PECL) and the Unidroit Principles for International Contract (UNIDROIT) which is a model clause that reflects the emerging consensus about what is required to establish a force majeure defence86, defines FM in the following way- Firstly, an event is considered unforeseeable when it could not have been foreseen at the time the agreement laying down the obligation breached was concluded.87 While ‘foreseeability’ is an accepted qualifying condition of the FM defence, the degree of foreseeability determines success of FM. In Spanish Zone of Morocco,88 the arbitrator held that the state cannot be held responsible for the mere fact there was a conflict, whether a riot, rebellion, civil war or international war; nor cannot be held responsible for the fact that those events gave rise to damage in its territory.89 It was further observed that such events must be treated as ‘cases of force majeure’. 90 The same was also held in RSM Production, even though CAR was politically unstable and outbreaks of violence had not been uncommon, the tribunal held that the conflict situation in question was not foreseeable and thus the FM defence was upheld.91 Moreover, in a recent ICC case, Gujarat SPCL, the threshold of unforeseeability was further lowered. It was observed that James Crawford,172–73, 178.

Mark Augenblick.

87ICC Force Majeure Clause 2003 - Hardship Clause 2003, Int’l Chamber of Commerce (2003), ICC Publication, 650.

88 Great Britain v Spain,p. 639, 642.

89 ibid 90 ibid 91 RSM v Central African, p. 180, 185, 211.

85 86

289

The Collection of the Best for IMAIL 2021

¶

since the clause did not include the condition of ‘unforeseeability’, the tribunal concluded that riots and insurrection did not need to be unforeseeable for the force majeure clause to apply.92 What was crucial, according to the tribunal, was not the existence of the force majeure risk at the time of contracting, but rather whether there was a ‘significant and sharp increase in risk beyond what was contemplated by the parties at the time of contracting.’93 Moreover, the threshold of foreseeability for States cannot be so high that it renders the defence practically useless or successful invocation of the defence impossible. This impracticable and high standard is problematic as it does not allow states to prioritise regarding their protective policies. If everything is foreseeable and states ought to be proactive regarding any possible harmful event, then they will never be able to concentrate on those risks that are indeed foreseeable. Further, most impediments are foreseeable unless the type of event is specifically listed in the force majeure clause, virtually no external event will be deemed unforeseeable and constitute force majeure excusing contract performance.94 Moreover, this arbitrary threshold renders inclusion of the defence infructuous since states will never be able to discharge the burden and will inevitably suffer even if the circumstance at hand was one which was fortuitous. This is also against the good faith principle which imposes an obligation on Tribunals to give the treaty standards the widest possible interpretation.95

2. Beyond the control of the State ¶

The force majeure act must be beyond the control of the state.

This does not imply that it must be absolutely external to the state invoking the defence. As the UN Secretariat Study states, force majeure can be applied even in cases when activities or omissions giving rise to it stem from the state itself, as long as Gujarat State Petroleum v the Republic of Yemen, para 150.

Gujarat State Petroleum (n 93) para 159.

94 Mark Augenblick.

95 Vienna Convention Art 26.; Jure Zrilič, 28-56.

92 93

290

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

they are not attributable to the state as a result of its wilful behaviour.96 The determining factor is the foreseeability of the fortuitous event. The circumstances in which the attack is of a sudden nature, the government cannot be held responsible for having failed to prevent it.97 For instance, Venezuela was not held responsible for having failed to prevent the looting of the US property since, “the raid was one of those occasional and unexpected outbreaks against which ordinary and reasonable foresight could not provide”,’98 Similarly, the Venezuelan government rejected the responsibility for acts of insurgents since injuries in internal disturbances “are disasters for which Governments cannot humanely be held responsible, just as they are not answerable for…disorders arising from mob violence or civil strifes.”99 Further, in General Dynamics, an ICC tribunal upheld the force majeure defence invoked and excused Libya’s liability.100 Moreover, in Gould Marketing, the Tribunal found that the strikes and riots constituted “socio-economic forces beyond the power of the state to control through the exercise of due diligence” and were, therefore, classic force majeure conditions and prevented the state from carrying out its obligations.101

3. Impossibility of Performance ¶

The threshold of impossibility created by the supervening event, which is required for the successful invocation of the force majeure defence, is lower than in international law. 102 The ICC model force majeure clause, adopts a lower threshold test for invocation of force majeure than “impossibility” of performance and states that force majeure is invoked when the performance of contractual obligations is impeded, rather than

UN DOC S/CN 4/315, 61, 70.

