In investment treaty arbitration, a shareholder can claim protection for investments made through a company in which they hold shares, even if they are not a direct party to the underlying contract or hold a minority stake. The key test is whether the binding action was 'applied directly' to the investment, which requires a direct, immediate, or proximate nexus between the action and its impact on the investment's value, rather than requiring the action to be specifically targeted at the investment. This principle allows shareholders to invoke treaty protections when government actions directly affect the value of their shareholdings in project companies.
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Republic of India (Appellant/Defendant) v Ras Al Khaimah Investment Authority (Respondent/Claimant)本站添加:
Yes, >> my lord. Um, respondents notice ground two. Um, to the extent that um, the propositions advanced under it constitute additions, um, we can contend that the judge's conclusion was correct for the reasons we've set out under respondents notice ground two and developed at paragraph 49 to 49.4 four of our skeleton argument on this alternative approach. There is no need for recourse to any concept of targeting and it is simply contended that the concept of applied directly conotes a direct immediate or proximate nexus between a given action on the one hand and its impact on the value of the investment on the other. And that is we submit very close in fact to the approach taken by the judge at paragraph 111 of his judgment and is really just another way of expressing the closeness of connection which we say is sufficient to meet the test of applied directly and as I've already submitted the binding action in issue in this case was we say in context only sensibly ly interpreted as applied directly to the value of Rakia's shareholding as invested in the project in that immediate approximate and inevitable manner for each of the reasons that I went through this morning.
Um, if one asks the simple question, how should the treaty be understood in good faith having regard to the ordinary meaning of its terms in their context in light of the treaty's object and purpose and frames it perhaps more precisely for the present context. It could be posed as follows.
Is binding a action which inevitably and immediately had a negative impact on the value of this particular shareholding in this particular company. Action which was applied directly to that shareholding. And we respectfully submit the answer must be yes just as it would be in the investment by loan and seizure of cash scenario. And the basic point in this regard is is really the one that we make at paragraph 49.2 of our skeleton argument which I'll adjust slightly to avoid or reduce the risk of potential quibble in terms of the precision of its language in the context of a treaty regime.
One of the characterist characteristic features of which is its embrace of claims for loss by shareholders for loss in value of shares.
Adverse action taken against the business of a project company which causes precisely such loss is we would say must be action applied directly to shares in that company. quo investment.
My lord, that was all I wanted to say about respondents notice ground two. I I was going to end my submissions as I said at the the outset um going through each of the provisions of article 31 and 32 to say why they supported us. But I I think I couldn't resist the urge to get there earlier on. So I think I've made those points and I'd be repeating myself if I did. So unless I can attempt to assist further, that's how we put the judge was right for the reasons he gave and respondents notice ground two. And I'll pass over to Mr. Geratovich to deal with respondents notice ground one and three.
>> Yes. Thank you very much.
>> Thank you, M.
My lords, respondents notice ground one is that Rakia's investment was not limited over time to the shares, the cash and the pledge as found by the judge. It also included the contract known as the bookside supply agreement.
Whether that is correct is a question of interpretation of the definition of investment in article 11 one of the treaty and then the application of that interpretation to the particular facts of this case. It is another reason to uphold the judge's decision because it is undisputed that GOM 44 was applied directly to the BSA and satisfied all the other requirements of the definition of a measure.
>> If you have an investment in assets, it must be in all the assets mustn't it rack. It can't be in just one asset. Th >> this is alternative, my lord, in the sense that the judge didn't find it.
It's not alternative in the sense that it's alternative to the shareholding.
Our case on respondence notice ground one is that Rakia's investment was also the BSA.
No, I understand it's alternative, but you trying to understand what it is and you you can't be saying that they they invested in the contract but not for example in the plant.
Well, I I'll come on to the terms of the contract which will assist your lordship with that question because it covers uh in broad terms the building of the plant and I do say that the plant for example could constitute real property uh for the purposes of the definition of investment in article one. It's not the basis of this ground which is focused on the contract analytically.
>> None of these things are your assets.
They are not our assets in the sense that they do not belong to us under Indian private law by which they're governed for the purposes of Indian law.
But that's a different question, my lord, as to whether they can constitute investments of an investor for the purposes of article one of the treaty governed by international law under the >> why. If it's an investment, why isn't your investment just simply in the you're investing in the enterprise, the business of Amrak? The answer to that, my lord, is because we accept on appeal that our investment must constitute assets. And in determining whether any of those assets are investments, one may look following the holistic approach that's been debated uh at the broader context to which my lord refers. But that doesn't mean that we're saying that that broader context, the project, the business is itself a protected investment. It is still an asset that must be a protected investment. Is it only this contract?
Because ENRA had other contracts. It had contracts of employment. It had a contract with maybe the cleaning company who came in and cleaned the premises.
Are all of those contracts assets within the definition of investment?
>> They are not, my lord. We we are making our case on the BSA, not on all of those other.
>> Why? Why is that? Why is that different from all the other contracts?
>> That there may be other contracts that uh Anra had, but they would need to have the quality of an investment in order to come within the definition of investment in the treaty. And we say that the reason the BSA is different is because of the particular characteristics that attach with it to it which will be the first part of my submissions.
What about cash in the hands of company borrowed loads of money from banks as we know and it's then sitting on a pile of cash which it's going to employ in the business and um no doubt the cash is there for the purpose business. Would it would that be included? It could be my lord it could be if for example uh a an equity investment was made the shares were pledged to gain money for the investment company here anrak that money was kept in anrak's account the money coming from the loan from the banks based on the pledge if that money was then taken we would say in that case that that money uh would be capable of constituting an asset for the purposes of the definition. Yes.
>> But does that depend on the existence of the pledge that argument >> as I put that hypothetical uh the pledge would be part of it. Uh if it was cash in the ordinary course of business then I would not say that that's an investment. I accept that. But if to use Mr. Wersworth's example which he sought to use as an analogy against us of liquid mercury and combining that with my lord's focus on the change in form provision earlier today. It's entirely possible that what the asset protected by article 11 one is could change over time and it could follow that money if that money constituted an investment that then changed form. But the question would always need to be asked is it an investment that satisfies the article 11 one definition and the answer for different contracts or cash in different scenarios might or might not depending on the facts. So we don't say that all contracts or all assets of ANRA or in the project generally constitute investments. We say the BSA was an investment that was invested by Rakia.
>> Is your investment the BSA or 12% of the value of the BSA or whatever the right percentage is for your shareholding?
>> It would be the BSA.
>> All of it. And on a question of quantum of compensation, the fact that there was a 12% shareholding in the company that was party to the BSA would be relevant to the determination of quantum of compensation.
Okay.
The only way for me to make good on this proposition is by looking uh closely at the facts. And I'll do that first. Uh I'll then take your lordships to the law uh but in two parts. First the general principles on the scope of investment treaties uh and their relevant differences from other legal frameworks and then the second part to distinguish uh to look at India's attempt to distinguish the cases that we rely on.
The key point there, it goes to the point that's just being put to me uh by your lordships is that India accepts that a contract to which a company is party can be an investment made by a shareholder in that company. India accepts that. So the disagreement before this court is not about a point of principle on the corporate veil.
It's India's argument that the critical factor is majority ownership or control. That's India's case. Whereas we say that that is not a principal distinction under this treaty. So the the key point of disagreement is not the I hadn't detected them accepting that, but you might be right that I I hadn't detected that they had accepted anything like as broad a proposition as that, but perhaps you're right.
>> Well, they're certainly not saying that the cases in which that was found are wrong.
>> Can you give us the transcript reference to where they accepted it?
>> Uh I I don't have it. I'll come back to you uh my lord on that. But it but the the point that I seek to develop is that in the cases uh where there has been that look through it is not the majority or control that is the determining factor and then the third part very briefly will be to apply the terms of the treaty to this case.
So I'm really struggling with the basics here because we know that your investment was the 42.5 million and investment we understand the concept is a capital injection into an enterprise and we know from the terms of the treaty that we can have an initial capital investment um and then it matters not that that is subsequently the um uh change of form and we know that the change of form of that 42.5 million was into shares.
