Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 2 of 212
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
ICSID CASE NO. ARB/12/1
TETHYAN COPPER COMPANY PTY LIMITED
Claimant -v-
ISLAMIC REPUBLIC OF PAKISTAN
Respondent
RESPONDENT’S REJOINDER ON LIABILITY AND REPLY ON JURISDICTION, ADMISSIBILITY AND COUNTERCLAIMS
25 August 2014
" " [original emphasis]
(Page 60 of CE-83: CRU Presentation on the Copper Market, 27 January 2010) Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 3 of 212
TABLE OF CONTENTS
I. INTRODUCTION ...... 7 A. FACTS ...... 7 B. JURISDICTION AND ADMISSIBILITY ...... 10 C. STATE RESPONSIBILITY ...... 11 D. LIABILITY ...... 12 E. DUTY OF REPARATION AND CAUSATION...... 15 F. COUNTERCLAIMS ...... 16
II. STATEMENT OF FACTS ...... 18 A. THE MINERAL AGREEMENT NEGOTATIONS (REVISITED) ...... 18 (1) The Claimant sought to procure an automatic “right to mine” without the need to satisfy the requirements of the BMR, which was legally impossible ...... 18 (2) The Claimant repeatedly evaded the Governments’ core demand for a smelter/refinery ...... 22 (3) The Governments continued to negotiate with the Claimant in 2010 and even 2011 ...... 25 B. THE CLAIMANT’S FEASIBILITY STUDY WAS WOEFULLY INADEQUATE ...... 27 (1) The Feasibility Study was late ...... 28 (2) The Feasibility Study was incomplete...... 30 (3) The Feasibility Study failed to demonstrate a profitable project ...... 31 (4) The Feasibility Study failed to examine or cost the security risks of the slurry pipeline, or address the need for governmental approvals...... 37 (5) The Feasibility Study failed to demonstrate a proven water source...... 42 (6) The Feasibility Study failed to provide, or even discuss, value addition ...... 45 C. THE REJECTION OF THE MINING LEASE APPLICATION WAS IN ACCORDANCE WITH THE BMR AND UNSURPRISING...... 47 (1) The Feasibility Study (and therefore the Mining Lease Application) was incomplete...... 49 (2) The Mining Lease Application was an attempt at a ‘land grab’ ...... 51 (3) The Mining Lease Application failed to provide ‘value addition’ ...... 53 (4) The proposals in the Mining Lease Application were not satisfactory, and the grant of the Mining Lease was not in the interests of Balochistan 56 (5) Feasibility Study failed to demonstrate that the mine could be profitably developed and operated...... 58
2 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 4 of 212
D. THERE WAS NO PLOT TO OUST THE CLAIMANT ...... 59 (1) Balochistan’s Reko Diq Project was limited to refining...... 60 (2) MCC’s expression of interest in mining Reko Diq was not entertained by the Respondent and, in any event, reveals MCC’s, not the Respondent’s, desire to oust the Claimant ...... 68 (3) The MMDD took over the BDA’s, not the Claimant’s, operations ...... 70 (4) The Cabinet Decision of December 2009 was not definitive and the door was left open to the Claimant mining Reko Diq ...... 71 E. THE SUPREME COURT HAS ALREADY DETERMINED THAT THE CHEJVA AGREEMENTS ARE “ILLEGAL, VOID AND NON EST”...... 77
III. JURISDICTION AND ADMISSIBILITY...... 81 A. INTRODUCTION ...... 81 B. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE CLAIMANT’S CLAIMS IN THIS ARBITRATION...... 84 (1) The Claimant’s vague articulation of its “investment” belies the fact that its purported “assets” are contractual in nature ...... 84 (2) The Claimant does not have an “investment” under the BIT...... 87 a) The Claimant has failed to demonstrate that it has an “asset” within the meaning of Article 1(1)(a)...... 88 b) Even if the Claimant has an “asset”, which is denied, such asset does not constitute an “investment” because it was not admitted “subject to [the] laws and investment policies” of Pakistan ...... 99 i. The Claimant does not satisfy the legality requirement in Article 1(1)(a) of the BIT ...... 99 ii. The Claimant’s misconceived attempt to narrow the scope of the legality requirement in Article 1(1)(a) of the BIT must fail...... 104 (3) The dispute submitted to this Tribunal concerning the rejection of the Mining Lease Application does not relate to an “investment”, as required by Article 13 of the BIT...... 110 C. THE CLAIMANT’S CLAIMS ARE INADMISSIBLE...... 110 (1) The Claimant has already submitted all contractual issues to the ICC tribunal ...... 110 (2) The Claimant’s claims are manifestly without legal merit because it is precluded from re-litigating the contractual issues which have already been determined by the Supreme Court of Pakistan...... 111 D. CONCLUSION ...... 113
IV. STATE RESPONSIBILITY AND ATTRIBUTION ...... 115
3 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 5 of 212
A. THE RESPONDENT ONLY BEARS RESPONSIBILITY IF THE CLAIMANT SHOWS THAT IT MADE AN “INVESTMENT”, WHICH WAS SUBJECTED TO A WRONGFUL ACT, ATTRIBUTABLE TO THE RESPONDENT, AND IN BREACH OF THE BIT ...... 115 B. THE RESPONDENT IS NOT A PARTY TO THE CHEJVA AGREEMENTS ...... 117