Szurek, S.475-480.

98 J. Moore 99 Julius Goebel,847-8.

100 General Dynamics v State of Libya, para 254.

101 Gould Marketing, Inc. 102 Libya v U.S.A, para 186.

96 97

291

The Collection of the Best for IMAIL 2021

¶

¶

¶

made impossible.103 As emphasised, the ‘test of commercial reasonableness’ should be used when assessing the criterion, 104 which lowers the bar from the standard of ‘impossibility’ to the level of commercial ‘impracticability’.105 Moreover, the trend towards the lenient standard of ‘impracticability’ is further reflected in codification of international commercial rules and customs. CISG codifies force majeure in Art. 79 as an impediment beyond party’s control’106 and the same accommodates situations of absolute impossibility and cases of increased difficulty of performance.

UNIDROIT Rules follow the same approach.107 Moreover, some scholars argued that these developments indicate an autonomous standard that emerged from the practice of international merchants and forms part of the new ‘lex mercatoria’.108 Thus, in short, a balancing approach is required, not a hard and fast rule.

In the instant case, the Respondents are protected under Art 3.3 since ‘armed conflict’ includes riots, revolutions etc. 109 The civil unrest and protests that took place very clearly fall under the purview of exception of Art 3.3. The same can be deduced on account of the following factorsThe events in question were not easily foreseeable and irresistible as they were sudden and unexpected in nature.

There is no way the GOW could have foreseen violent protests of such a degree taking place. Further, as was observed in RSM Production, civil and political turmoil constitutes an unforeseeable event and justify the invocation of the FM defence. Moreover, in cases of a broadly worded FM clauses, like the one in the instant treaty, Tribunals have held that since it’s a treaty standard, unforeseeability is not always required for the VCLT (n 96) s 6.

VCLT (n 96) s 12.

105 Mark Augenblick.

106CISG Art.79 107 Joseph M. Perillo,.

108 David R. Rivkin, 208.

109 Article 3, Moot proposition, 16.

103 104

292

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

defence to be successfully invoked. Hence, the civil unrest and riots were unforeseeable and irresistible.110 Moreover, it was a case of strikes and riots which constitute socio-economic forces beyond the power of the state to control through the exercise of due diligence and are classic force majeure conditions111 and are beyond the control of the state. Lastly, as is required by the ICC clause, the event should act as an impediment in the state’s fulfilment of the obligation.

In the instant case, the armed conflict at hand prevented GOW from honouring its obligations.

B. IN ARGUENDO, ART. 3 OF THE TREATY (FPSS) HAS NOT BEEN BREACHED

¶

¶

As observed by Dolzer, the obligation imposed on a state with respect to FPS standard is not that of strict liability, but rather that of ‘due diligence’.112 The standard of ‘due diligence’ as defined by Freeman, imposes an obligation of exercising ‘reasonable care’ and nothing beyond that. While analysing the scope of ‘reasonableness’, Tribunals must take into account “the level of development and stability as relevant circumstances in determining whether the state acted with due diligence.” 113 In determining the parameters of such 'reasonable measures,' some tribunals considered it appropriate to take into account the state's particular circumstances, including factors such as its level of development and stability, and availability of resources and capacity to deal with the circumstances that give rise to the injury.114 Further, while determining the level of protection guaranteed, the FPS standard “must not be strictly objectified and applicable throughout the world; instead, its content must rather vary depending on the situation in the respective state”115. The host state is not 110Gujarat

State Petroleum Corporation Limited, Alkor v the Republic of Yemen Gould Marketing, Inc.,.

