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Valdris Investment Dispute Arbitration Brief

The skeleton brief on behalf of the Republic of Valdris argues that the Tribunal lacks jurisdiction over the dispute due to Valdris not being a party to the BIT and the absence of mutual consent for succession. It contends that the Claimant's Full Protection and Security (FPS) claim is inadmissible as it improperly requires adjudication of Arrakis's responsibility, which is not part of this arbitration. Additionally, the brief asserts that Valdris has not breached its obligations under the BIT regarding cyber-security and fund transfers, emphasizing compliance with due diligence and lawful measures during a monetary crisis.

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9 views7 pages

Valdris Investment Dispute Arbitration Brief

The skeleton brief on behalf of the Republic of Valdris argues that the Tribunal lacks jurisdiction over the dispute due to Valdris not being a party to the BIT and the absence of mutual consent for succession. It contends that the Claimant's Full Protection and Security (FPS) claim is inadmissible as it improperly requires adjudication of Arrakis's responsibility, which is not part of this arbitration. Additionally, the brief asserts that Valdris has not breached its obligations under the BIT regarding cyber-security and fund transfers, emphasizing compliance with due diligence and lawful measures during a monetary crisis.

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TEAM: ALFARO

INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES

In the arbitration proceeding between

BION PRO INC.


(Claimant)
v.
THE REPUBLIC OF VALDRIS
(Respondent)

(ICSID Case No. ARB(AF)/24/7)

Members of the Tribunal


Prof. Sheldon Lee Cooper
(President)
Dr. Jasper Hale
Dr. Gareth Lannister
Secretary of the Tribunal
Dwight Schrute

SKELETON BRIEF ON BEHALF OF THE RESPONDENT


ISSUE I: THE TRIBUNAL HAS NO JURISDICTION OVER
THE PRESENT DISPUTE.

A. The Republic of Valdris is not an original signing party to The


Agreement on Encouragement and Reciprocal Protection of
Investments between the Kingdom of Xenera and the Federal
Republic of Arrakis (BIT).
1. The BIT was signed on 26 October 2005 between the Federal Republic of Arrakis
and the Kingdom of Xenera and entered into force.

2. The Republic of Valdris (Respondent) is a newly independent third State that


seceded from the Federal Republic of Arrakis.

3. Therefore, since Respondent is a newly independent third State, not a party to the
BIT in the first place, Respondent should not in principle be bound by the BIT.

B. The Republic of Valdris did not succeed the BIT due to a lack of
mutual consent.
1. There exist no customary or treaty law presumption of automatic succession of
treaties, the alleged BIT’s succession can only be decided through negotiations
between the successor state and the other party.1

2. There exists neither express nor tacit consent between Respondent and the
Kingdom of Xenera upon the sucession of the BIT.

3. Thus, Respondent should not be bound by the BIT through mutual consent.

1
Oleg Vladimirovich Deripaska v The State of Montenegro, PCA Case No 2017-07, Final Award (15 Oc
tober 2019) paras 272, 275, 277, 281.
-1-
ISSUE II: CLAIMANT’S FPS CLAIM IS INADMISSIBLE.

A. The Monetary Gold Principle shall be applied before this


Tribunal.
1. The principle is not confined to the ICJ, but is a manifestation of general rule of
international law rooted in the sovereign equality of states and the requirement of
consent to jurisdiction.2

2. It applies where a third state’s legal interests form the “very subject-matter” of
the decision, precluding any international tribunal from ruling on the
responsibility of a non-consenting state.3

B. An Award on the FPS Claim Would Require this Tribunal to


Improperly Adjudicate the International Responsibility of Arrakis.
1. The alleged cybersecurity failures occurred when the PHO was an organ of
Arrakis, making Arrakis the only state who must bear the responsibility from the
alleged breach.

2. Thus, to hold Respondent liable through succession, the Tribunal must first
determine that Arrakis breached an international obligation. This makes Arrakis’s
potential responsibility a necessary prerequisite for and the very subject-matter of
the claim against Respondent.

3. As Arrakis is not a party to this arbitration and has not consented to this
Tribunal’s jurisdiction, the Tribunal must decline to hear the claim.