V. LIABILITY...... 121 A. INTRODUCTION ...... 121 B. THE RESPONDENT DID NOT BREACH THE FAIR AND EQUITABLE TREATMENT OBLIGATION IN ARTICLE 3(2) OF THE BIT ...... 121 (1) The Claimant is unable to show that its purported investment was the subject of any alleged wrongful conduct by the Respondent which was in breach of the fair and equitable treatment obligation ...... 122 (2) The threshold for breach of the fair and equitable treatment obligation proposed by the Claimant is wrong; the threshold is in fact significantly higher ...... 123 (3) The Claimant’s allegations are insufficient to substantiate a finding that the Respondent has breached the fair and equitable treatment obligation...... 128 a) A legitimate expectation does not arise from the Governments’ so-called “assurances” invoked by the Claimant in this case ...... 128 i. The Respondent cannot be bound by expectations arising out of the CHEJVA agreements...... 129 ii. No representations were made that reduced “routine Government requirements” in the CHEJVA to mere administrative niceties...... 132 iii. No purported “assurance” could have legitimately been construed as trumping the BMR, as the Respondent made clear any attempt to do so would have been legally impossible ...... 138 b) In any event the impugned conduct of the Respondent did not breach the fair and equitable treatment obligation ...... 144 i. There were legitimate reasons for the Licensing Authority to reject the Mining Lease Application...... 144 ii. There was no plan on the part of the Respondent or Balochistan to “oust TCCA” from Reko Diq to implement Balochistan’s own project ...... 150 iii. The Claimant was not denied due process rights ...... 151 iv. The Respondent’s and Balochistan’s conduct in the Supreme Court proceedings and the Supreme Court’s Judgment
4 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 6 of 212
did not breach the fair and equitable treatment obligation...... 153 v. The Claimant’s own conduct precludes a finding of breach of the fair and equitable treatment standard ...... 154 vi. Conclusion...... 157 C. THE CLAIMANT HAS NO CASE ON EXPROPRIATION ...... 157 D. THE CLAIMANT HAS NO CASE ON NON-IMPAIRMENT...... 162
VI. NO DUTY OF REPARATION ARISES FOR THE RESPONDENT BECAUSE THE CLAIMANT HAS NOT SATISIFED, AND CANNOT SATISFY, EITHER LIMB OF CAUSATION IN PUBLIC INTERNATIONAL LAW ...... 166 A. INTRODUCTION AND PURPOSE OF THIS SECTION ...... 166 B. AS THE FOREGOING HAS SHOWN, THE CLAIMANT HAS NOT ESTABLISHED, AND CANNOT ESTABLISH, FACTUAL CAUSALITY IN THIS CASE ...... 169 C. FURTHER, THE CLAIMANT HAS NOT ESTABLISHED, AND CANNOT ESTABLISH, LEGAL CAUSALITY IN THIS CASE ...... 174 D. CONCLUSION: THE EFFECT OF THE CLAIMANT’S FAILURE TO ESTABLISH CAUSATION IS THAT ITS CLAIM MUST FAIL IN LIMINE ... 177
VII. COUNTERCLAIMS...... 179 A. THE TRIBUNAL HAS JURISDICTION TO HEAR AND DECIDE THE RESPONDENT’S COUNTERCLAIMS ...... 179 (1) The Claimant has consented to counterclaims being arbitrable under Article 13 of the BIT...... 180 (2) By bringing these proceedings, the Claimant has consented to have the Respondent’s counterclaims arbitrated in accordance with Article 46 of the ICSID Convention ...... 182 (3) The Respondent’s counterclaims have a sufficient nexus with the Claimant’s claim to fall within the jurisdiction of the Tribunal...... 185 B. THE CLAIMANT BREACHED ITS DUTIES TO THE RESPONDENT.. 188 C. CONCLUSION ...... 193
VIII. REQUEST FOR RELIEF ...... 195
IX. ANNEX ...... 196 A. FINDINGS OF THE SUPREME COURT ON INVALIDITY AND ILLEGALITY OF THE CHEJVA AGREEMENTS...... 197 B. FINDINGS OF THE SUPREME COURT THAT THE GOVERNMENT OF BALOCHISTAN IS NOT A PARTY TO THE CHEJVA AGREEMENTS...... 204
5 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 7 of 212
6 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 8 of 212
I. INTRODUCTION
1. The Respondent submits this Rejoinder on Liability and Reply on Jurisdiction, Admissibility and Counterclaims pursuant to Rule 31 of the ICSID Arbitration Rules and the timetable specified in paragraph 14 of Procedural Order No.1, as amended by the Tribunal’s letter of 18 April 2014.1
A. FACTS
2. It is clear from the record that the Claimant was the author of its own misfortune in Balochistan. The Claimant entered the Balochistan market during a period of inflated optimism and high risk appetite in the global mining industry. There were only a limited number of mega-projects available worldwide.
3. But the Claimant failed to do its due diligence before entering this frontier market. It failed to understand the social and business environment in Balochistan. It failed to build goodwill with its local partners or the people of Balochistan. In industry parlance, it failed to maintain ‘a social licence to operate’.
4. The Claimant must have been aware of the industry mantra that ‘500-1000 grass- roots exploration projects become 100 advanced projects, which result in 10 potentially fundable projects, of which one gets built.’ It must, likewise, have known that, to quote BHP, “a mine will not proceed unless it is to be profitable.”
5. The Claimant should have known, from the outset, that it had no automatic right to mine under the CHEJVA or the 2002 Balochistan Mineral Rules (“BMR”). The Claimant either failed to read the clear terms of the CHEJVA and BMR or, more likely, arrogantly and wrongly assumed that it could gain exemption from the BMR via a Mineral Agreement.
6. The Claimant knew – or should have known – about the subjective requirements in BMR 48 obliging the Licensing Authority to reject mining lease applications unless they are “satisfactory” and “in the interest of the development of the
1 Capitalised terms appearing but not defined herein have the meaning ascribed to them in the Respondent’s Objections to Jurisdiction and Admissibility, Counter-Memorial on the Merits and Counter-Claim, 30 September 2013. The Respondent makes no admissions herein, except where expressly stated.
