LAW-L6541

International Investment Law and Arbitration

Professor Bermann, George and Duggal, Kabir
Fall 2021

LAW-L6541
International Investment Law and Arbitration

INSTRUCTIONS

1. You have two questions in the exam. Each of these questions has several sub-parts.
You have to answer all the sub-parts for both questions. Each sub-part within a question
carries equal weight.

2. This is a 2.5-hour exam. Please see the suggested time for each question and plan your
time effectively.

3. The examination is an open-book examination, meaning that you may consult any written
or printed materials you wish.

4. If, at any point in answering a question, you believe it necessary or useful to have
additional factual information not furnished, or to make certain reasonable factual
assumptions, please state so within reason.

5. Answers must be word-processed.

6. This examination question paper must be surrendered to the proctors at the end of the
examination.

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 LAW-L6541
International Investment Law and Arbitration
Professor Bermann, George and Duggal, Kabir
Fall 2021

Question 1 (45 mins; approx.5 minutes per concept/issue) (40 marks)

Provide brief explanations for the following concepts/issues. Be sure to mention the special
significance or function in investor-state arbitration. Be as precise as possible in the short
time allowed:

(a) Discounted cash flow.

(b) Compare ICSID Rule 41(5) motions with Rule 41(1) motion.
(c) The Effective Means obligation.
(d) Legal Protection and Security.
(e) The Phoenix Test on “Investment.”
(f) Emergency Arbitration.
(g) The Multilateral Investment Court.
(h) Burden of Proof and its distinction from Standard of Proof.

***END OF QUESTION 1***

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 LAW-L6541
International Investment Law and Arbitration
Professor Bermann, George and Duggal, Kabir
Fall 2021

Question 2 (approx. 105 minutes) (60 marks)

Introduction
Megastan is a small island country in the Pacific Ocean. It is a low-income, developing
country that relies primarily on tourism for state revenue. The Ministry of Transportation of
Megastan has invited bid proposals in January 2018 for the construction of a modern, four
lane toll road to connect the capital Alphan with a tourist city called Delphia. Tourists fly into
Alphan while most resorts are in Delphia, so the construction is intended to promote tourism
by cutting the travel time in half.
Toll-Turner, a U.S.-based highway construction company, was selected as the winning
bidder. It was a highly contentious bid and Road Runner, a company from the neighboring
Kingdom of Shelly, has stated that it provided a more competitive bid, and it would have been
a more logical choice for construction since it was also an island country and is therefore
more familiar with construction in Megastan than Toll-Turner would be. There are no formal
details on the tender process in the public domain (Megastani law did not require
transparency for tenders), but there are suggestions in the press that the tender process did
not follow best practices and that there may have been corruption involved. Ultimately, the
Ministry of Transportation signed a contract with Toll-Turner in March 2018 requiring
construction to be completed in 10 years. The contract provided for ICC arbitration in
accordance with Megastani law, and also capped any damages at 3 times the cost of the
original investment (the original investment in the contract is identified at 10 million USD).
The March 2018 Contract provided for ICC arbitration with the arbitral seat being Geneva.
In April 2018, construction work commenced. There were delays but construction
progressed steadily. In September 2018, the construction crew reached the village of Sacred
Valley inhabited by an indigenous community. The community refused to move from the
lands which they consider sacred to their religious practice. The construction had to be halted
immediately, at which time the road was approximately half completed but the government
was unable to relocate the community members because political parties did not consider it
prudent to adopt harsh methods to relocate the community. Even though the community was
5% of the entire population, it plays a key role in local politics in areas of the country where
members of the community are concentrated. The issue of the community relocation also
attracted the attention of the global press.
In October 2018, the Ministry of Minority Affairs informed Toll-Turner that it had no
choice but to abandon its efforts to relocate the community if wide scale protests throughout
the country were to be avoided. The Ministry of Finance then stated it would not make any
payments under the Contract because the road was incomplete and pointed to a provision in
the contract that permitted the Ministry of Finance to prohibit payments when performance
had become impossible due to an act of God. The President’s office received two letters from
Toll-Turner to intervene in the matter, but no response was ever received. While the contract
was never formally terminated, Toll-Turner has been unable to continue with the construction.
Toll-Turner has consulted its lawyers and has initiated ad hoc UNCITRAL arbitration under
the Megastan-U.S. BIT (the “BIT”) and alleges breaches of several provisions of this BIT. At