So we know that you invested 42.5 we know that what you got in return for it was shares. So where is the scope for saying that you also have your investment is also a contract in which you have no interest.
My lord, two points in response to that.
The first is if we're right on the premise of your lordship's question and if what Mr. Aie said before the lunch and adjournment is correct >> disputed >> then we then we don't need on applied directly. I mean, if he's right about that, uh, then we don't need this ground, of course. But on on the second part of your lordship's question, we accept that we're not party to the contract or that we don't own it as an asset. But with respect, that's not the relevant question under the treaty. The question is whether it constitutes something invested by. And the fact that Rakia already owned the shares doesn't preclude it from having an >> So you you say that the reference to asset an investment being an asset doesn't mean an asset of the investor.
>> It doesn't need to be owned by the investor. That's our case.
>> But it has to be invested by the investor.
>> Yes.
>> It has to be an asset which is invested by the investor.
So there's the change of form provision.
which he referred to. And one can see how that takes the money which is invested and turns it into shares for example. But how can you say that the money was ever turned into the contract? I >> I don't I don't say my lord uh that the contract is a change in form of the money. I don't say that uh through the shares. How was the contract something that the investor sorry how was that an asset which was invested by the investor? that turns my lord uh on the terms of the contract and the context in which it was agreed and and in our submission the answer to that question is because the factual link between Rakia as the investor and the contract was so great given the cornerstone of the investment being the supply of books that that link was so tight that it constituted an investment for the purposes of the treaty even though it wasn't owned for Indian law purposes by Rakip.
That's the submission. Uh and I accept that the only uh way I can make good on that is through the facts. A number of which my lords you have seen in reference to the judgment.
Uh and Mr. Otie took you to those paragraphs of the judgment. Uh but what I propose to do is to take you to the underlying documents so far as they concern this specific ground. And the first of those is theou at supplementary bundle tab five.
It's at page >> is this for things which aren't in the judgment?
>> Uh it is to show the context of those that are not in the judgment and to show you those that are not in the judgment.
It's 187 of the supplementary Bible there. One sees the recitals to which Mr. took you and then coming down to clause two which is on page 189.
This is Gorak's undertaking that with Rakia it will incorporate an Indian registered limited company and that of course became Anra.
Mr. Uh, Otie then showed you clause three which is on uh page 190 and I would just add the last sentence which refers to APMDC and the government of Andra Pra Pradesh shall not sell or export book site from the Geralda deposit to any other party during the period of operation of the said aluminium company.
And then at 1 192 we see clause 11.
India's refrain has been that theou contemplated that Rakia's investment would be in the form of shares in the project company and that is correct uh but in our respectful submission incomplete arising from clause 11 which provides in the first line for a detailed collaboration agreement between APMDC as the public sector entity producing the bork site and the company to be established by Rakia to use the bork site. So Anrach and that agreement was evidently what became the BSA.
The shareholders agreement is at tab six. If I could ask you all to go to page 194.
The nexus with theou is expressed in the first recital where there's the reference to the memorandum of understanding.
And then perhaps of more interest to your lordships on page 198 is this somehow said to be relevant to the interpretation of the treaty.
Th this is relevant as the factual basis on which we say that Rakia uh had an investment that included the contract.
But the only way you get there is through the words of the treaty.
>> Yes. And I accept that these don't help in interpreting the treaty. But it is to these facts that the court is called to apply the treaty.
The point arising from 5.3 is that Rakia had a defined governance role because quorum for the board of directors requires a minimum of one director that he'd appointed.
And then on 199 At 6.2, the court will see a form of negative control over a series of reserved matters.
And those include in 6.2.2 the expansion of the company's objectives beyond the execution of the project.
But this is just between the shareholders. I don't understand this point at all with respect. This is just an agreement between the shareholders in in the company.
The it can't it's not even to do with a relationship between ANRA and APMDC.
It's just saying this is how the shareholders agree to arrange their affairs. So what how can that possibly assist in construing the agreement or even or or telling one what counts as an investment under the agreement? It >> it doesn't assist with that interpretive question, my lord. It does assist we say with the question of application of the treaty as correctly construed to these facts which include that Rakia was able to ensure that the project company in which it was investing could not expand its purposes beyond this particular project. And that's relevant uh because it's said that an issue of control is a distinguishing feature between the the cases where there was a look through and our case.
The next document uh my lords is at 205 of the same bundle.
That is GOM 222 where paragraph one refers to theou and then it refers to the sale of bulk site by APMDC to an aluminium company to be incorporated by the government of Iraq.
And at 209, paragraph 7 records that the government directed APMDC to enter into the bulk site supply agreements.
The next document is at page 211 that's gone 289.
The first paragraph describes theou. The second a gong 222 which we've just looked at.
And then paragraph six approves the BSA and authorizes APMDC to enter into it with ADRA.
We then come, my lords, uh, to page 213 where we find the booksite supply agreement.
India identified yesterday that APMDC is the seller and ANRA is the other purchaser.
Recital A on page 214 describes Anra as established in Andra Pradesh by the government of Razal Kaima through Raikia and it notes that it proposes to build a refinery and smelter and then it records that to this extent they have entered into anou with the government of Andra Pradesh.
Recital B of the contract begins by recalling that the seller is a government undertaking which has a mining lease or extraction of Borsark from Gerilla.
And then on the last six lines of 214, the government of Andra Pradesh and the government of RA entered into theou in terms of which the government of Andra Pradesh agreed to mine and supply bork site by APMDC from and out of the Geraldines.
On 215, we see the operative terms of the BSA being introduced.
And on page 220 in clause 2.2 to which Mr. Potty referred we see the long-term character and it provides that the BSA shall remain in force for the lifetime of the plant or until the exhaustion of the Gerald laborite reserves whichever is the earlier clause three uh is relevant uh including because my lord Lord Justice Males remarked yesterday on the significance of paragraph 3 of theou and here are the same terms in clause 3 of the BSA.
Page 223, we find clause 7B requiring Anra to utilize all the bork site it purchases from the seller at its refinery and smelter in Andra Pradesh.
And then on 236 is clause 18 where on the back of the promise of reliable and exclusive supply of borite from the Gerilla mines.
Anra took on the cost of building a refinery and smelter.
That's the first paragraph.
and conscious of what fell from my lord Lord Justice Males this morning on infrastructure in the second and third paragraphs also took on the associated infrastructure costs such as roads water supply and its own power generation facility.
So my lords, although this is called a Borksite supply agreement, in substance it was much more than a simple contract for the sale and purchase of Borksite.
It was in our submission the contractual implementation of an investment project in which the government of Andra Pradesh through APMDC was to supply all of the bork site at Gera to a company established by Rakia.
And that company, Henrik, was to use all of that site only in a refinery and smelter that together with all the associated infrastructure.
It was >> just go to whether it's an asset of of uh >> my lord with respect uh the the error in the premise of your question is that it doesn't need to be an asset of rakia it needs to be something that is invested by rakia but that is a different question from whether rakia >> why do its terms matter then >> it's its terms matter Because this is a contract through which ANRA as capitalized by Rakia or including by Rakia is committing to do these things including building a smelter and building infrastructure.
>> Yes. Well, we know that we've seen that.
>> You've you've seen that in the general sense of the project. This is the contractual obligation to do so.
And the the submission, my lord, uh is that this contract constitutes an investment because of the kinds of obligations that it contains.
So you say it's not relevant that clause 31 isn't relevant.
We we don't uh my lord say that Rakia is entitled to enforce rights under this contract. What we say is that the contract as a whole constitutes an investment made by it. And on that basis, we say that clause 31 doesn't uh prevent the submission that we're making. Just as the existence of a dispute resolution clause in the contract is relevant to the resolution of disputes concerning the rights and obligations within the contract, but not to whether there's a breach of the investment treaty arising from the loss of the contract as an investment.
That's our submission.
Right. Well, those those seem to be the facts. Where do we go now? My lord, that then that then takes us uh to the law.
uh the the first part uh of our submissions on the law is general principles uh on the scope of protection under investment treaties uh and the distinction between that and other legal frameworks and we have three propositions building on the framework introduced by Mr. The first is that there's no barrier in principle to the rights of a company in which an investor holds shares being treated as part of that investor's investment.