7 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 9 of 212
mineral resources of Balochistan.” These subjective requirements were incorporated into the BMR to ensure that investments in the mineral sector contributed to the development of Balochistan. This understandable developmental goal is expressly reflected in the Preamble to the BIT.
7. Ignoring, or with a view to excluding, these mandatory requirements of the BMR, the Claimant sought to negotiate a Mineral Agreement to procure a guaranteed right to mine without the need to file a mining lease application.
8. But the Claimant’s attempt to override the BMR was legally impossible. The BMR expressly states that its provisions cannot be overridden by the terms of a Mineral Agreement.
9. In addition, the Claimant’s draft Mineral Agreement failed to address, inter alia, the Governments’ requirement for ‘value addition’ in the form of a local smelter/refinery.2 As became apparent over time, the Claimant’s unwillingness to address ‘value addition’ stemmed from the poor economics of its proposed project. For these, and other, reasons, the negotiations failed and a Mineral Agreement was never concluded.
10. To be clear, the Governments wanted to conclude a Mineral Agreement with the Claimant, although they were under no obligation to do so. But they could not agree to the legally impossible. They also felt that the Claimant failed to understand or address the needs of the local people who were becoming increasingly disenchanted with the lack of progress and lack of local benefit. The Governments became increasingly frustrated with the Claimant’s failure to present a Feasibility Study despite holding exclusive exploration rights over vast swathes of land in Balochistan for many years. The Governments also became frustrated by the Claimant’s rigid demands and failure to address the Governments’ requirement for ‘value addition’ and fair financial terms. They, nevertheless, gave the Claimant numerous opportunities to revise their proposals and proceed with the project.
2 The Government of Balochistan is referred to herein, as appropriate, as the “Government” the “Provincial Government” and the “Government of Balochistan”. The Government of Pakistan is referred to herein, as appropriate, as the “Federal Government” and the “Government of Pakistan”. The Governments of Balochistan and Pakistan are collectively referred to herein as the “Governments”.
8 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 10 of 212
11. The Feasibility Study, when it eventually came, dealt a serious blow to the Claimant’s prospects of securing a Mineral Agreement or a Mining Lease. Despite the Claimant’s repeated promises to submit a “full” feasibility study, it only covered deposits H14 and H15 and not the other discovered deposits. It disclosed a worryingly low financial rate of return, and admitted that obtaining financing for the project would be “particularly challenging”. Instead of roads or a railway, it proposed a cost-cutting but attack-prone 682-km slurry pipeline without examining or costing the security risks and without addressing the need to obtain relevant governmental approvals. It failed to identify a proven water source to service the water requirements of the project. And, despite repeated requests, it made no mention whatsoever of the possibility of smelting in Balochistan.
12. The Claimant knew full well that it had not provided a “full” feasibility study, as promised in the context of its application for a second renewal of its exploration licence. It also knew – or should have known – that the Licensing Authority was duty bound under the terms of the BMR to reject a mining lease application unless, inter alia, it: (a) “show[ed] that the mine c[ould] be profitably developed and operated”, (b) addressed “value addition”, (c) was “satisfactory”, and (d) was “in the interest of the development of the mineral resources of Balochistan”.
13. Nevertheless, ignoring its undertaking of 2006 and the pre-conditions in the CHEJVA, the Claimant agreed to submit the incomplete and inadequate Feasibility Study in support of a mining lease application (the “Mining Lease Application”). To add insult to injury, contrary to the terms of the CHEJVA and the BMR, the Mining Lease Application sought a Mining Lease over an area many times the size of the area covered in the Feasibility Study.
14. In short, the Claimant had no genuine expectation of securing a mining lease via the Mining Lease Application. Its goal had always been to procure a ‘right to mine’ via a Mineral Agreement without the need to satisfy the requirements of the BMR. It must have realised by early 2011 that the Mineral Agreement negotiations were doomed to fail. It also realised that there was no prospect of fashioning an arbitration claim out of the failure to conclude a Mineral Agreement. The Claimant, therefore, sought to manufacture a claim via the Mining Lease Application (i.e., in full knowledge that it would be rejected).
9 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 11 of 212
15. In light of the mandatory requirements in BMR 48(3), and the Claimant’s unwillingness to redress the manifold defects in the Mining Lease Application, the Licensing Authority duly rejected that Application.
16. Even if a Mining Lease had been granted, the Claimant itself admits that the economics of the project were “skinny”. It admits that attracting financing would have been “particularly challenging”. It identifies the “inability to conclude a Mineral Agreement” as one of the ‘high risk’ items jeopardising the bankability of the project. The Respondent’s independent financial, industry and security experts agree. The Respondent states its case on reparation and causation below but reserves the right to expand upon these arguments (with the benefit of factual and expert evidence) if the case proceeds to the quantum phase.
B. JURISDICTION AND ADMISSIBILITY
17. The Claimant is unable to prove that it made an “investment” within the meaning of Article 1(1)(a) of the BIT. The two-stage definition of “investment” contained in Article 1(1)(a) of the BIT requires the Claimant to show that it (a) had an “asset”; and (b) that such asset was admitted “subject to … [the] laws and investment policies” of Pakistan.
18. In reality, the Claimant’s vague articulation of its alleged “investment” is reducible to purported contract-based rights under the CHEJVA, Addendum and Novation Agreement (“CHEJVA agreements”).
19. But these rights have been held to be “illegal, void and non est” under their governing law by the Supreme Court of Pakistan.