112 Dolzer and Stevens (n 70) 61. See also R Dolzer and C Schreuer,, p. 149, 150.

113 Newcombe, and Paradell, para 310.

114 Ulyana and Levon, 26.

115 Zeitler, H. E, p 201.

111

293

The Collection of the Best for IMAIL 2021

¶

¶

¶

responsible for preventing each and every injury to foreign investment what is required to exercise due diligence in its efforts to protect and secure the investment.116 Moreover, as was observed by the Tribunal in the ELSI case, the mere inclusion of the FPS standard does not guarantee that the property will never in any circumstances be disturbed.117 As was observed in Paushok wherein the Tribunal held that the obligation is generally understood as requiring that the State takes reasonable actions within its power “to avoid injury when it is, or should be, aware that there is a risk of injury.”.118 In Pantechniki the question was considered of whether the state has acted with due diligence must be considered with regard to the conditions in the recipient country and therefore due diligence may differ in different states depending on their level of development and options they have at their disposal. In Tulip, the tribunal noted that “the question of whether the State has failed to ensure FP&S is one of fact and degree, responsive to the circumstances of the particular case”.119 Similarly, in Tecmed v Mexico, the Tribunal held that the Mexican authorities had encouraged, fostered or contributed to the actions in question and not reacted reasonably, in accordance with the parameters inherent in a democratic state, to the direct-action movements.120 Moreover, in Noble Ventures, the Tribunal rejected the respondent’s claim finding that it was difficult to identify any specific failure on the part of Romania to exercise due diligence in protecting the Claimant.121

Electrabel S.A. v Republic of Hungary, para 7.83; Plama v Republic of Bulgaria, Allard v Government of Barbados, para 244; Tecmed, S.A. v United Mexican States, Von Pezold v Republic of Zimbabwe, para 596; Ampal v Egypt, para 241; Copper Mesa Mining Corporation v Republic of Ecuador, Vanessa. v Venezuela, para 223.

117 United States of America v Italy.

118 Sergei Paushok, para 325 119 Tulip v Turkey, para 430.

120 Tecmed S.A, v United Mexican States, 121 Noble Ventures Inc. v Romania, p. 164–6.

116

294

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

¶

Furthermore, in British Property in Morocco case and Lauder v. Czech Republic122, the Tribunal confirmed the absence of any direct responsibility of the State for the commission of the act itself123 noting that what exists is a duty of vigilance, not that of absolute protection. It is only responsible for averting the event, not for the consequences of the same. It was further observed that responsibility for the action or inaction of public power is completely different from responsibility for acts attributable to individuals who are beyond the influence of the authorities.124 Moreover, the Tribunal needs to keep in mind the sovereignty of the host state125 and that in the assessment of the applied measures it must also be accepted that every state is in the position to best estimate when and how to intervene.126 The tribunal in the Louis Dreyfus held that the host state merited deference on judgement calls it made about security threats127 holding “tribunals should be wary of second-guessing… except where the evidence suggests bad faith, improper intent, or a serious lack of due diligence in response to a reasonably foreseeable and otherwise manageable threat”.128 The Tribunal found that the state's security apparatus was acting in good faith in choosing its approach, based on available information 'on the foreseeability of unrest in a particular area, the extent of available resources, and competing demands for allocation of those resources among other areas potentially also in need of law enforcement protection'.129 In the instant case, AG’s allegation of GOW’s violation of Art. 3 is without merit as the actual standard of protection guaranteed by the FPS standard has not been violated. The Lauder v Czech Republic, p. 310.

Britain v Spain, p. 639, 642.

124 Great Britain (n 124) para 642.

125 Orsat Miljenić, ‘Full Protection and Security Standard In International Investment Law’, Pravni Vjesnik God. 35 Br. (2019) 3-4.