And whether this is the second proposition, whether a treaty does so depends on the correct interpretation of that treaty as the lex specialis and then the application of that treaty to the particular facts.
The third proposition is that rules and cases relating to the corporate personality and privity of contract in the different contexts of domestic private law and diplomatic protection under custom provide no material assistance.
And we say those three propositions are supported by the cases we have cited at paragraphs 15 to 20 of our skeleton argument. And I'll go through four cases. Uh the first of which you have seen some of that's Korea and Diani.
It's in your volume three.
It's tab 44.
If I could ask, it starts at page 93 in Diani. Uh the argument advanced by the state was that the shareholder claimants had no standing to bring a claim.
because they were complaining about interference with rights under a contract to which they were not a party and the fact that they were shareholders in the contractual party uh was said not to be sufficient.
That argument failed uh and the basic facts and issues uh Mr. Wdsworth referred you to if we could start at page 96.
The dispute arose out of the failed acquisition of Dau Electronics by a company called DNA Holding.
Dau was incorporated in Korea.
DNA in Singapore.
The key agreement in issue was a share purchase agreement entered into by DNA and D.
At paragraph 16 on page 98, the claimants in the investment arbitration against Korea were the members of the Diani family. They were Iranian nationals and shareholders in the Singaporean company DNA.
The arbitration was under the investment treaty between Iran and Korea.
And so this is not a case picking up on what fell from my lord Lord Justice Miles where the indirectness arose because of the relevant company being incorporated in the host state of the investment.
The Dianis alleged that the majority shareholder in Dau Kamco had caused this transaction to fail and that Camco's conduct was attributable to Korea.
Korea objected to the tri tribunal's jurisdiction.
The key questions on the section 67 challenge for our purposes were identified on pages 910 and 900.
and 11 as questions one and four.
It's at the they're at the top of 911.
The definition of investment and investors in the Iran Iran Korea investment treaty was comparable uh to ours.
And then at page 914, Mr. Justice Butcher rightly described in paragraph 37 the definition of investment as a very wide one, not limited to the enumerated categories of assets.
And at 42 on page 915 he added that read in context neither the term asset nor property is confined to rights in rem as opposed to rights in persona.
Then the key part of the judgment for our purposes is at page 920.
There's the treatment of question four starting at paragraph 68.
The judge indicates at 69 that the focus is on the claim being made by the Dianis as the Iranian nationals, not by DNA which was the Singaporean company in which they held shares and which was the party to the spa.
The issue at 70 and following was whether the investment represented by the spa was invested by the dianis.
Paragraph 70 summarizes Korea's case on that issue. It's not dissimilar to the position taken by India here.
The judge then made a series of points rejecting Korea's objections as summarized at paragraph 70.
And then at on page 921 at paragraph 72, there is a rejection of equating the treaty requirement of an asset invested by an investor with ownership in terms of domestic law.
He says, "An an analysis of this issue must commence with the terms of the bit.
The terms of the bit, whether article 1 or article 12, do not include any express requirement that the investor own or have a direct legal interest in the property or asset which constitutes the investment.
Nor do I consider that any such limitation which could have been expressed if agreed between the contracting states can be read into the treaty wording that would appear to me to be a rewriting of the treaty.
And he then cited a series of awards showing that claims by investors in respect of indirect investments had been held to be jurisdictionally wellounded in a series of other cases 74 and 75 he distinguishes Barcelona attraction and Dio and then at page 921 I'm sorry, it's 922.
Picking up in the sixth line, he says, "The contracting states confer enforcable rights against themselves on a category of persons defined as investors, which dropping down to C may assert rights under the bilateral investment treaty qua investor."
So an investor which otherwise satisfies the treaty criteria may do so just going back up to where the sentence starts even if it holds the assets or property which constitute the investment indirectly at 76 six.
That's a paragraph that you saw yesterday, Mr. Words and I I won't take you through it again.
It is certainly correct that applying the test in uh that paragraph to the case before him, Mr. Justice Butcher referred to control, but not we say as a necessary predicate to his conclusion.
The relevant question in our submission is defined and answered in the first two sentences of paragraph 76 without reference to control. And the following part of 76 refers to control and proceeds on the basis that in that case it was only necessary to decide on facts involving control.
But the analysis we say does not turn on control. It turns on whether in accordance with the ordinary meaning and understanding of the word, the claimants were investors in the assets of the company and whether the assets of the company can fairly be described as investments invested by those shelves.
>> What do you see? I'm sorry. Well, I just to say isn't a fair reading of paragraph 76 that the reason for the conclusion stated in the first two sentences is what is said in the rest of the paragraph.
>> Well, in in this case, my lord, that there are six members of the Diani family. Mr. Wdsworth pointed out yesterday that we don't know that the award is not public and we don't know from this judgment how those six individual investors uh owned and controlled the Singaporean company D and E. And in those circumstances, it's our submission that control can't have been determinative because we simply don't know how as between those six the company was controlled.
And it can't be as a matter of analysis that the fact that they brought the case together as six claimants is relevant uh to the question of whether or not any one of them had a protected investment.
>> Well, he's treating them together, isn't he? They they brought the claim as a group and he's treating them together.
He deals with it in paragraph 11 on the facts.
I I certainly accept that he's dealing with them together >> and he says that they were the directing mind of the company and what's more DNA was a single purpose company whose only asset was acquiring these rights and liabilities. I mean what he seems to be saying is that you can have assets which are indirect what he calls indirectly held or directly held and this is just an intermediate this is a classic intermediate holding company.
You just do it through a corporate vehicle. It would be the same thing if the it was I would think if it was held on trust for the relevant investor.
>> I accept that those were the facts in this case. What what I don't accept with respect my lord is that uh all six could be treated together because all six of them would have to each of them would have to individually qualify as an investor with an investment under the treaty.
Are you have to show any case where the the putitive investor is a shareholder in a company but either on its own or together with its associates does not own all the shares in the company.
Uh there's there's one case in the bundle.
It's called Cardosopilolis and Georgia where that fact pattern exists and I'll come to it uh my lord. But before I do, I'm I've heard what the court said about Diani. Could I go to EIB in Slovakia first and then go very briefly uh to uh Cardosopolis? We can take EIB in Slovakia reasonably quickly because I'm conscious the court has been referred to it already.
It's in volume one.
It's tab 12, page 132.
If we pick up on page 139 at paragraph 294, Slovakia argued that a protected investment did not extend end beyond assets directly owned by the foreign investor uh to include assets uh directly owned by a local company in which the foreign investor had an interest. And on page 140 picking up at the end of the seventh line, Slovakia put it in these terms.
Uh, additionally the term assets referred to in article 11 means assets owned by that investor not assets owned by someone else.
Then at 296, Slovakia pointed to a provision in the treaty which expressly referenced assets owned by a company in which an investorowned shares as giving rise to the inference that other provisions which contained no such reference should not be so interpreted. Article 43 of that treaty was in substance equivalent to article 73 of our treaty. And that's uh what you were referred to at the end of yesterday.
The tribunals's analysis starts uh at page 146.
The heading is just above 315. But then if we could pick it up at page 148 in 319 in the last two lines, the tribunal identified the issue as not what type of asset can constitute an investment but rather what link is required between that asset and the investment.
320 conveniently summarizes the relevant fact pattern, but Mr. Wdsworth described that yesterday and so I won't go over it again.
321.
If I could ask the tribunal to read that at least to the end of the sentence. That is the first sentence finishing on page 149.
So the tribunal rejected the notion that only an asset directly owned by an investor could be an investment for the purposes of the arbitral clause and again cited the broad treaty language which turned on the verb invest. And it is again correct as was emphasized yesterday that in this paragraph the tribunal referred to the investor making an investment through a subsidiary and here that EIC was a 100% owned subsidiary of uh the investor but again in our submission the tribunals's language and analysis rested on the broad language of the treaty and the fact pattern that the tribunal was concerned with was whether indirect investments, assets held by a company in which an investor in turn holds shares could fall within the meaning of a treaty definition of investment which turned on the verb invested and held that it could. And that my lords is consistent if we look at 149 at a three paragraph 323 with the tribunal's treatment of article 43 of that treaty uh which as you know is similar to 73 of ours and it's this paragraph 323 uh to which Mr. Da took you right at the end of yesterday and he was focusing on the very last sentence.