20. The Supreme Court’s judgment prevents the Claimant from being able to show that its alleged contractual rights satisfy either limb of the definition.
a. First, the Claimant’s alleged contractual “assets” never existed and are of no economic value under the law which it alleges created them, Pakistani law.
b. Second, even if the Claimant had an “asset” (which is denied), it is unable to show that such asset was admitted “subject to its [Pakistan’s]
10 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 12 of 212
laws and investment policies”. The Supreme Court has already determined that the CHEJVA agreements were illegal and void ab initio under sections 23 and 20 of the Contract Act 1872.
21. Further or alternatively, the Claimant’s claim is inadmissible at the present time. The Claimant should be held to the logical consequences of its voluntary submission of all contractual issues to what, on its case, is the proper venue, i.e. the ICC tribunal. It is necessary for the ICC tribunal to determine these issues before this Tribunal can decide, for example, whether the Claimant had an “investment” and whether it is able to invoke the purported contractual rights upon which the alleged breach of the BIT is predicated. The claims before this Tribunal are therefore unripe for determination.
22. Finally, it is evident that the Claimant has only itself to blame for its current jurisdictional and admissibility predicament. First, the Claimant voluntarily submitted to the jurisdiction of the Supreme Court and the ICC tribunal, and should be held to the consequences of such actions. Second, when it entered the scene, the Claimant knew, or ought to have known, of the defects that led to the illegality of the CHEJVA agreements. It is well-established that BITs “are not insurance policies against bad business judgements”.
23. Even if the Claimant is able to show that it has an “investment” (which is denied), it has failed to show that the dispute it has submitted to this Tribunal relates to that particular investment, as required by Article 13 of the BIT.
C. STATE RESPONSIBILITY
24. It is trite law that in order to succeed in its claim, the Claimant must show (among other things) that the Respondent bears State responsibility.
25. Even if the Claimant does hold an “investment”, it is important to determine exactly what rights comprise that investment. The Claimant must show that the conduct complained of in relation to that particular investment – i.e. those specific rights – is attributable to the State and amounts to a breach of a treaty obligation.
11 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 13 of 212
26. The Claimant is not able to rely on one purported investment to pass through the jurisdictional gateway and then another to establish liability.
27. Even if, contrary to the Respondent’s primary case, the CHEJVA agreements were extant, it would be necessary to determine exactly what legal rights they confer on the Claimant vis-à-vis the Respondent.
28. In its Decision on Trifurcation, the Tribunal recognised that “one of the central issues in the case will be the nature of the legal obligations and commitments, if any, undertaken by Balochistan and Respondent vis-à-vis Claimant.” It is common ground between the Parties that the Government of Pakistan is not a party to the CHEJVA agreements. The Claimant is, therefore, unable to invoke any alleged contractual obligations against the Respondent.
29. The Claimant seeks to bind the Respondent by invoking the ILC Articles. This is misconceived. The international law rules of attribution were not designed to operate, and do not function, on the contractual plane. The Claimant’s attempt to force them to do so collapses the distinction between treaty and contract in investment treaty arbitration.
30. The Claimant also fails to demonstrate that the alleged conduct of its counterparty under the CHEJVA agreements, whether that be the BDA or the Government of Balochistan, is attributable to the Respondent.
D. LIABILITY
31. The Claimant’s case on the merits is similarly flawed. In its Counter-Memorial, the Respondent demonstrated that the Claimant has failed to prove that the Respondent has breached its guarantees in the BIT relating to fair and equitable treatment (Article 3(2)), compensation for expropriation (Article 7) or non- impairment (Article 3(3)).
32. The Claimant’s Reply on the issue of the fair and equitable treatment obligation not only fails to address the defects identified in the Respondent’s Counter- Memorial but also reinforces that its claims are entirely unfounded.
12 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 14 of 212
33. First, it has persistently – and tellingly – failed to articulate a clear link between a particular investment, a particular instance or instances of wrongful conduct, and an alleged breach. The substance of the Claimant’s case appears to rest on it having an undefined and unfounded purported guaranteed “right to mine”, which it alleges was subjected to wrongful conduct in the rejection of the Mining Lease Application, such that it amounted to a violation of the fair and equitable treatment obligation. This is plainly wrong. The Claimant had – at most – a right to apply for a Mining Lease under the CHEJVA (and no equivalent right under the BMR). Given the non-existence and illegality of the CHEJVA, any such right is not an investment that can be subject to the fair and equitable treatment obligation.
34. Second, the Claimant has invoked a standard of the fair and equitable treatment obligation, which is at odds with the ordinary interpretation of the BIT and out of kilter with current arbitral practice and scholarship. It would have this Tribunal apply a standard that, inter alia: (a) fails to take into account the surrounding circumstances, including the social, legal, economic and political environment and the level of the host country’s development; and (b) fails to balance the investor’s expectations against the legitimate regulatory goals of the host country. In this case, express legislative requirements, by which the Claimant undertook to abide, were included in the BMR and National Mineral Policy that mining projects had to be in the interests of the development of the mineral resources of Balochistan.
35. Third, the Claimant appears to seek to bypass the fundamental requirement that a legitimate expectation may only arise where it is referable to a representation that is made by the Respondent as a State specifically to the investor regarding specific commitments, or to a representation or rule which was made with a specific aim to induce foreign investments and on which the investor has relied. No legitimate expectation could have arisen from the Governments’ so-called “assurances” invoked by the Claimant in this case. The Respondent cannot be bound by expectations arising out of the CHEJVA. Not only was it not a party to the CHEJVA, but nothing in the CHEJVA – taken individually or in the context of the BMR – could be interpreted as giving rise to a legitimate expectation to a guaranteed “right to mine”. The Claimant’s disingenuous attempt to reduce the
13 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 15 of 212
requirement in the CHEJVA that the application meet “routine Government requirements” to a mere administrative rubber stamp does not accord with the clear terms of the BMR and the CHEJVA.