126 Zeitler, H. E., p. 203-06.

127 SAS v Republic of India, p. 382.

128 Ibid.

129 Louis Dreyfus (n 128) paras 382-83.

122

123Great

295

The Collection of the Best for IMAIL 2021

¶

Respondent’s duty owed to AG was that of due diligence and not an absolute warranty that the property will never be harmed. Further, the burden of proving that the due diligence standard has not been fulfilled is on the Claimant and the same has not been discharged. The Respondent further asserts that the events surrounding the civil unrest and protests did not amount to a breach of the FPS clause of the BIT. Following Pantechniki, the GOW cannot be held responsible and incur international responsibility for failure to plan for unprecedented trouble of unprecedented magnitude in unprecedented places.130 It has already been established that the events in question qualified as FM events and were therefore, not only unforeseeable and irresistible, but also beyond the control of the state [1.2]. GOW’s liability did not extend to actions of a third party which are beyond the influence of the authorities as the duty owed to the investor is not that of absolute protection, but rather of mere vigilance and the same was discharged.131 Moreover the adequacy of measures depends on the foreseeability of the events and the time the state has at hand to respond and owing to the unforeseeable and irresistible nature of the unrest and protests, GOW could not discharge its obligations. Furthermore, the host state merited deference on judgement calls it made about security threats. Thus, GOW is entitled to the benefit of doubt since the Claimant has not discharged its burden.

C.

THE CLAIMANT CANNOT ASK FOR COMPENSATION IN THE ABSENCE OF ANY BREACH OF THE TREATY

¶

The logical consequence of a successful invocation of a defence which precludes wrongfulness is that the state will not be held liable for the damage caused as the circumstances that led to the same are not attributable to the state.132

Pantechniki v Republic of Albania, p. 89.

Great Britain v Spain, p. 639, 642.

132 Report on State Responsibility 130 131

296

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

¶

¶

¶

The Venezuelan government was held not liable for acts of insurgents holding that injuries sustained by foreigners in such internal disturbances ‘are disasters for which Governments cannot humanely be held responsible, just as they are not answerable for natural disasters or other disorders arising from physical causes.’133 Further, the commentary to Article 27 recognizes that certain circumstances will result in the termination, rather than the suspension of, an obligation; this result is also consistent with the approach taken by the Vienna Convention on the Law of Treaties.134 Moreover, in CMS, the tribunal concluded that circumstances precluding wrongfulness of its actions precluded compensation also.135 The CMS tribunal accepted that Article 27 of the ILC Articles reflected customary international law, and noted that no compensation be awarded.136 Similarly, in LG&E the Tribunal in question established the defence invoked as a circumstance precluding wrongfulness and thus, the state was exempted from liability.137 Moreover, allowing the investor’s claim for full compensation would tend to make even a successful assertion of a defence appear to be a hollow victory. Restraining the compensation available suggests that there could be some benefit to a State in establishing a successful defence and that the dispute resolution process is a fair one which treats both the parties to the despite at equal footing.138 In the instant case, the Respondent cannot be held liable to pay compensation as no wrongful act can be attributed to it.

4. THERE HAS BEEN NO BREACH OF ART. 4 OF THE BIT

M. T. Pulido Santana Crawford, 135 CMS v Argentina, para 306.

136 CMS (n 136) para 390.

137 LG&E (n 112) para 260 138 ibid.

133 134

297

The Collection of the Best for IMAIL 2021

A. THE CLAIMS OF THE CLAIMANT ARE IN RESPECT OF AN EVENT WHICH PRE-EXISTED THE TREATY ¶

¶

¶

It is a settled principle of international law that a treaty becomes binding upon ratification. In fact, most modern treaties provide that they will enter into force only upon ratification by the states that are to become parties to the agreement.139 It is crucial to determine the stage at which the treaty becomes binding because it is at that point that the obligations mentioned in the treaty become binding.140 Moreover, unless the signatories provide otherwise, a treaty has no retroactive effect.

This principle is enshrined in Article 28 of the VCLT.141 Further, it is only once the treaty is ratified and does enter into force that the principle of pacta sunt servanda comes into play.142 The importance of ratification has also been highlighted by the following two international decisions - North Sea Continental Shelf Case,143 where ICJ refused to hold Germany bound by the provisions of the Geneva Convention on the Continental Shelf which it had signed but not ratified. Similarly, in Territorial Jurisdiction of the International Commission of the River Oder the PCIJ concluded that the Barcelona Convention could not be relied on against Poland as it had not ratified the treaty.144 In the instant case, GOW had ratified the treaty in 2022. The alleged violating relates to an event that took place in 2019 and is hence, barred by the treaty.