But if I could pick up at the penultimate line on page 149 in par 323, what article 43 does is to make clear that where the foreign investor owns not the factory itself but a shareholding, even a very small one in the local company which owns the factory.
a company the majority of whose shares may well be owned by nationals of the expropriating state or other shareholders who could not qualify as investors under the BIT and who would therefore have no entitlement to compensation under the agreement.
Adequate compensation must nevertheless be paid to the foreign investor.
Now that um last sentence is considering that the last sentence of the paragraph to which Mr. D told you is considering that the assets of the company might be the investment of the shareholder.
Mr. Dar sought to brush that aside on the basis that this was 100% indirect ownership.
The problem with that analysis is that it comes at the end of a paragraph that is explicit that this kind of provision applies even to small shareholders.
And that follows through to 324 where the tribunal appears to regard the protected investment in this scenario as the factory held indirectly through shareholdings that may be small.
That's what we get from 323 and not as Slovakia had argued as only the shareholding itself and it is in my submission therefore wrong for India to suggest that the analysis in this award is somehow limited to situations of control at least in respect of the kind of scenario envisaged in what I might call for shortand the paragraph three scenario 73 in our treaty 43 in this one >> that paragraph's dealing isn't it with the case where the person is an investor in the shares >> it is money it's not saying the factory is the investment No, it's it's dealing with a clause like the one in our case where the investor has an investment in the shares but the factory is taken.
>> That that's correct.
>> So it doesn't tell you anything about whether the factory can be treated as an investment of shareholder. In in my submission uh my lords, paragraph 324 is treating the factory as an investment of the shareholder. Uh it says in the sentence beginning and taking up most of the fourth line since the respondent's interpretation of article 43 is that it provides for a duty to compensate notwithstanding that there is no such investment.
It would follow that a dispute regarding the arrangements for payment of compensation under article 43 would not be subject to arbitration.
So the tribunal is rejecting the idea that the 43 that the factory can't be treated as an investment and in this paragraph 324 uh treating it in that way I accept uh that there's a certain degree of elision occurring uh as fell from my lord lord justice males yesterday uh but in our submission that's what's happening in 324.
Uh, and when read with 323, this case we say does not turn on control, although it certainly existed on the facts.
But this was all in the context of the case about 100%. So the the respondent's argument was that even in the case of 100% you couldn't have the indirect investment and they're dealing with the respondent's argument doesn't tell you anything about a case of a minority shareholding.
Uh I I accept that I accept that this case is not authority for the proposition that a that a minority shareholding can lead to this result. I accept that uh our submission is that the analysis does not rest on it being 100% control case.
>> It would be authority anyway would it's a it's an award.
>> I I entirely accept that too. It's it's the award uh that Mr. Wdsworth was keen in respect of which he was keen to emphasize the eminence of the chair of the tribunal but I take no point on that uh its analysis is either >> the war in relation to a different treaty >> I accept that too my lord but that's true for all of the wars uh could could we now go uh to EDF and Argentina it's also it's in volume one.
It's a tab eight.
It starts on page 77.
This is a decision of the of an exit enulment committee upholding the award of a tribunal.
If we pick up on page 84 at paragraph 19, a consortium company called Sodmsa was incorporated in Argentina.
The three claimants each held a minority interest in that company. It's EDFI at 45%.
S Aurri at 15% and Leon at 40% through yet another intermediate holding company.
So Demsa in turn acquired 51% of the shares in another Argentine company called Edensa and Eda was party to a concession agreement with the government of Mendoza.
The contract in that case was thus a step further away from the claimment investors than the BSA is in our case.
If we then go to page 87 at paragraph 28, this records the tribunal rejecting the argument about Barcelona attraction and dio.
And then the last line of the part of the paragraph before the quote on page 87 records the tribunals's essential finding. The treaties were broad enough to cover indirect investments.
And then in paragraph 174, if I could ask the tri the court to read that and 175. That's the quote from the tribunal.
That's the award uh that was upheld. The analysis of the enolment committee begins at page 91 and then picking it up at page 94 at paragraph 255.
The ad hoc committee agrees with the tribunal's essential finding and this is in circumstances.
>> Sorry, which paragraph have you gone on to now?
>> 255 the top of page 94.
The ad hoc committee agrees with the tribunal's essential finding and this is in circumstances where each claimant has a minority stake in Seda which is the consortium company which in turn holds 51% of the shares in Edensa which in turn is party to the concession contract.
256 and 257 uh are the paragraphs dealing with Barcelona traction that Mr. Justice Butcher sites in Diani.
The the last paragraph to which I would draw the court's attention is on page 96.
It's 261.
Argentina had suggested that there was contradictory reasoning in the award and in particular that the tribunal had wrongly suggested that the claimants were party to the concession contract.
I'm picking up at the end of the third line, the enulment committee notes that the award was describing what the tribunal considered to be the underlying economic reality, namely that the claimants had invested in the concession.
And then the next sentence adds it was not dealing with the issue of who was a party to the contract in the street sense.
My lords, uh the three propositions that we seek to draw from these cases are first that there's no barrier in principle to the rights of a company in which an investor holds shares being treated as part of the investor's investment.
Investment companies, investment treaties can and do protect investments made by an investor through another company in which it holds shares.
The second is that whether any given treaty will do so is a matter which depends on the correct interpretation of that treaty as the lex specialis. and then the application of that to the relevant facts.
A majority interest or a controlling interest is required by some treaties like the treaty in Azurik and Argentina to which India has referred but it is not required as a matter of principle.
The question in this case is just whether the BSA was an asset invested by Raikia. The answer to that does not depend on whether Rakia was a party to the BSA or whether it was a majority or controlling shareholder of Anra as the party to the BSA.
to use the expression from EDF.
It just depends on the economic reality.
And the third proposition is simply that rules and cases relating to corporate personality or privity of contract or when looks might be acceptable.
in the different contexts of domestic legal systems and diplomatic protection under custom do not assist in interpreting investment treaties.
India's reference to the fact that Rakia is not as a matter of Indian law the owner of Anra's assets or a contractual party to the BSA is therefore not the point and India's references to Swiss that's the lutu case to which you were referred yesterday or professor Douglas's treaties this or to the extract uh from Mr. to land our submissions before the judge in this case are therefore all in our submission beside the point the treaty doesn't require ownership or privity that brings us my lords uh further to India's attempt to distinguish those cases I said this would be the second part of my legal submissions And the first is the control theory. And it's certainly true that some of the cases do mention control. And in some cases that's because the treaty requires it.
Control may be present on the facts.
And I entirely accept my lords that if control is present, it's more likely that the relevant treaty criteria are satisfied. Our submission is that control is not the only way in which the treaty criteria may be satisfied.
And that another basis may be circumstances like these ones where the company was a special purpose vehicle incorporated and capitalized to carry out a specific investment project of which the relevant contract was an essential part.
And just as a matter of ordinary meaning, making an investment or investing does not require control unless the treaty says so.
And we can test that with hypotheticals and all else equal.
The question is why a 49% shareholder would be in a different position to a 51% shareholder so far as whether they had a protected investment was concerned and where any distinction of that kind would be found on the treaty language applicable in this case. And that question might arise where a foreign shareholder has a minority stake for purely commercial reasons.
But it also might arise in circumstances where by reason of regulation or just political fact, a foreign investor in a particular industry or project will simply only ever be able to be a minority participant.
51% or 100% as well as not being necessary also may not be sufficient.
If we imagine the day trader, if the day trader had a big day and bought 51% or even 100% of a company, it still wouldn't make it an investment.
or a case of dilution.
If Rakia had started at 51 and been diluted to below 51 on these facts, we say that wouldn't make a difference. or if it had started at 100 and been diluted below 50.