36. The Claimant’s purported reliance on the statements and conduct of individuals must similarly fail. Even if it satisfies the burden of proving that such statements were made, the Claimant was well aware of the terms of the BMR and cannot legitimately have relied on statements that were contrary to them. The express provisions in the BMR – in particular BMR 9 – squarely contradict and defeat any claim to legitimate expectations
37. Fourth, and in any event, it is clear that the impugned conduct of the Respondent did not breach the fair and equitable treatment obligation as it did not violate the necessary threshold of wrongfulness under international law. In particular, the Mining Lease Application, which the Claimant submitted despite being fully aware of its shortcomings, was predictably – and rightly – rejected. The Licensing Authority provided a reasoned decision supporting its rejection in accordance with the BMR.
38. The Claimant alleges that the rejection of the Mining Lease Application was motivated by a desire to implement Balochistan’s Reko Diq project. This is belied not only by evidence of the Claimant’s acknowledgment of the complementary nature of this project, but also its own conflicting theories as to who masterminded the “ouster” plot. It is fanciful for the Claimant to suggest that the MMDD, one of 39 Departments in the Provincial Government, could have orchestrated a grand conspiracy involving numerous important entities and individuals within both the Provincial and Federal Governments. Its attempt to cloak the Licensing Authority’s decision with a veil of impropriety in this regard therefore fails. The decision was nothing more than a logical and lawful decision in light of an incomplete and unsatisfactory application.
39. In a final desperate attempt, the Claimant mounts a convoluted and opaque attack on the decision of the Pakistani Supreme Court – the highest judicial body of Pakistan and one of the most independent Supreme Courts in the Commonwealth. Its vague objections to the decision do not establish a violation of the fair and
14 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 16 of 212
equitable treatment obligation, and constitute little more than the complaints of a disgruntled unsuccessful litigant.
40. These points are sufficient to dispose summarily of the Claimant’s case on breach of the fair and equitable standard. However, even if the Claimant had been able to make a coherent and cogent case on the question of breach of the fair and equitable treatment standard, its own unconscionable and unreasonable conduct would have precluded such a finding. It sought to obtain a guaranteed right to mine, which was legally impossible, via a Mineral Agreement, and then submitted a Mining Lease Application that, as it knew, could never have been accepted. It failed to conduct a proper assessment of the risk environment, which led, most tellingly, to a breakdown in the legal and ‘social licence to operate’. For example, it unreasonably concluded that the BMR contained no subjective requirements, contrary to its express terms, or concluded that it could bully its way to trumping those requirements via a Mineral Agreement.
41. In truth, the only question in these proceedings is whether or not there has been a breach of the fair and equitable treatment obligation in the context of the rejection of the Mining Lease Application. Predictably, the Claimant has sought to advance, albeit half-heartedly, other claims under the BIT, such as non-impairment and expropriation, regarding the refusal of a Mining Lease Application and other alleged wrongful conduct allegedly attributable to the Respondent. These, like the alleged breach of the fair and equitable treatment obligation, have not been established.
E. DUTY OF REPARATION AND CAUSATION
42. In addition to difficulties on jurisdiction and merits, the Claimant’s case suffers from a further defect. Even if a breach of the BIT is established in this case, no duty of reparation arises because the Claimant has not shown, and cannot show, that such breach has caused, or might have caused, any damage. This failure is fatal to the Claimant’s case, which must fail in limine.
43. To satisfy the first limb of “proximate causation” under public international law, the Claimant must show the existence of factual causality between the conduct of the Respondent it impugns and any damage it claims to have suffered. The
15 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 17 of 212
Claimant has provided no such demonstration. The factual event leading to any damage the Claimant allegedly suffered was not the rejection by the Licensing Authority of the Mining Lease Application, but rather the Claimant’s production of a woefully inadequate Feasibility Study, on the basis of which TCCP filed a Mining Lease Application which could never have been approved.
44. To satisfy the second limb of “proximate causation”, the Claimant must show the existence of legal causality between the Respondent’s conduct and its purported damage. Again, the Claimant’s pleadings in this arbitration are silent on this issue. The reason for this is obvious. No such legal causality exists. This is because any damage that the Claimant may cite as flowing from the Respondent’s conduct is too indirect, remote and uncertain to be appraised as the legal result of that conduct.
45. Since the very existence of the Claimant’s project as articulated in the Feasibility Study is so uncertain, the existence of any damage accruing from the rejection of the Mining Lease Application is also uncertain. A legally causative link between that damage and the rejection of the Mining Lease Application cannot therefore exist.
F. COUNTERCLAIMS
46. It is undeniable that if the Claimant has jurisdiction to bring its claims under the BIT, then so too does the Respondent. The Claimant has consented to the bringing of counterclaims by accepting the terms of the Respondent’s consent to arbitrate in Article 13 of the BIT. In addition, and in any event, by bringing these proceedings, the Claimant has consented to have the Respondent’s counterclaims arbitrated in accordance with Article 46 of the ICSID Convention. It is self- evident that if the Claimant’s claim falls within the jurisdiction of the Tribunal, the Respondent’s counterclaims have a sufficient nexus with the claim to fall within the jurisdiction of the Tribunal.
47. The Claimant must be held accountable for its breaches. It has breached the CHEJVA, its own undertakings, the BMR and Pakistani laws. The losses to Balochistan, the Balochi people and the Respondent are both clear and substantial.
16 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 18 of 212
This Tribunal has the opportunity to rectify the situation, and the Respondent respectfully requests that it finds the Claimant liable for these breaches.