B. IN ARGUENDO, EVEN IF THE TREATY PROVISIONS ARE APPLICABLE, THE STANDARD OF NATIONAL TREATMENT HAS NOT BEEN VIOLATED

SALT II Treaty; McNair.

141 Vienna Convention on the Law of Treaties.

142 Kunz, 263, 284.

143 North Sea Continental Shelf .

144 Territorial Jurisdiction of the International Commission of the River Oder, PCIJ Series A. No 23, Declarations of Judge de Bustamante and Judge Pessôa [1929], 623.

139 140

298

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

The National Treatment standard imposes an obligation on the state to not accord to foreign investors, treatment less favourable than what is accorded to domestic investors.145 In order to violate the NTS, the treatment must be unreasonable or lacking proportionality, for instance, it must be inapposite or excessive to achieve an otherwise legitimate objective of the State.146

¶

Further, in order to successfully establish the violation of NTS, Tribunals have set certain qualifying conditions that need to satisfied, they are147-

a. The Claimant and the said domestic investor must be in ‘like circumstances’. b. The treatment accorded should be less favourable than what is accorded to the domestic investor/investment. ¶ Moreover, if the investor or investment is not found to be “in like circumstances” to the identified comparators, no treaty breach for discrimination related standards may be established.148 Further, the BOP is on the Claimant to establish that the standard has been violated.149 ¶

In order to apply the principle it needs to be established that the foreign investor and domestic investor are placed in a comparable setting or like circumstances.150 Tribunals have rejected the broad-brush "same sector" approach in favour of "a broad coincidence of similarities covering a range of factors;".151 These factors include the legal and factual circumstances of the Dolzer and Stevens Parkerings-Compagniet AS v Republic of Lithuania.

147 Vento Motorcycles v Mexico, Georg Gavrilovic v Republic of Croatia, Total S.A. v Argentine Republic, Cargill v Poland, Champion Trading v Egypt.

148 Vento Motorcycles, v Mexico, Corn Products v Mexico, UPS v. Canada, Loewen v USA. 149 Bilcon of Delaware, Inc. v Government of Canada Thunderbird v Mexico 150 Georg Gavrilovic. v Republic of Croatia, , Bayindir v Pakistan; Champion v Egypt.

151 B.V v Czech Republic.

145 146

299

The Collection of the Best for IMAIL 2021

investor or investment, and considerations of public policy/interest. In Grand River v. USA, the Tribunal observed that the legal regime(s) applicable to a claimant and its purported comparators to be a compelling factor.152 In Gosling, the Tribunal held that the domestic and foreign investor were not in ‘like circumstances as the land of the two comparators was is different zones and thus, no like circumstances existed.

Further, if the differential treatment can be justified, no breach of the NTS standard occurs.153 ¶

In Bogdanov (IV), the Tribunal held that it is difficult to compare domestic and foreign investors as the latter operated in conditions which were significantly different economic zones from those of all domestic investors with tax and VAT exemptions. A direct comparison was thus difficult to make under these circumstances.154

¶

Further, Tribunals have refused to qualify the circumstances as similar where the respective activities or the scale and scope of their operations differed. For instance, in Bayindir foreign and domestic investors were not in ‘like circumstances’ as the two differed in respect of financial terms and the scope of work and there was a difference in the expertise and experience of the contractors.155

¶

Moreover, another key consideration to be taken into account while assessing the alleged discriminatory treatment in question is that of public policy/interest. In Rusoro Mining the Tribunal observed that an official policy differentiating between small scale, traditional miners and large mining

Grand River v USA,.

Thomas v Mauritius.

154Bogdanova v Republic of Moldova 155 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009), para409, para410, para411 152 153

300

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

companies and offering additional support and less stringent requirements to small miners is not violative of the NTS.156 ¶

Similarly, in GAMI, the Tribunal observed that wherein a reason exists for the measure, then the same is not discriminatory. That measure has to be plausibly connected with a legitimate goal of policy and should not be applied in a discriminatory manner nor as a disguised barrier to equal opportunity. In the said case, the local industries needed certain welfare measures to support the national economy.