We say that on these facts, control wouldn't be a factor that would cause Rakia to have made an investment but then no longer have an investment because of that dilution.
Then there's the situation of multiple minority shareholders.
In EDF, the court saw that it was 45, 15 and 40.
And again, uh they need to be treated individually for the purposes of whether each of them is an investor with an investment.
as to the empirical point uh made against us and I'm conscious of the question that my lord Lord Justice Miles posed to me uh about that empirical point. First of all we say with respect uh that as an empirical point it's not of analytical value. Secondly, we say that EDF is such a case for the reasons that we've described and that there's no analytical significance to claimants claiming together in one process when asking the legal question of whether each of them is an investment protected by the treaty.
uh and there are two cases to which I'd give the court reference.
One of them I mentioned is Cardosopouloolis and Georgia.
It's the relevant passage is in the full authorities bundle which you only have in electronic form. It's a short uh paragraph. I'll just read it out for you. The reference is page 2340 in that unabbridged bundle. It's paragraph 141 where it said the tribunal therefore concludes that claimment had an interest in Tramx Panama at the time the JVA was executed.
The tribunal accordingly finds the claimant was at all relevant times and remains now the beneficial holder of 50% of the share capital in Tramax Panama and indirectly owned a 25% interest in the joint venture vehicle GTI which carried out an investment in Georgia. That's paragraph 141 of the decision on jurisdiction.
The merits award did not make it into the bundle, but what was expropriated were the assets of the joint venture vehicle GTI in which the 25% interest was held.
And if my learned friends wish to check that in the merits award, it's paragraphs 155 to 158.
And at 387, there's another case in the unabbridged bundle which responds to the question that's been put to us. uh in terms of minority shareholders, it's the case of Scubent and Macedonia and the references uh pages 3,117, 3,169, 3149 to 3150, 3170, and 3183.
I thought the idea of authorities bundles was that the cases which were going to be referred to in court would be provided to us. the the except for Cardisopoulos on the merits the other two to which I referred are in the authorities bundle and it's only occurred to us to refer to those particular passages in circumstances where the empirical points been emphasized uh yesterday and today that there isn't a specific case. So I apologize for the inconvenience. My uh the the last uh point I'd make about India's approach arises from the reliance on article 18.
India says that article 18 and 102 somehow mean that the definition of investment in article 11 one should be narrowly construed and should exclude indirectly held assets that with respect is circular in requiring action to be applied directly to an investment so as to constitute a measure Article 18 says nothing about what what constitutes an investment.
An investment consists of one or more assets which must be invested by an investor.
That's the article 1 one question.
The requirement in 18 must be applied directly to such an investment says nothing about which assets have been invested by an investor.
My lords, uh I can be brief on the third part uh on the application to this case.
Rakia says uh that its investment extended to the BSA uh in circumstances where this definition of investment applies to these particular facts and that what is not determinative is that Rakia is not a party or that it held a minority stake. That's because article 11 one embraces every kind of asset.
And the non-exhaustive list which follows includes rights or claims to money or to any performance under contract having financial or economic value without specification as to the parties to such a contract.
And the link to use the word that we saw in the cases between every kind of asset and the investor is invested by and that's in the context of article 32 encouraging the incorporation of local companies to carry out investments.
We say that the core factors on the facts are the central component of the project being the long-term exclusive supply and purchase of pork site from the Gerald mines for use in the refinery and smelter and that although rakia was the minority partner uh it had negative control over the purpose of that company and that the BSA to which Anrach was then party.
>> It didn't have control over the business company, did it?
>> I accept that. My lord, the BSA to which Anra was then party embodied the central component of the project in which Rakia was choosing to invest.
Those uh my lord uh the submissions of Rakia on respondence notice ground one. Uh I'm in your lordship's hands as to whether you wish of me now to make the application for permission on respondents notice ground three.
>> Uh yes. Well, that's the next point to arise, isn't it?
Uh I I've been handed uh transcript references uh in response to a question posed to me by my lord Lord Justice Phillips on the transcript. Uh and the pages are 57 line 24 to 58 line 9.
and page 59 line 14 to page 60 line six I don't propose to make any further submission on My lords, uh, the ground subject of this application is pleaded in the respondent's notice at paragraphs 6 and 7.
It is that it's a core bundle five pages 54 to 55 core bundle tab five.
It is that the standing offer to arbitrate is in article 105 of the treaty read with article 104 and it is not conditional on article 102 or 103 which instead deal with attribution of conduct to the state not a tribunal jurisdiction over a claim against the state Rakia abandoned this point shortly before the hearing before Mr. Justice Nolles. It's therefore a new argument on appeal for which we have always accepted that permission is needed and we deal with that in the respondents notice on page 55 at paragraph 11.
We are conscious that the principles on granting permission are well known to the court and it might be most efficient just to go to tab 40 of the authorities bundle at page 799 >> is this naughty hill in that line of cases >> uh this is Hudson and halfway but it picks up sing and d and it's summarizes Notting Hill. So, uh, your lordships can see at page 799, uh, where Lord Justice Lewis quotes at paragraph 34, uh, paragraph 16 to 18 at Sing and Das and then on the next page at 35, he summarizes Notting Hill finance.
India rightly acknowledged that the reference in Hudson at 36 to the potential distinction uh between a respondent taking a new point and an appellant taking a new point. That's in India's supplemental skeleton paragraph 17.
If there's a difference, uh, our submission is that the court should be more willing to permit a new argument to be run by a respondent for the reasons intimated by Lord Justice Lewis at paragraph 36 in Hudson and Hathway. That's on the basis that CPR rule 5213 permits respondents notice grounds seeking to uphold the decision of the lower court for reasons different from or additional to those given by uh the lower court which on their face would allow new arguments to be run as much as those run and rejected below.
Of course, the respondent already has the benefit of the lower court judgment, and so permitting it to run a new argument seeking to uphold that judgment is not as prejuditial as permitting an appellant to seek to deprive the respondent of a judgment in its favor by reference to a new argument.
>> So it may >> Why does that work? Because if respondents notice point is only relevant if the appeal succeeds in which case they have their they won. So it is prejudicial.
>> Well, we certainly don't say we have uh free reign but it's not it's it would only work in circumstances where uh we already have a judgment in our favor. And it's sometimes said that there's if there's a judgment in the appellant's favor, that's a reason not to allow a new argument. It's as high as I'd put it.
We certainly put our case, my lord, on the sing and dash principles on their terms. Uh really all I was doing was drawing the court's attention to what Lord Justice Lewis says uh in paragraph 36. And >> are you going to give us an explanation of why it wasn't rung below?
Uh my lord, one of the points I'll make uh is that that's not a relevant factor.
One of the reason >> So the answer to the question is no.
Then >> uh I am not my lord going to provide an explanation.
>> Why should we in that in that that case indulge you in just simply changing your mind? Uh my lord um the the reason we say is that the sing and dash principles are as they are and I propose to make short points on their application and that motive is not one of them but we we accept that it's a change of mind case and so if the court's position is you can't change your mind and I accept we don't get permission our submission is that that's not one of the relevant facts. Was it relevant a further factor that by and large this court doesn't entertain even entertain arguments from below without permission from the judge?
We we say that doesn't apply in this case uh because the relevant counterfactual is that we still won below uh and had run this argument but had not succeeded on this argument. And in that scenario, uh, India would still have needed to apply for appeal, apply for permission to appeal and we would have been entitled to have run this point.
>> No, no, that sorry that misses the point. The point is that the the principle underlying the arbitration act is that these are matters which are to be dealt with by the first instance judge and it's only in exceptional circumstances that they would leave of the judge that it comes to this court and it's a it's a intense flouting of that principle to to invite us to deal with a point that you not only didn't argue below but chose specifically not to argue below. So whilst it may not technically require permission, do we not to take into account the fact that this is an argument which the commercial court judge didn't even have the opportunity to express his view on >> and he is the primary he is the primary decider of issues in an arbitration application.