17 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 19 of 212
II. STATEMENT OF FACTS
A. THE MINERAL AGREEMENT NEGOTATIONS (REVISITED)
48. The record shows that the Claimant sought a Mineral Agreement, among other things, to procure for itself a guaranteed “right to mine” without the need to file a mining lease application satisfying the requirements of BMR 48.
49. This attempt to circumvent the application of the BMR was legally impossible and caused the negotiations to stall. The negotiations also faltered due to the Claimant’s failure to address the Governments’ financial and ‘value addition’ concerns, most notably the Governments’ desire for a local smelter/refinery.
50. Despite these obstacles, the record clearly shows that the Governments continued to negotiate with the Claimant throughout 2010, and even in 2011, with a view to resolving the impasse.
51. The Claimant does not contest in its Reply that the Governments were under no obligation to conclude a Mineral Agreement.3
(1) The Claimant sought to procure an automatic “right to mine” without the need to satisfy the requirements of the BMR, which was legally impossible
52. The Claimant’s request for a Mineral Agreement was motivated by its stated need:
“to create the necessary stability and certainty for the investment to proceed … Our proposed Mineral Agreement would include provisions dealing with the following areas … the grant of and rights under mineral titles …”4
53. The Claimant reiterated this need:
a. in its letter of 18 August 2008:
3 Counter-Memorial, §205. 4 Letter from Tethyan Copper Company Pty Limited to Minister of Petroleum and Natural Resources re: Mineral Agreement, dated 5 July 2007, CE-215. Reply §122 likewise confirms that the purpose of the Mineral Agreement was “to stabilize the investment environment”.
18 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 20 of 212
“The GOP/GOB Counter-Proposal introduces a number of fundamental amendments to the structure and content of the Initial TCCP Draft, each of which raises significant challenges to both (i) the economic viability of the Project from an investor perspective, and (ii) the inability of the Project to attract the necessary financing …
The BMR include a number of powers and discretions that are inconsistent with creating the certainty and security of tenure required for investment and financing on the scale required for Reko Diq. Our primary concern is that these problems are addressed in the Mineral Agreement by agreement of the parties …”5
b. in its letter of 27 October 2008:
“a meaningful Mineral Agreement requires giving the foreign investors and international lenders the confidence that the principles of legal stability, financial predictability, and avoidance of damaging discretionary actions are embodied in the agreement…”6
c. in Chapter 1.8.4 of the Feasibility Study (August 2010):
“[t]he objective of the MA is to…guarantee a long term stability that allows the project to be financed.”7
54. The Claimant’s quest for legal stability concedes that:
a. international lenders may not have been willing to finance the project in the absence of a Mineral Agreement;
b. international lenders may not have been willing to finance the project in the absence of a Mineral Agreement even if a Mining Lease had been granted;8
5 Letter from Tethyan Copper Company Pakistan (Private) Limited to Ministry of Petroleum and Natural Resources re: Draft Mineral Agreement, dated 18 August 2008, CE-227. 6 Letter from Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64; see also Reply, §133. 7 By August 2010, the Claimant was also aware that the underlying economics of the project were “skinny” and that, even if a Mineral Agreement were concluded, it would be “particularly challenging” to obtain financing. See Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84; Feasibility Study, dated August 2010, Ch 29.2, CE-169; Feasibility Study, dated August 2010, Ch 1.8.4, CE-97. 8 See the impact that this has on whether a duty of reparation arises on the part of the Respondent in this case in Section VI below.
19 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 21 of 212
c. the BMR contain discretionary criteria requiring the Licensing Authority to reject mining lease applications unless they are deemed “satisfactory” and “in the interest of the development of the mineral resources of Balochistan”;9
d. the Claimant had no guaranteed “right to mine” under the CHEJVA or BMR.10
55. Indeed, if the Claimant had already had a guaranteed right to mine, it would not have needed to seek a guaranteed right to mine in Clause 14.2 of its draft Mineral Agreement, circulated in July 2007.
56. Clause 14.2 of the Claimant’s draft Mineral Agreement reads as follows:
“the GOB agrees that, if, following the preparation of an Overall Development Plan for one or more Mining Projects, the Mineral Title Holder intends to undertake Mining Phases in respect of one or more such Mining Projects, on submission of an application there shall be granted, one of more Mining Leases (as indicated are required in such Overall Development Plan) in relation to the areas of Mineral deposits (as specified in such Overall Development Plan), to the Mineral Title Holder or its nominee (as the Mineral Title Holder may indicate); each such Mining Lease shall:
(i) grant the Mineral Title Holder or its nominee, as the case may be, exclusive rights to extract, process, transport and sell for its own account such areas of Mineral deposits …”11
57. The term “Overall Development Plan” is defined in the draft as:
9 See Balochistan Mineral Rules 2002, dated 9 March 2002, Rules 9(5) and (6), Ex RE-1; Statement of Mr Khokhar, §§19, 27-28; World Bank Report, Republic of Pakistan, Mineral Sector Development Policy Note, 20 November 2003, p.22, Ex RE-65: “all of [the provincial rules] include as a criteria for the grant of a mining lease that it must be ‘in the best interest of the development of the mineral resources of [the province] to grant the lease.’ This criterion introduces a discretionary element into the procedure for granting mining rights to an investor who has completed a successful exploration program.” 10 See also Reply, §362, in which the Claimant now appears to concede that it had no guaranteed “right to mine”: “TCCA has never claimed an automatic right to mine a specific, predetermined area, but rather the right to receive a mining lease upon the submission of an application that met all applicable requirements”. 11 Draft Mineral Agreement among Government of Pakistan, Government of Balochistan, and Tethyan Copper Company Pakistan (Private) Limited, circulated 11 July 2007, Clause 14.2, CE- 216.