Same was held to be a matter of policy and politics and not violative of the NTS. In SD Myers, the Tribunal observed that the assessment of "like circumstances" must also take into account circumstances that would justify governmental regulations that treat them differently in order to protect the public interest.157

¶

In instant case, the Claimant needs to establish that they were in like circumstances with the domestic comparators and were accorded less favourable treatment. However, the Claimant was unable to discharge the same. On the contrary, the Respondent has made out a clear case for non-applicability of the standard by establishing that the first condition has not been met.

¶

The AG is not in like circumstances with the local producers on account of the following factors-

¶

The AG’s branch office was set up in AAY which is a Special Economic Zone. Unlike AG, the local producers were not operating in any SEZ.158

Rusoro Mining Ltd. v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/12/5 Award (22 August 2016), para 563.

157 Myers v Canada, Ad hoc Arbitration, Partial Award (Merits) (13 November 2000), para 250.

158 Thomas Gosling and others v Republic of Mauritius, ICSID Case No. ARB/16/32, Award (18 February 2020), para 254.

156

301

The Collection of the Best for IMAIL 2021

¶

Moreover, the exemption granted to the indigenous manufacturers was under the ‘Windivian Nirbharta’ scheme.159 The scheme as the name suggests is for the upliftment of indigenous manufacturers and make them self-sufficient. It was a policy measure in line with the Windivian laws. The scheme granted certain benefits onto the indigenous manufacturers on account of their scale of operations and hardships faced by them in keeping up with the ever-changing dynamics of the market. Thus, differential treatment, if any, when plausibly connected with a legitimate goal of policy and welfare measures granted to local industries in order to support the national economy as is the case in the given case is not violative of the NTS as was held in GAMI.

¶

Further, the Tribunal concluding otherwise would be encroaching upon the sovereign powers of Windivia and its policy objectives and would be violative of the preambulatory guarantee which affirms the right of parties to regulate investments in their territory in accordance with their laws and policy objectives.160

¶

AG is an international group of companies with a multitude of resources and financial backing from Firel whereas the alleged comparators are lowly indigenous producers operating at the domestic level with scarce resources. Incorporating the ratio of Rusoro Mining v. Venezuela it becomes clear that there are no like circumstances for the parties to be compared as the scale of operations vary exponentially. It is due to this very reason that offering additional support and less stringent requirements to small producers is not violative of the NTS. Moreover, relying on the decision of the Tribunal in Bayindir v. Pakistan, AG has significant experience in manufacturing UAVs and has been doing so for its home country whereas the alleged comparators are minor indigenous producers with little or no experience.161 Moot Proposition, 7.

Moot Proposition, 11.

161 Bayindir. Pakistan, p. 409-411 159 160

302

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

Thus, it is clear that there are no comparable or similar circumstances between AG and the indigenous producers and if the investor or investment is not found not to be “in like circumstances” to the identified comparator(s).

C. THE CLAIMANT CANNOT CLAIM FOR VIOLATION OF ANY LEGITIMATE EXPECTATIONS AND OF ANY DUTY OF FAIR AND EQUITABLE TREATMENT

1. The present Treaty excludes the protection of Fair and Equitable Treatment ¶

¶

¶

¶

As was observed by Dolzer, FET constitutes an independent, autonomous treaty standard contained in a stand-alone clause and not as a rule of customary international law.162 The Tribunal in Silver Ridge, held that interpreting the FET standard in accordance with customary international law principle observed that such an interpretation does not exist under international law and is not in line with the regime laid down under Article 31 to 33 of the VCLT. It was further observed that the ECT’s FET standard differs from the customary international law standard.163 The same was held in OperaFund.164 Further, the Tribunal in Crystallex v. Venezuela observed that the FET standard embodied in the Treaty cannot - by virtue of that formulation or otherwise - be equated to the "international minimum standard of treatment" under customary international law, but rather constitutes an autonomous treaty standard.165 Moreover, in Biwater, the Tribunal observed that the BIT refers to an autonomous standard and also quoted Christopher Schreuer asit is inherently implausible that a treaty would use an expression such as "fair and equitable treatment" to denote a Dolzer and Stevens, Silver Ridge Power BV v Italian Republic, p. 401.