>> My lord, my answer to that is in two parts. first that we wouldn't have needed permission for the reason that I explained and secondly because we didn't need permission the factors that are specifically relevant under section 67 and it being an arbitration case don't apply because we wouldn't have needed permission anyway >> but we don't even have the benefit of the judge's views on this point >> that's that's correct you have >> that that that is a coaching horses through the arbitration act isn't it?
>> You have the benefit of the arbitrator's views but not the judges. I accept them.
>> So I if the court is willing to entertain uh my submissions on uh why we say the sing and dash principles apply specifically to this case in short form then I'm ready to make those now.
>> All right. will complete complete what you want to say on the on the application for permission. Um I mean sense that you you said it haven't you in your respondent's notice?
>> Uh yes but I I don't propose to take very long my lord but I do have more to say than >> anyway your your position on the operation act is that is this right that even if you had taken the point below and lost on it >> um and you'd won as it were on Mr. points.
Uh, you would not have needed the judge's permission, is that right, to raise it >> on a respondent's notice in this court.
>> That That's our point, by the way.
>> Yes, I see.
>> But if Mr.'s points, if I can call them that, hadn't succeeded and this was the only point on which you I see you still have won. Okay. So, you've taken this point and lost everything. You would have needed permission to raise this point.
>> I accept that. But that's not that's not our case.
>> Uh first, it's a pure point of law.
Secondly, it does not require or involve new evidence. Uh thirdly, it would not have resulted in the trial being conducted differently uh with regards to the evidence at trial. And we know that because the point was pleaded in Raikia's arbitration claim form. It's ground two and in particular 2.2. That's at tab 12 page 132 or bundle.
It was canvased in the witness statements aduced below.
Uh it's in Bradfield 1 uh supplementary bundle page 58 at 20.1 and then she identifies it at 62 to 69 as a matter of full and frank disclosure and then says at par 66 that it's primarily a matter of submission and beyond the scope of the witness statement and that's matched by Mr. Langley for India at page 128 of paragraph 34 where he also rightly describes the interpretation of article 10 as legal argument and not a matter of evidence.
So if it had been run below so far as evidence is concerned the hearing would have been conducted in the same way without live evidence as is usual for section 67 hearings.
The fourth point is that the point of law that Rakia wishes to raise is dispositive if Rakia is right about it.
The fifth is that India has had adequate time to deal with it in writing was identified in the respondents notice argued in the skeleton uh and India has replied to it in the supplemental skeleton.
It was run by Rakia in the arbitration and so India has dealt with it not only in writing before this court but in full before the arbitration. The sixth point is that there's adequate time to deal with it at this hearing.
The seventh is that there's no question of India having acted to its detriment on the faith of the earlier omission and the eighth is that India can be protected in costs uh if needs be and that my lords uh is the basis for which we say that all things considered uh the overall course of justice militates towards allowing Rak here to raise this point. India say that you do need to refer to new material because you want to look at translations >> my lord there was an application in on translations and there are three paragraphs in our skeleton >> I think you've abandoned that haven't you >> that refer to them and we have abandoned those so as there's no need to pursue the translation application there's no need to burden the court with the rights and wrongs of why that's happened but the position before you is that there's no translations application and we don't rely on those three paragraphs.
>> So just to be clear on that point the when we read article 10.2 that says in the context of the republic of India this article shall cover measures etc. And you want to run the argument on the basis that we use that text.
>> My lord, we do.
>> Yes. All right. Well, we're going to rise for a few minutes.
Sorry. Yes.
All right, this table Uh we will hear from the appellants on whether the respondent should have permission to raise this point. Um and then see where we go.
I'm grateful my lords. I believe the court already has the key point which is that this is an arbitration claim where the underlying policy is one of speedy finality and if Rakia were to be given permission now to advance this point by way of section 67 challenge to part of the award that would be the first time in which this is being argued about before an English court almost four years to the day after the award was issued. Um the decision to drop the point was plainly a decision which was reached after careful consideration by a highly experienced council team. There's been no positive evidence offered for why it was dropped. But in my respectful submission, one can infer that in addition to reflecting a view on the merits of the point, that was a decision taken to procure tactical advantage below by enabling the hearing time below to be focused on the one point on which the uh on which the respondent really wished to win. And in my submission, it would be unfair for that decision, especially when no evidence is offered as to why the decision is being changed.
You you mean because there was what a fixed time for the hearing below and there wouldn't have been time to cover this point as well.
>> Um uh yes in my submission it was it was listed for two days and so a decision was taken to drop this point enable more time to be spent on on the point that Mr. land I was dedicated more than a day of argument to >> and and if they had run this point uh and lost on it or even if they had run this point and the judge had said because I'm in their favor anyway I don't need to deal with it. Do you accept that they would be entitled to raise it by way of a respondent notice in this court without permission or would they need some kind of permission and if so why? I don't accept that for it depends on what happened below. If they had won on the point on which they won and had argued and lost on the point that they're now seeking to run, India would have been entitled to ask for a declaration from the court on the proper interpretation of article 102. and to the extent that it's relevant. Certainly in my experience in other treaty cases, declarations are frequently granted as to the proper interpretation of a treaty provision when there has been dispute about that following a trial. So if they had uh won on the point on which they won and lost on the point on which they now seek to run, India could have sought a declaration and if that had been granted they would have needed permission from the court below to appeal against that >> because the order would have been different.
>> Exactly.
Um so a India is prejudiced because um in that situation it would have been able to resist the grant of permission to appeal. B if an application for permission to appeal had had to be made to the first instance court India could have sought for that grant of permission to be conditioned. So by way of background, Rakia provided security of costs for costs when it initially brought this claim which was returned to it after it won. If it had been seeking permission to appeal, India would have been able to say that grant of permission should itself be condition contingent on security as indeed Raki has said to India when India sought permission. But I can see that in a counterfactual world where it had been argued there might have been a different order and therefore they would have needed permission from the judge but we're not in that not being in that counterfactual world. It is raised as the respondent's notice point. So they don't need permission.
>> No, I cannot say that they need permission. No, what they need permission to to do is from you is to run the pipe and my submission. It's not purely uh a question of simply running a new point on appeal. One should also take into consideration the fact that it was dropped below. So it is a requirement for permission to withdraw a concession which was made below. Not simply running a new point on appeal.
>> We did not infrequently allow concessions to withdraw.
>> Uh yes and I accept that. in the overall test is is it uh is it just picking up on the points that Mr. um Mr. Geratovich made by reference to the authorities. He took the court to Hudson and Hatheraway.
I don't propose to go back to it but just to pull out the key points which India relies on in it. Uh first that the court should be cautious about allowing a point to be raised for the first time uh on deal. Um I obviously accept that there are a spectrum of cases. Some cases in which it would have changed the presentation of matters below and some cases where it's a pure point of law.
And I accept that this is at the the pure point of law side of that spectrum.
But that is not determinative because even in that situation as is made clear at the end of paragraph 35 in Hudson and Hatheraway one has to consider the nature of the proceedings um and any prejudice to the opposing party if the new point is now to be taken and the overall question is is it just um as to the nature of the proceedings the court has the point obviously that it's an arbit arbitration claim. The overriding principle in the resolution of arbitration claims is one of speedy finality and that is to promote certainty and in my submission it's wholly inconsistent with that to allow a challenge in effect to be brought for the first time four years after the award is issued. um more um at a more granular level if I could put it that way. There are >> is that is that a point which has greater weight do you say when the new point is one which is challenging the arbitrator's decision rather than seeking to support it?
>> Yes, in my submission for it is it is a challenge to an award at a more granular level. Obviously the court will have well on board that that there are exceptionally tight time limits for bringing arbitrary challenges which is what this is. It would have to have been brought within 28 days.