20 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 22 of 212
“any of the one or more of the reports (including any feasibility reports required to apply for any Mining Lease pursuant to the BMR) prepared on the basis of international mining standards and designated as an “Overall Development Plan” by the Mineral Title Holder …”12
58. In essence, the Claimant sought, upon simple application, a guaranteed right to be granted a mining lease over any area that it later identified, at its discretion, upon the submission of a document (which may or may not be a feasibility study) that it subjectively categorised as an “Overall Development Plan”, without giving the Governments any right to assess for themselves whether or not such a document disclosed a viable or beneficial project for the people of Balochistan.13
59. Clause 14.2 also flew in the face of the requirements of BMR 47 and 48. To escape the application of the BMR, the Claimant sought to include the following provision in the draft Mineral Agreement:
“The Parties agree that, except as expressly provided under the terms and conditions of this Agreement, the Mineral Title Holder shall not be subject to any obligations under the terms and conditions of the BMR.”14
60. But this attempt to oust the BMR by agreement was legally impossible.15 BMR 9(5) and (6) clearly provided that:
“(5) Any provision contained in a mineral agreement which is inconsistent with any provision of these rules or any other law shall, to the extent of the inconsistency, be of no force or effect.
(6) Nothing contained in a mineral agreement shall be construed as absolving any party thereto from complying with any requirement laid down by law or from applying for, and obtaining, any licence, approval, permission or other document required by law.”16
12 Draft Mineral Agreement among Government of Pakistan, Government of Balochistan, and Tethyan Copper Company Pakistan (Private) Limited, circulated 11 July 2007, Clause 1.1, CE- 216. 13 Clause 14.2 was contrary to Rule 4.8.12.1 of Pakistan’s National Mineral Policy 1995, CE-190 (“The Federal Government may also become signatory to [a Mineral Agreement], if so requested by a Provincial Government, after independently examining viability of the project …” (emphasis added)), as per the Statement of Mr Khokhar, §32; see also Statement of CS Lehri, §10. 14 Draft Mineral Agreement among Government of Pakistan, Government of Balochistan, and Tethyan Copper Company Pakistan (Private) Limited, circulated 11 July 2007, Clause 1.6, CE- 216. 15 Statement of Mr Khokhar, §40. 16 Balochistan Mineral Rules 2002, dated 9 March 2002, Rules 9(5) and (6), Ex RE-1.
21 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 23 of 212
61. For this reason, the Governments’ amended version of the Mineral Agreement included the following provisions:
“The Parties agree that, under the terms and conditions of this Agreement, the Licensee shall be subject to all obligations under the terms and conditions of the BMR in force at the time.” 17 (emphasis added)
“The Licensee shall have the right to decide if there will be a Mining Phase for any of its Mining Projects, subject to the laws and regulations of Pakistan and Balochistan in place at the time.”18 (emphasis added)
62. The fact that the Claimant, even in its Reply of 23 April 2014, still fails to realise why Clause 14.2 was unacceptable to the Governments amply reveals why no Mineral Agreement was ever concluded.19
(2) The Claimant repeatedly evaded the Governments’ core demand for a smelter/refinery
63. The Mineral Agreement negotiations also stalled due to the Claimant’s failure to address the Governments’ financial and ‘value addition’ concerns, most notably the Governments’ desire for a smelter/refinery.20
64. This desire was formally recorded in Clause 5.5 of the amended draft of the Mineral Agreement circulated by the Governments in August 2008:21
“The Licensee shall install smelter/refinery for processing the ore…”
17 Letter from Ministry of Petroleum and Natural Resources to Tethyan Copper Company Pakistan (Private) Limited re: Draft Mineral Agreement, dated 7 August 2008, Clause 1.6, CE-226. 18 Letter from Ministry of Petroleum and Natural Resources to Tethyan Copper Company Pakistan (Private) Limited re: Draft Mineral Agreement, dated 7 August 2008, Clause 3.5, CE-226. 19 Reply, §§129-130. The Claimant’s stance is also somewhat disingenuous in light of its acknowledgement, in its letter of 27 October 2008, that: “[o]ur interpretation of the BMR leads us to conclude that some of the BMR regulations are not fully compatible with the stability provisions of the Mineral Agreement, and that any future amendment of the BMR would be mandatory and applicable to TCC notwithstanding any stability provisions of the Mineral Agreement”: Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64. 20 Statement of CS Lehri, §§8-39; Supplemental Statement of Mr Khokhar, §§5-15. 21 Letter from Ministry of Petroleum and Natural Resources to Tethyan Copper Company Pakistan (Private) Limited re: Draft Mineral Agreement, dated 7 August 2008, Clause 5.5, CE-226.
22 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 24 of 212
65. Under BMR 9(1), the Government of Balochistan could only enter into a Mineral Agreement:
“if the Government is satisfied that…the carrying on of the undertaking in question is desirable in the interest of the development of the mineral resources of Balochistan.”22
66. The Governments wanted to ensure a transfer of metals technology and skills to the people of Balochistan.23
67. This understandable ambition to secure ‘value addition’, employment opportunities and skills enhancement as part of Pakistan’s broader foreign investment program, is reflected in Article 1.2 of Pakistan’s National Mineral Policy 1995.24
68. Nevertheless, the Claimant repeatedly failed to address the Governments’ known and legitimate desire for a smelter/refinery.