164 OperaFund v Spain 165 Crystallex v Venezuela p 530.

162 163

303

The Collection of the Best for IMAIL 2021

¶

well-known concept such as the "minimum standard of treatment in customary international law". If the parties to a treaty want to refer to customary international law, it must be presumed that they will refer to it as such rather than using a different expression.166 Thus, it is an established position of law that FET constitutes an autonomous treaty standard. The direct implication of that is that the protection guaranteed by the standard flows directly from the treaty provision. It is the provision that extends onto the parties the protection. In the instant case, the BIT does not incorporate the FET protection. Thus, the Claimant cannot argue the violation of a provision which is non-existent and cannot be protected by the same.

2. In Arguendo, there has been no breach of FET

a. No legitimate expectations of an immutable regulatory regime have arisen ¶ The FET standard is a balancing exercise between expectations of certainty, alongside a state’s capacity to adapt legislation in consonance with changing circumstances167, and unintended consequences.168 However, no actions were undertaken by the Respondent which may give rise to any legitimate expectations on part of the Claimant. b. The Respondent did not make any specific representations to the AG. ¶ It is unreasonable of the Claimant to assume that the circumstances that existed at the time of making the investment shall remain unchanged.169The mere fact that the Respondent is a party to an investment treaty does not per se guarantee an immutable framework.170Moreover, not every hope of an investor can be considered a legitimate expectation.171 Biwater v United Republic of Tanzania, p. 591.

Thunderbird v Mexico, UNCITRAL Arbitration Rules 1976, Arbitral Award (26 Jan 2006) 148.

168 Stadtwerke v Spain, ICSID Case No. ARB/15/1, Award (2 Dec 2019) para 256.

169 Charanne B.V. v Spain, para 510.

170 Total S.A. v Argentine Republic, p. 117.

171 RREEF v Spain, p. 261.

166 167

304

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

The Respondent has the right to regulate domestic matters in public interest172 if no specific assurances are given to the investor.173 Therefore, legitimate expectations of an irreversible regulatory framework arise only when specific assurances are given.174 Arguendo, in the event that the Tribunal considers that specific commitments have been made, it is unreasonable for an investor to expect a regulatory chill. In the instant case, no specific assurances were made to the Claimant. The tax exemption granted was operative for a limited period of time and the Claimant expecting the exemption to continue beyond the specifically mentioned period is a baseless assumption. The Claimant’s argument that the withdrawal of the tax exemption amounts to a breach of LE is without merit and no legitimate expectation of an unchanging legal framework arises.

3. Inadequate due diligence by the claimant and MFNB precludes any legitimate expectations that may have arisen. ¶

¶

Investment treaties are not insurance policies against business risk.175 Right of protection under investment treaties arise only if the investor conducts appropriate due diligence of the regulatory environment.176A prudent investor would have anticipated such changes in the regulatory framework at the time of making the investment.177 An investor has to pay attention to warnings by professionals and industry discussions as part of its due diligence.178 The investor has a duty to be aware of circumstantial news articles and rumours which may suggest changes.179

Saluka (n 148) para 305.

Saluka (n 148) para 305.

174 EDF (n 148) para 217-219; Total (n 171 ) para 67; El Paso (n 148), para 396.

175 MTD (n 137) para 178.

176 Parkerings, (n 134) para 333.

177 Belenergia S.A. v Italian Republic, ICSID Case No. ARB/15/40, Award (6 Aug 2019), para 584.

178 Antaris (n 170) para 434.

179 Antaris (n 170) para 444.

172 173

305

The Collection of the Best for IMAIL 2021

¶

¶

In the instant case, the withdrawal of the IGST exemption was inevitable since the Exemption Notification clearly stated that the tenure of the exemption would be from 2019 to 2023. 180 The Claimant should have thus reasonably expected the change in business environment due the time barred nature of the exemption and should have been aware of the same before investing in Windivia. GOW cannot be held liable for lack of due diligence at the Claimant’s end.