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 LAW-L6541
International Investment Law and Arbitration
Professor Bermann, George and Duggal, Kabir
Fall 2021
the time the Request for arbitration was filed, there were also reports in the press that the
Government is mulling options to demolish the road.
Please answer the following questions in turn (each question is a standalone response
not dependent on the prior question, so you do not need to read all the questions in advance):
(a) The arbitral tribunal has now been constituted seven months after the request for
arbitration was filed. The law firm representing Toll-Turner is Almight LLP. Respondent is
represented by Professor DeMonté and has appointed Ms. Gracious as its arbitrator.
Professor DeMonté and Ms. Gracious were LL.M. classmates at Columbia Law School in
1991 but this fact was not disclosed when Ms. Gracious agreed to act as an arbitrator. Further,
both of them are connected on LinkedIn and have spoken together at four international
arbitration conferences, one of which was organized by Professor DeMonté. Almight LLP
has challenged the appointment of Ms. Gracious for lack of independence and impartiality.
Article VIII of the BIT states that “(1) The Arbitrators shall be independent and impartial
at all times; (2) if there are justifiable doubts about an Arbitrator’s independence or impartiality,
a party may challenge the appointment of such Arbitrator; (3) any such challenge shall be
timely; and (4) any such challenge shall be decided by the Secretary General of the PCA.”
You are the Secretary General of the PCA. How will you decide the matter?
(b) The Ministry of Justice received the Request for Arbitration from the President’s
Office. The Minister points to Article XI(2) of the BIT which requires “All investments to be
made in accordance with Megastani Law.” The Minister argues that the tender process did
not comply with Megastani law as the tender process was completed in 3 months whereas
the law required the process to take 4 months. There were also other irregularities including
the potential of corruption. Respondent proposes to raise these are jurisdictional and
admissibility objections.
You are the Presiding Arbitrator in the Tribunal. How do you propose that the tribunal
rule on these objections?
(c) The Preliminary Hearing has been completed and the Tribunal established the
schedule for the case. The Claimant filed its Statement of Claim, and the Respondent filed
its Statement of Defense. The Claimant is preparing its Reply Memorial which is due in 40
days and has suddenly heard that the Ministry of Transportation has decided to demolish the
portion of the road to the Sacred Valley that had been completed. The Claimant states that
this decision will greatly aggravate the dispute and render the resolution of the dispute much
more complicated. The Claimant states that issues on damages will be very difficult when
the road is destroyed. It may also make the appreciation of evidence much more complicated
to see what alternatives the state might have adopted. The Ministry states in press reports
that the termination is required because tourists were using the completed portion of the road
to access the Sacred Valley and were “desecrating” the site by littering all around. The
accumulated garbage was also attracting a new, invasive species of rodents destructive of
the farmland in Sacred Valley, as well local flora and fauna. Claimant has filed a motion for
provisional measures seeking an injunction prohibiting the demolition.
You are the Presiding Arbitrator in the Tribunal. How do you propose that the tribunal
decide the motion?

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 LAW-L6541
International Investment Law and Arbitration
Professor Bermann, George and Duggal, Kabir
Fall 2021
(d) Toll-Turner states that the actions of Megastan have violated the fair and equitable
treatment clause in the BIT. It claims that the actions of the Ministry of Minority Affairs,
Ministry of Finance, and the President’s Office violated the fair and equitable treatment clause
of the BIT. Claimant alleges violations of legitimate expectations since it had received the
approval from the Government, and in any event, the decision of the Government not to pay
even though it had completed over 50% of the construction was not proportional to the
objective that the State purported to pursue. The Government argues in response that it has
acted in accordance with Megastani law at all times and with a view towards protecting local
community and the environment. Claimant argues that Megastani law is irrelevant to the
analysis and the analysis must be purely under international law. The BIT is itself silent on
the applicable law.
Preamble of the BIT states in relevant part:
“. . . DESIRING to create favorable conditions for fostering greater investment by
investors of one State in the territory of the other State with due regard to the labor,
environment, and other key societal considerations.
RECOGNIZING that the encouragement and reciprocal protection will be conducive
to the stimulation of business and promote a stable business environment . . .”
Article III of the BIT states:
“Promotion and Protection of Investment:
1. Each Contracting Party shall encourage and create favorable conditions for
investors to make investments in its territory and admit investments in accordance with
its laws and policy.
2. Investments and returns of investors of one Contracting Party shall be accorded fair
and equitable treatment at all times in the territory of the other Contracting Party.”
You are the Presiding Arbitrator? How do you propose that the tribunal decide these issues?
(f) Assume that Article III of the BIT states:
“3. Each Contracting Party shall observe any specific commitment it has entered into
` in relation to the specific investments of nationals of any the other Party.”
On the basis of that provision, Toll-Turner also alleges that the Government has breached its
March 2018 contract with the Ministry of Transportation. Megastan argues that the Tribunal
has no jurisdiction to address the contract dispute since it was a purely commercial matter,
and the March 2018 Contract required the dispute to be resolved under ICC Rules of
Arbitration. The State also argues that the investor has the burden to prove that the Umbrella
Clause has the burden to show the umbrella clause was intended to cover every contractual
situation.
You are the Presiding Arbitrator? How do you propose that the tribunal decide this
matter?

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 LAW-L6541
International Investment Law and Arbitration
Professor Bermann, George and Duggal, Kabir
Fall 2021
(g) Megastan points to Article XIII of the BIT which provides: “Nothing in this Treaty
shall prevent a state from adopting measures necessary to protect the environment.” It
argues that its action is justified under the precautionary principle due to present and future
destruction of the island’s natural flora and fauna. Toll-Turner argues in response that Article
XIII of the BIT must be understood in accordance with Article 25 of the ILC Articles on State
Responsibility. Megastan’s actions, Toll-Turner argues, do not come close to meeting the
requirements under Article 25.
You are the Presiding Arbitrator? How do you propose that the tribunal decide the
matter?
(h) Toll-Turner also alleges that the failure to make payments or permit the
construction to continue constituted a de facto termination of the March 2018 Contract. Since
no compensation has been paid, it alleges that there is an unlawful expropriation of its
investment.
You are counsel for Toll-Turner. How will you argue compensation for unlawful
expropriation before the arbitral tribunal? Consider potential responses by the state and
preemptively rebut them.
***END OF QUESTION 2***

***END OF EXAM***

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