Obviously it was brought within 28 days but then it was dropped. My submission if below it had been suggested that having dropped it it could be brought back to life. The answer to that would obviously have been no. and my submission there's no reason why a different outcome should follow on appeal especially given the points which I've already made in interactions with the court about the fact that had it been run below on various permutations Rakia would have needed permission from the judge and India would have been entitled to pause that and then my final point is the obvious one that my submission is highly unsatisfactory that the court would be being asked to look at it without without the first instance court already having done that. I mean the arbitration regime or the regime under the act is put in place for very good reasons which is to allow a first year review of review of an award and then to have control at that first instance level of whether matters go further. And whilst I completely take on board the points about being able to take points by way of respondents notice, this is fundamentally a challenge to the award and the approach of Rakia is to deprive the first instance court of the ability to have looked at that and decided it and therefore to deprive a this court of the benefit of that process and b deprive India of the ability to have opposed provision to appeal from the first judge. The overriding point though in my respectful submission is that if the test is one of justice and that is what um that is what one gets out of Hudson and Haway, no positive reason is being put forward by Rakia for why it needs why it is just to allow them to behave in this way.
If the court wanted to consider the the the the merits at a very high level of at a very high level, India's position obviously is that this argument has no realistic prospect of success.
>> Well, we haven't really asked Mr. to deal with the merits. It is not permission at the moment.
>> Yeah. But but there are the reasoning of the tribunal is set out in five very concisely reasoned pages. Um there are points in there in particular about how this deprivives the limitation clause of any effect and how it would not make any sense for Rakia's interpretation to be right. Um given the presence of the the carve out in the MFN provision >> might be talking us into it now. Yeah, those points are completely blanked in the in the skeleton. That's because there's no response to them, my submission.
>> All right. Right. Well, um, thank you very much. Without going into the merits, do you want to say anything in reply on uh permission?
>> Thank you, my lord. Nothing in we we'll rise and and come back in a while. See see if we can decide this.
Um, at this stage, we may or may not be able to do so. Rise is able.
Okay, sure.
Off the body.
There you go.
Cool. Right table.
Uh we're going to refuse permission for this point to be run. We'll give the reasons uh in the judgment. So I take it that then concludes the submissions from the respondents.
It does my lord. Thank you very much.
>> Very good. Thank you. Yes.
Yes. Thank you Mr. Webster.
Sorry. Right. Now, how long do you think you're going to need for your reply? Um, my lord, I think longer than uh longer than we have today. Um, which which is not an answer to your question. I I I do know that. Um, I would estimate approximately one hour. Right.
All right. Well, let's make stop.
>> Well, I'm grateful.
>> We'll um we'll take stock at half possible.
>> It may well be that things move move faster than I will endeavor to do so.
>> And if and if we need to come back on on Thursday, if you can't make the points you need to make, then we we must do so, of course. But um let's let's see how we go. I I appreciate how unpopular that will be. Um and therefore I will do my best. Um, my law uh the question for the court uh that my lord Lord Justice Phillips posed um uh was whether a binding action I can summarize towards the business or project meant that there is a direct application to the shareholders in that business. Uh what essentially raising the question of what is the proper construction of the term measure in this treaty.
Um and that involves a question of what is the test that Rakia says is the correct construction uh of applied directly to an investment.
That question depends on the proper interpretation of the treaty of course and cannot turn on the facts of an individual case cannot depend we say on how the investment happened to be held at the time of the alleged measure point I'll come on to there are two candidates before the court and that are proposed by Rakia the first candidate is the targeted act test which was the analysis adopted by uh the judge. And the second approach, the second candidate is what I'd call the impact on value test. And those are the only two candidates that the court has before it. I understand my learned friend's analysis of direct nexus to effectively be the same thing as impact on value.
So those are the two routes being offered to the court as a rationalization of how gum 44 was applied directly to Rakia's shares and in our respectful submission neither works. I can start with the targeted out formulation uh which was uh what found favor below apply directly to meaning targeted out investment. Your lordships will note that my learned friend did not actually positively advocate that as the correct construction of the treaty and Lord Lord Justice Males pointed him to the relevant paragraphs of Mr. Justice Nolles's analysis of the different candidates targeted at collateral effect and so on and asked him uh what his position was on those. It wasn't actually clear when one goes back to the transcript. I think where uh my learned friend came out at was that it was sufficient that it was targeted at the project or investment but not necessary. That's different to the position adopted below by the judge.
In the judge's analysis, it was necessary for the binding action to be targeted at the investment. And that's an important point because obviously on the judge's analysis with respect um at paragraph 111 and 112 his conclusion was that a measure meant or they applied directly to wording meant targeted.
So it's not actually clear my lords that Iraqius supports the analysis of the judge as to the proper construction uh of the treaty.
The question obviously for the court is is it the right construction of the treaty? Um and in our submission plainly not to say that the words applied directly to mean targeted at you'll have had my submissions yesterday on that.
>> I think I think the phrase that was used was targeted at or directed at.
>> Yes, my lord. In our submission there is no uh difference I can say between targeted at or directed at. They are treated by certainly Mr. Justice Nullles is synonyms effectively and I didn't understand my learned friend to be suggesting that there was going to be any daylight between the two tests.
Daylight in the sense of between the words targeted at and directed at.
question obviously is if one can get that targeting test out of the applied directly to language and in our submission just on the ordinary meaning of those words one plainly can't get that what the applied directly to an investment test requires is not simply that it's targeted at an investment but that it reaches the target binding action is directly applied to it.
Paragraph 112 is is saying it's sufficient and not necessarily necessary because it says the test is satisfied where there is targeting. It may be different with measures of wider general application but it may not.
>> So that's that is a sufficient point isn't it? My lord, I think the difficulty with the judgment, I may say with respect, is when one looks, I think it's at paragraph 112, you're right, to say it's unclear, but actually at 113, the judge says that the result is a balance. So, it's quite clear, I think, what the judge considers the result to be. He's opposing at uh 112 measures are applied directly to an investment where they are targeted at the investment. The position may be different with uh measures of wider application.
At 113 the result is a balance.
Um so that seems to be the result of his interpretation of the treaty.
Um and and one can see that again at 115 when he refers to the working of these provisions is not affected by an appreciation that to be a measure is defined an action will be targeted.
It's a a penultimate line that is directed.
>> Yes. So in our submission it on a fair reading of the judgment um Mr. Justice Nolles was saying that it was uh necessary to find that the uh binding action was tugged at the investment and the difficulty with that as we say is that it doesn't find support in the terms of the treaty uh which instead requires something quite different.
Now, as I say, my learned friend didn't focus on how one can get, as a matter of ordinary language that test out of article 1.8.
He instead focused on uh one or two contextual points in the treaty. One of them was a point that I made yesterday regarding clause 14.2, which he said didn't assist our case.
And as your lordships will appreciate clause 14.2 um we discussed yesterday but the short points paragraph one sorry page 152 of the um core bundle.
Nothing in this agreement precludes the host contracting party from taking necessary reasonable measures in accordance with its laws applied generally on a non-discriminatory basis in circumstances of extreme emergency.
uh for the specific purposes of prevention of diseases or pests. In our submission, it's quite clear that what that is referring to is not that law that there are simply laws that are applied generally on a non-discriminatory basis. The application it's looking at is through the measure because there are two conditions to access this liability defense. one is that you've taken a measure uh in a way which is applied generally on a non-discriminatory basis and secondly that it's in circumstances of extreme emergency. So that's what we say is the correct reading and if that if that that's our submission and if that forgive me that can't be right can it because a measure is by definition applied directly.
So, so the reference to apply generally can't be to the measure because we know the measure is being applied directly.
>> Well, my lord, it can with respect because if one imagines a situation of extreme emergency, say a COVID type uh regulation to use this context of this clause, it may be applied directly to a number of investments that require one imagines particle but factories or hospitals. So applied directly in that sense to those assets.
The question is is that direct application being done on a uh it's being is it been is it being done on a non-discriminatory basis?
It'll be applied the clause assumes that it will be applied generally. So if one takes um as I say a nationwide COVID regulation that applies to every hospital in India um that is what it's contemplating that sort of thing. So it's that the measure in accordance with its laws is applied generally on a non-discriminator. I mean, if you're doing it if you're doing it generally, for instance, your COVID analysis, you're doing it all over the country.
The fact that you're applying it directly to this business isn't uh isn't procluded.