2
Bola Ajibola, ‘The International Court of Justice and Absent Third States’ (1996) 4 African Yearboo
k of International Law 85, p. 89.
3
Case of the Monetary Gold Removed from Rome in 1943 (Italy v France, United Kingdom and United
States of America) (Preliminary Question) [1954] ICJ Rep 19, 32.
-2-
ISSUE III: RESPONDENT HAS NOT BREACHED ITS
OBLIGATION TO PROVIDE FULL PROTECTION AND
SECURITY UNDER ARTICLE 3 OF THE BIT.

A. The Xenera–Arrakis BIT imposes no autonomous obligation to


shield investments from cyber-attacks.
1. The principle of Pacta sunt servanda4 confirms that the BIT does not create any
express obligation to protect against cyber-intrusions.5

2. The subsequent practice confirms that the ordinary meaning of “protection and
security” relates to safeguarding the physical integrity of investments, which
confirms the clause’s traditional, physical scope.6

3. Therefore, since neither the treaty text nor the Parties’ consistent practice extends
Article 3 beyond physical protection, no cyber-security duty can be implied
against Respondent.

B. Even Assuming That Article 3 Extends To Cyber-Security, the


Respondent Met The Due Diligence Standard.
1. Respondent along with Arrakis complied with the preventive limb of due
diligence.7 It requires only the adoption of reasonable precautions, not absolute
immunity from harm. Respondent had implemented every region cyber-security
guideline which satisfied the “all measures of precaution” threshold.8

2. Respondent along with Arrakis complied complied with the repressive limb of
due diligence.9 Under the FPS clause a host State must exercise due diligence to
investigate, prosecute and punish wrong-doers, but is not bound to guarantee a
successful conviction.10 Respondent had conducted an extensive internal audit to

4
Vienna Convention on the Law of Treaties (adopted 23 May 1969, entered into force 27 January 1980)
1155 UNTS 331 art 26.
5
Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of Xe
nera and the Federal Republic of Arrakis (signed 26 October 2005, entered into force 1 September 2006)
art 3.
6
MTS v Turkmenistan (II), ICSID Case No ARB/10/6, Award (14 June 2023) para 395. See also Suez
& InterAgua v Argentina, ICSID Case No ARB/03/17, Decision on Liability (30 July 2010) para 173.
7
El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award
(31 October 2011) para 523.
8
AAPL v Sri Lanka (Asian Agricultural Products Ltd v Republic of Sri Lanka) ICSID Case No ARB/87/
3, Award (27 June 1990) para 77.
9
El Paso v Argentina (n 7) para 523.
10
Wena Hotels Ltd v Arab Republic of Egypt, ICSID Case No ARB/98/4, Award (8 December 2000) par
as 85–95
-3-
assess the extent of the breach and shared the audit results with ministries and
PHOs.

3. Therefore, Respondent fully discharged its full-protection-and-security


obligation.

C. In any event, Respondent did not succeed to any international


responsibility for the alleged breach.
1. Arrakis and Respondent agreed that the 2015 IIL Resolution governs the
succession of international responsibility. The Resolution’s default rule, under
Article 12(1), is that when a predecessor state continues to exist, its obligations
arising from a prior wrongful act do not pass to the successor state.

2. This rule squarely applies here. The alleged cybersecurity failures occurred
pre-succession and were attributable to the federal government of Arrakis, which
managed the data servers and coordinated cybersecurity policy. As Arrakis
continues to exist, it remains the sole entity responsible for its own acts.

3. The narrow exception for acts attributable to a local territorial unit under Article
12(3) is inapplicable. The ultimate failure was systemic and lay within the federal
competence, not an autonomous act of the Provincial Health Office of Valdris.
Therefore, pursuant to the agreed legal framework, Respondent cannot inherit
responsibility for a breach it did not author.

-4-
ISSUE IV: THE RESPONDENT HAS NOT BREACHED
ARTICLES 4 AND 5 OF THE BIT.

A. The Respondent’s measures concerning fund transfers do not


violate Article 4 of the BIT.
1. Respondent has not imposed an unlawful restriction on the transfer of funds. It
has established a lawful, regulated mechanism for authorizing transfers, as
required by Decree No. 183 to manage a severe monetary crisis.

2. Any delay in processing the applications of Bio Pro Inc. (Claimant) was
attributable to the Claimant’s own conduct, specifically its failure to provide
complete and timely information as requested by the Central Bank. The
obligation to guarantee transfers does not absolve an investor from complying
with reasonable domestic regulatory procedures.