Hence, the absence of specific assurances coupled with the absence of any ‘real due diligence’181 by the AG, preclude the materialisation of any legitimate expectations claimed.182

4. The Respondent provided a stable and predictable legal framework. ¶

¶

The change of the regulatory framework of the RespondentState cannot be considered as instable or unpredictable. The proportionality and reasonableness of the measures taken by the Respondent have to be measured in light of “political, socioeconomic, cultural and historical conditions”.183 There was no wilful neglect of duty, subjective bad faith and insufficiency of action184 in the actions of the Respondent.

Further, for a measure to be considered discriminatory, there has to be a lack of proportionality185of the measures taken and the object that is sought to be achieved.186 The standard of proportionality is set as a prohibition on “random, unnecessary” measures which may “suddenly and unexpectedly” remove the essential features of the regulatory framework.187 However, in the instant dispute, the measures were enacted within the purview of a rational public policy and

Moot Proposition Antaris v The Czech Republic.

182 Antaris (n 112) para 435.

183 Duke Energy v Republic of Peru para 340.

184 Philip Morris (n 138) para 311; Alex Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v The Republic of Estonia,.

185 EDF (n 138) para 293; Tecmed (n 179) para 122.

186 LG&E (n 138) para 95.

187 Charrane (n 138) para 517.

180 181

306

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

¶

¶

provided AG with a time period of 5 years to acclimatise with the regulatory framework and the business environment.188 The Respondent had a right to formulate policy for regulating public interest,189 but such reasonable measures cannot be realized if any adversely affected businesses seek compensation.190Such measures can be reasonable even if certain individuals disagree with the decision. GOW cannot be held liable for the fair and legitimate exercise of its sovereign powers in good faith simply because it entails adverse consequences for the Claimant. The same is against the spirit of the BIT which respects and holds in high esteem the state’s sovereign powers.191 Thus, there has been no breach of the FET standard and the Claimant is not entitled for any compensation for the same.

¶

PART 3: DAMAGES

5. THE RESPONDENT

IS ENTITLED TO THE FULL COSTS OF ARBITRATION PROCEEDINGS

¶

¶

The Respondent respectfully requests the Tribunal to find that it is entitled to the full costs of the arbitration proceedings incurred by it.

Article 11 of the BIT192and Article 61(2) of ICSID Convention, Regulations and Rules193 gives the Tribunal the discretion to direct the proportion in which the costs and expenses incurred in connection with the proceedings may be borne by the parties.

Further, in Togo Electricité v. Togo194, the Tribunal held that “under Moot Proposition Saluka (n 138) para 30.

190 Feldman (n 138) para 103.

191 Preamble, BIT 192 Article 11, BIT 188 189

193

https://icsid.worldbank.org/sites/default/files/ICSID%20Convention%20Englis h.pdf 194 Togo Electricité v Togo

307

The Collection of the Best for IMAIL 2021

Article 61(1) unlike conciliation, no rule exists with regard to arbitration proceedings, suggesting that the tribunal shall apportion the costs rather than split them. Moreover, in Nations Energy v. Panama195, the Tribunal stated that “Even tribunals strictly applying the PYOWA have recognized that it would be unfair to leave the winning party to bear all of its costs.”

195

Nations Energy v Panama, 24 November, 2010, Award, para 709

308

Indian Moot on Artificial Intelligence and Law, 2021, Decoded

REQUEST FOR RELIEF The Respondent requests the Tribunal to adjudicate and declare that: I. The Tribunal lacks jurisdiction over this dispute as the same relates to the pure breach of contract and is to be heard by domestic courts.

II. The impugned measures are attributable to AG, which is the correct responding party under the BIT; III. The Respondent has consistently fulfilled its duty to afford the standards of treatment required as per Article III of the BIT; IV. The Respondent has consistently fulfilled its duty to afford the standards of treatment required as per Article IV of the BIT; V. The Claimant’s claim for compensation is unfounded and must be rejected; and VI. The Claimant, as the unsuccessful party, must compensate the Respondent and solely bear the costs of this arbitration.

Submitted on July 25, 2021 By: Team- T-O4N-DASL-AR-C On Behalf of Respondent

309