Claimants' Memorial
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IN THE MATTER OF INVESTMENT DISPUTE UNDER THE AGREEMENT BETWEEN CANADA AND THE REPUBLIC OF SERBIA FOR THE PROMOTION AND PROTECTION OF INVESTMENTS AND UNDER THE AGREEMENT BETWEEN SERBIA AND MONTENEGRO AND THE REPUBLIC OF CYPRUS ON RECIPROCAL PROMOTION AND PROTECTION OF INVESTMENTS RAND INVESTMENTS LTD., WILLIAM ARCHIBALD RAND, KATHLEEN ELIZABETH RAND, ALLISON RUTH RAND AND ROBERT HARRY LEANDER RAND (CANADA) AND SEMBI INVESTMENT LIMITED (CYPRUS) CLAIMANTS – v – THE REPUBLIC OF SERBIA RESPONDENT MEMORIAL 16 January 2019 TABLE OF CONTENTS I. INTRODUCTION ....................................................................................................................... 3 A. Preliminary statement ......................................................................................................... 3 B. Summary of Claimants’ claim ............................................................................................ 3 C. Organization of the Request for Arbitration ..................................................................... 11 II. THE PARTIES .......................................................................................................................... 13 A. Claimants .......................................................................................................................... 13 B. Respondent ....................................................................................................................... 18 III. FACTUAL BACKGROUND ................................................................................................... 19 A. Pre-privatization history of BD Agro ............................................................................... 19 B. Privatization of BD Agro .................................................................................................. 20 C. Operation of BD Agro after privatization ......................................................................... 24 D. 2008 restructuring of beneficial ownership ...................................................................... 26 E. Privatization Agency’s 2011 final control ........................................................................ 28 F. Full payment of purchase price ......................................................................................... 31 G. Ministry of Economy’s instructions to Privatization Agency that there was no justification to terminate privatization agreement ................................................................................ 34 H. Changes in BD Agro’s management................................................................................. 35 I. 2013 Legal Opinion by the Privatization Agency’s outside counsel that there was no legal basis to terminate Privatization Agreement ...................................................................... 36 J. Privatization Agency’s arbitrary refusal to allow for transfer of nominal ownership of Beneficially Owned Shares ............................................................................................... 39 K. Attempts to find strategic partners for BD Agro .............................................................. 41 L. Plan to reorganize BD Agro’s debt ................................................................................... 41 M. Ministry of Economy’s initiation of supervision procedure over Privatization Agency and Privatization Agency’s unwillingness to make any decisions until its conclusion ........... 43 N. The pre-pack reorganization plan ..................................................................................... 46 O. Ministry of Economy’s unlawful instructions to Privatization Agency ........................... 48 P. Ombudsman’s unlawful intervention and “recommendation” to terminate Privatization Agreement ......................................................................................................................... 49 Q. Privatization Agency’s unjustified about-face .................................................................. 55 R. Serbian Government’s continuing false promises ............................................................ 58 S. Ombudsman’s insistence that the Privatization Agreement be terminated ....................... 58 T. Meeting of the Privatization Agency deciding to terminate the agreement ...................... 59 U. Unlawful declaration of termination of Privatization Agreement .................................... 61 V. Direct expropriation of Beneficially Owned Shares ......................................................... 69 W. Revocation of the reorganization plan .............................................................................. 71 X. Bankruptcy of BD Agro .................................................................................................... 72 IV. JURISDICTION ........................................................................................................................ 73 A. Claimants’ claims meet the jurisdictional requirements of the Treaties ........................... 73 1. Jurisdiction ratione personae ................................................................................. 73 2. Jurisdiction ratione materiae .................................................................................. 78 i 3. Jurisdiction ratione temporis .................................................................................. 84 B. Claimants’ claims meet the jurisdictional requirements of the ICSID Convention .......... 85 1. “Legal dispute” ....................................................................................................... 85 2. “Arising directly out of an investment” .................................................................. 86 3. “Between a Contracting State and a national of another Contracting State” ........ 87 4. “Which the parties consent in writing to submit to the Centre” ............................. 88 V. ACTIONS OF THE MINISTRY OF ECONOMY, THE PRIVATIZATION AGENCY, AND THE OMBUDSMAN ARE ATTRIBUTABLE TO THE REPUBLIC OF SERBIA 91 A. The Ministry of Economy’s actions are attributable to Serbia because it is a State organ 91 B. The Privatization Agency’s actions are attributable to Serbia .......................................... 92 C. The Ombudsman’s actions are attributable to Serbia because the Ombudsman is a State organ ................................................................................................................................. 99 VI. SERBIA VIOLATED ITS OBLIGATIONS UNDER THE TREATIES ........................... 100 A. Serbia unlawfully expropriated the Claimants’ investments .......................................... 100 B. Serbia impaired Sembi’s investment by arbitrary, unreasonable and discriminatory measures ......................................................................................................................... 109 C. Serbia failed to provide fair and equitable treatment to the Claimants’ investment ....... 113 D. Serbia violated the umbrella clause ................................................................................ 114 E. Serbia acted in a sovereign capacity ............................................................................... 116 VII. CLAIMANTS ARE ENTITLED TO COMPENSATION FOR THEIR LOSSES ........... 125 A. Serbia must provide full reparation for breaches of its obligations under the Treaties .. 125 B. The full reparation standard requires payment of fair market value plus interest .......... 126 1. The full reparation standard requires payment of fair market value..................... 126 2. The full reparation standard requires payment of interest .................................... 128 3. The interest shall be calculated pursuant to Serbian law ...................................... 128 4. Alternatively, the Claimants are entitled to interest equal to 6-month average EURIBOR + 2%, compounded semi-annually ..................................................... 131 C. Valuation of BD Agro and its assets ............................................................................... 133 1. The Mrgud Valuation implies equity value of over EUR 71 million ................... 134 2. The First Confineks Valuation appraises BD Agro’s fair market value at EUR 57.2 million .................................................................................................................. 135 3. The Second Confineks Valuation appraises BD Agro’s fair market value at EUR 56.4 million........................................................................................................... 137 4. Dr. Hern estimates the fair market value of BD Agro between EUR 53.3 million and EUR 81 million..................................................................................................... 138 D. Value of Claimants’ interest in BD Agro’s equity .......................................................... 145 1. Value of Sembi’s interest in BD Agro’s equity .................................................... 145 2. Value of the Canadian Claimants’ interest in BD Agro’s equity ......................... 146 3. Loss resulting from Mr. Rand’s receivables against BD Agro being rendered worthless ............................................................................................................... 152 VIII. REQUEST FOR RELIEF ...................................................................................................... 154 ii I. INTRODUCTION A. Preliminary statement