3. The measures are, in any event, justified under the prudential carve-out in Article
7 of the BIT. The temporary capital controls were reasonable prudential measures
adopted to safeguard the integrity and stability of Respondent’s financial system
amidst a severe monetary crisis. Besides, The measures were not a means to
evade treaty obligations; the pending status of Claimant’s requests is a result of a
crisis-induced backlog, not a disguised restriction.

B. The Respondent has not breached its non-discrimination


obligations under Article 5 of the BIT.
1. Under Article 5 of the BIT, a finding of discrimination requires examining
whether the investor and the proposed comparators are “in like circumstances”.
The “like circumstances” test requires a comparison of investors within the same
economic or business sector and subject to a comparable regulatory framework..11

2. Quilis, as a manufacturer of medical devices, and Ecovista, as a producer of


vitamins and homeopathic products, are neither part of the pharmaceutical sector
like the Claimant, nor do they compete with the Claimant on the market. They are
also subject to a different regulatory framework.

3. Therefore, no violation of the non-discrimination standard can be established, as

11
Parkerings-Compagniet AS v Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 September
2007) para 371.
-5-
Claimant and the proposed comparators do not operate in like circumstances.

-6-

Common questions

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The tribunal's jurisdiction over the FPS claim is inadmissible because adjudicating the claim would require determining the international responsibility of Arrakis, which is not a party to this arbitration and has not consented to the tribunal's jurisdiction. The FPS claim depends on Arrakis's alleged cybersecurity failings, meaning its responsibility is a prerequisite issue .

The 2015 IIL Resolution stipulates that when a predecessor state continues to exist, its obligations from prior wrongful acts do not pass to the successor state. This is significant as Arrakis continues to exist, therefore it remains responsible for cybersecurity failures that occurred pre-succession. Valdris cannot inherit responsibility as the failures were due to systemic issues under Arrakis's management, not solely attributed to Valdris .

Valdris asserts it discharged its FPS obligations by complying with both the preventive and repressive limbs of due diligence. The former requirement was met by adhering to regional cyber-security guidelines, and the latter by conducting internal audits to mitigate and address failures. These actions satisfy the 'all measures of precaution' threshold, showing reasonable risk management but not requiring absolute protection from harm .

The Republic of Valdris argues it should not be bound by the BIT because it is a newly independent state that seceded from the Federal Republic of Arrakis, which was the original signatory. Since there is no presumption of automatic succession of treaties, the BIT's applicability would need to be negotiated and agreed upon, which has not occurred between Valdris and Xenera .

The absence of express or tacit consent means there is no mutual agreement for Valdris to succeed to the BIT. Customary or treaty laws do not automatically impose treaty obligations on successor states; succession is contingent upon negotiations and agreement between the successor state and original party, which did not occur .

The 'like circumstances' concept requires comparing investors within the same economic or business sector under similar regulatory conditions to assess discrimination claims. Differences in these contexts mean that entities like Quilis and Ecovista, which operate outside the pharmaceutical sector, are not in 'like circumstances' with the Claimant, preventing valid discrimination claims under the BIT .

The BIT's FPS clause, according to its ordinary meaning and subsequent practice, traditionally applies to physical protection of investments and does not explicitly extend to cyber-security. Even if the FPS were presumed to include cyber-security, the Republic of Valdris met the due diligence standard by adopting reasonable precautions as per regional guidelines, and thus discharged its obligations .

Valdris interprets the non-discrimination obligations as requiring investors to be in 'like circumstances,' which means operating within the same sector and under a comparable regulatory framework. Since comparators like Quilis and Ecovista operate in different sectors and regulatory contexts than the Claimant, no violation of the non-discrimination standard can be established .

The Monetary Gold Principle asserts that an international tribunal cannot adjudicate a case if it requires determining the legal responsibility of a state that is not a party to the proceedings and has not consented to the tribunal's jurisdiction. In this case, the Tribunal cannot rule on the responsibility of Valdris without first establishing that Arrakis breached an international obligation, which is precluded as Arrakis is not a party to the arbitration .

The Republic of Valdris maintains that its measures regarding fund transfers are lawful because they established a regulated mechanism required during a monetary crisis. Delays in processing applications were due to the Claimant's own shortcomings in providing necessary information. Additionally, the measures are justified under the BIT's prudential carve-out, adopted to protect the financial system's stability during a crisis .

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