Uh it isn't procluded in the sense that so first stage it would be a measure because it'd be applied directly to that investment. So let's say a foreignos hospital owned by a foreign investor that it would be applied directly. It's not procluded in the sense that there is a recognition that on the merits um there is a defense uh or it's it's out with the scope of um liability under the treaty because it says nothing precludes the host state from doing that. So people >> or there may be laws of general application which give the government the power to shut shut down premises for health reasons. Uh but the government decides that it will shut down this particular factory because there has been an outbreak in this area but not not the rest of the country or the rest of the province. Precisely, my lord. And in that situation >> and that would be a measure applied directly >> to this factory and there would be an opportunity to arbitrate on the basis that the health reasons given were speurious for example.
>> Yeah. Yes. And going one step further, the um exception to liability in 142 would then not apply because it would be on the hypothesis your logic is putting a discriminatory measure. you're t you you're going after a particular foreign investor in that example say so the only point we're seeking to draw from this provision is that the draftsman um and the parties contemplated that one could have a capital M measure that is applied generally and that makes it difficult on the judge's analysis which says it's all about targeting at a particular um investment >> but it's a lot that's a lot of weight to put on what is uh in its terms for avoidance of doubt provision is it nothing in this agreement precludes it's saying look well we're all we're all very familiar with such provisions in contracts or in legislation just to clarify that nobody should be under any misunderstanding that nothing above here stops this important action which is to prevent disease or pests yeah I I fully appreciate that it we are placing weight on it. Um I would with respect suggest it's not uh a lot of weight because the significant point as we say is what it what it is contemplating a measure can be doing but there are other uh pointers within the text of the treaty my lord which support this. It's not purely uh an article 14.2 point and if I can just draw your attention to two others we don't need to go through them. Article 7.4 four uh made this point yesterday refers to regulatory measures short point that I'm not taking that I'm not placing enormous weight on but it is again a signpost uh that it doesn't have to be um targeted at a particular project a provision I do uh also wish to draw to your attention please is in article 4 and that's at page 141 142 if I could ask you to turn to my lords. Um um so that refers uh to investments by investors shall enjoy full protection and security so on. It's the uh second sentence which I'm particularly interested in.
Neither contracting party shall in any way impair by arbitrary or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments.
And we say uh that the judge's analysis of targeted at doesn't sit comfortably with this concept of discriminatory measures. This is a very wide-ranging uh prohibition substantive prohibition in the treaty under 41. And the important point is that the fact that the parties have specifically provided there for that prohibition suggests that the definition of measure was not itself intended to distinguish between cases of targeted at action and cases of wider general application.
If the measure was targeted in the way that uh on the hypothesis for example that my lord uh lord justice males put that would be an example of a discriminatory measure which would attract liability under 4.1. So cases of singling out of a particular project are dealt with by 4.1. They're not baked in the definition under 1.8. Isn't it fair to say though that throughout this treat treaty it's not exactly a model of consistency and and precision? So picking up the odd references here and there and saying well that all that all demonstrates what 1.8 I think is a bit difficult. I mean the best example being in 7.1 where it talks about direct or indirect measures.
>> Lord I can't we've got a concept of indirect measures being applied directly.
My lord, I can't um I can't dispute that and that is to some extent why we're all here in terms of the difficulties of uh finding a coherent scheme for for this document and the tribunal noted the very point that your lordships just put on the difficulty of direct or indirect measures.
>> But what but what at the end of the day is is the key point is is your interpretation of 1.8 date is such that it only protects um the an investment a substantial investment in a in a a business which was originally by way of investing a lot of money uh if there are measures which um directly um affect the shareholder and that's that the end of the day is the real difficulty in your analysis, isn't it?
>> Well, my lord, that doesn't provide the protection doesn't protect the investment in the way that one would expect.
>> But the with respect the the reason and sort Mr. Aie had a perhaps a fair pot at my so what point, but the but that wasn't meant to be a flippant comment at all. The reason why I would with respect dispute that it's a difficulty on our interpretation is because this is not as we said yesterday like the other treaties that one sees on a regular basis.
>> Well, I'm not sure you made that good in the respect.
>> No. Well, clearly I >> um and at the end of the day, we have to we have to read the words in the context of primarily the treaty.
>> Absolutely, my lord. which provides lots and lots of provisions about about um encouraging investments, protecting investments, treating investments, compensation for damage or loss expropriation. But most of that on your case isn't arbitable.
Well, that just that depends on whether there is a capital M measure and give give and and so >> of course it does. Yeah. And that's what we're arguing about.
>> Absolutely. But but but sorry to state the obvious point but that is where really at the heart of it now 10.2 and the limited offer to arbitrate I call it limited that's not a sort of jury point or that is the reality that the court now faces is that it is limited >> under 10.2 to executive measures.
>> Yes. And that is not a sideswipe point.
that is absolutely fundamental to how this treaty operates for the very reason my lord uh you give absolutely does have lots of uh nice protections treat investments fairly and equitably but those and it is I appreciate from um perhaps I wouldn't call it a normal perspective but from a private law perspective um it is odd that one would have rights granted in one document without a correlative remedy absolutely but that is that is not odd within the scheme of this treaty and it's not odd and it's intended because of this insertion of measure and I'm not putting this is not about well most an awful lot on on on the respondents reading an awful lot of the breaches of these articles would be by way of actions of the um governments which would be measures and would be arbitable. But you are defining you are further restrict seeking to further restrict the arbitrageability by defining in measure so narrowly that it even removes that that potential way of protecting or enforcing these protections by saying effectively that it's you can't even you can't even say that actions of the government are measures which fall within 10.2 to unless they are uh as you say specifically directed to the form of the investment not just the investment it in a broader sense.
>> Yes. And and and the reason we say that is because you say the way my learned friend puts it is uh that his conception captures as a measure a form of binding action that impacts on the value of his investment. And we understand that case.
that case with respect can't be built out of the wording that was chosen by the parties in 1.8 may be the case that uh gives better protection to investments. It may be the case as my lord has identified which would make each of article 4, five, three so on have real teeth. I accept that that's not what the parties chose and with respect we say that's a deliberate choice because when one looks at where in the treaty they deal with impact on value of an investment they do that expressly we referred to 7.4 and 10.8 yesterday and those are provisions which do deal with measure as a concept and then distinguish that from the effect of the measure on the value of the investment. So it's clear to the parties at the time of agreeing this that the concept of a measure is something different. It doesn't require baked in does it have an impact on the value of the investment and my learning friend doesn't explain with respect how one gets that out of article 1.8 his case on effect. Instead, the question is put by reference understandably so perhaps to the facts generally of the case. And the argument that's made against us is well on the facts of this particular case given everything that had happened which I would like with your indulgence to come to but given everything that happened this was must have been a measure applied directly to an investment that really won't do we say as a matter of the VCLT approach the way it was put uh today at page 95 of the transcript uh was and my learned friend said as I've already submitted The binding action in issue in this case was we say in context only sensibly interpreted as applied directly to the value of Raki's shareholding and then he said uh essentially there was an inevitable impact on the value of this particular shareholding and that meant it was applied directly.
When the court goes back to have a look at how that is framed with respect that changes the test that changes the words that are being used in 1.8 state from a test of applied directly to an investment to apply directly to the value of the investment or affecting the investment and that's not permissible under uh the Vienna Convention.
>> Now, how are you doing? Uh it's 4. Um but >> if we were to if we were to sit say for another 15 minutes, would you finish without us putting pressure on you or do we need to come back on Thursday?
>> Well, could you give me one moment please? Yes. Um that's okay because I think >> I don't Is are we going to hear from Mr. Wsworth as well or is it just um just you Mr. D?
>> That's partly what I want to just uh My lord, um I do appreciate that this won't make me very popular, but we would appreci we would like a bit of extra time um to deal with this. I don't think it will be done in quite in 15 minutes.
>> No. All right. Well, we'll we'll um adjourn till Thursday morning then. We don't we don't need to hear you on the um BSA point, Mr. Dat.
something that might or might not shorten things a little bit, but um no, we don't want we don't want to put you under unfair pressure. Um the presence of all these people in court suggests that at least some people think it's an important case, so it's so we must hear it properly. So we'll resume on Thursday morning at all.
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