69. The issue was raised, for example, at the ‘kick off’ meeting in Dubai on 18 December 2007.25 It was also raised at the first meeting of the Steering Committee on 23 February 2008.26
70. The issue arose again during the second and third round of negotiations in October 2008. The Minute27 records that:
“The issue of value addition and processing the ore also came under discussion. It was mentioned by GOP/GOB in the counter proposals that TCC shall install facility for refining of copper ore in Pakistan. However, the CEO of TCC pointed out that according to the evaluation of the company the economics of the project allows processing up to concentrate level and any processing beyond the concentrate level would affect the economic viability of the project…The Negotiations Committee stressed that the company may re-evaluate the option of
22 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 9(1), Ex RE-1. See also the near identical provision in Article 4.8.12.1 of the National Mineral Policy, 1995, Ex RE-81; Statement of Mr Khokhar, §32. 23 Statement of CS Lehri, §48; Counter-Memorial, §54. 24 National Mineral Policy, 1995, Article 1.2, Ex RE-81. 25 Ministry of Petroleum & Natural Resources Note dated 18 December 2007, p.3, Ex RE-75. 26 Presentation by the Government of Pakistan Consultants on the Draft Mineral Agreement for Reko Diq Copper-Gold Project on 23 February 2008 – Minutes of Meeting, p.4, Ex RE-76. 27 Record Note on Reko Diq Project Negotiations on 15-17 and 22-23 October 2008, p.7, Ex RE-77.
23 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 25 of 212
value addition up to the level of refinery aiming transfer of technical know-how.”
71. The Claimant’s economic viability concerns were apparent from their earlier letter of 18 August 2008:
“[T]he GOP/GOB Counter-Proposal introduces a number of fundamental amendments to the structure and content of the Initial TCCP Draft, each of which raises significant challenges to both (i) the economic viability of the Project from an investor perspective and (ii) the ability of the Project to attract the necessary financing.”28
72. At paragraph 138 of its Reply, the Claimant claims that it made “numerous overtures with respect to the Governments’ stated need for refining capabilities.” The word “overtures” is a tacit concession by the Claimant that it never made any concrete proposal regarding a smelter/refinery.
73. On 6 March 2009, the agenda for the third meeting of the Steering Committee included “value addition up to final refinery stage”.29 However, on 9 June 2009, the Governments were still chasing the Claimant for a proposal.30
74. At the Board of Investment meeting of 2 September 2009, Mr Khokhar listed “Value Addition up to final refinery stage” as unresolved.31
75. The parties’ inability to resolve this pivotal issue – as well as the “five remaining issues” identified in Ms Boggs’ letter to the Government of 27 October 200832 – flatly contradicts the Claimant’s assertion that “the contemporaneous record confirms that, following these negotiations [in September and October 2008], the
28 See also the Claimant’s presentation of 18 December 2007, “Economic viability of the project depends on fiscal stability which requires “freezing” the royalty regulations”, p.64, CE-219. 29 Letter from Government of Pakistan, Ministry of Petroleum and Natural Resources re: Draft Mineral Agreement Regarding Reko Diq Copper Gold Project, Balochistan, dated 6 March 2009, pp. 1, 3, and 4, CE-71. 30 Letter from Ministry of Petroleum and Natural Resources to TCC, 9 June 2009 Ex RE-147. This letter suggests that it was the Claimant who failed to engage in the negotiation process in 2009 rather than the Governments, as asserted by the Claimant at Reply, §122 (“In early 2009 … the Governments abruptly changed course and withdrew their engagement. TCC offered concessions and attempted to re-engage the Governments, in the hopes of reaching agreement.”). 31 Minutes of Board of Investment Meeting held on 2 September 2009, CE-78; see also Supplemental Statement of Mr Khokhar, §13. 32 Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, Ex RE-64.
24 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 26 of 212
only major area of difference that remained was as to the terms of the applicable tax regime.”33
(3) The Governments continued to negotiate with the Claimant in 2010 and even 2011
76. The Claimant is also wrong to suggest that the Mineral Agreement negotiations ceased in December 2009 after the Provincial Cabinet Decision.34
77. It is evident from the documentary record that discussions continued between the Claimant and the Governments in 2010 and even 2011. For example:
a. TCC met the Chief Minister in January 2010 and agreed to submit a new proposal.35
b. On 4 March 2010, the Claimant met with Chief Secretary (“CS”) Lehri. The Claimant’s note of the meeting records:
“I pointed out that we (TCC and CS) indeed have a problem in the context of the above outlined fictitious riches, since the project is relatively skinny in economic terms, pointing out the estimated 13% IRR, too low for any Pakistani business house to invest in the project.
I asked, what is meant when Balochistan is asking to get “more” from the project: what were his thoughts?”36
c. A further meeting between the Claimant and CS Lehri on 2 June 2010 refers to a “proposal sent by Tethyan to the GOB”.37
33 Reply §132; see also Statement of CS Lehri, §§8-38; Supplemental Statement of Mr Khokhar, §§§-18 and 28-36; Counter-Memorial, §§212-213. 34 Reply, §122. 35 Notes of Tethyan Copper Company’s Meeting with the Secretary, Mining of Petroleum and Natural Resources, Pakistan, held on 1 April 2010, points 4 and 6, CE-85. This note also records at point 5, the Government of Balochistan’s ongoing “concerns over the concentrate exports, unwillingness of TCC to set up a smelter and refinery, monitoring of minerals being mined, etc.”; see also First Statement of Ms Boggs, §§82-83. 36 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84. 37 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 2 June 2010, bullet 5, CE-90; Statement of CS Lehri, §77.
25 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 27 of 212
d. The Claimant met the Prime Minister of Pakistan on 14 July 2010.38 In this meeting, the CEO of Barrick:
“i) Expressed satisfaction over the assistance provided by the GoP.
ii) Informed about positive outcome of the meeting with GoB.
iii) Sought facilitation of GoP for early settlement of outstanding issues, in consultation with GoB and other stakeholders, pertaining to Draft Mineral Agreement proposed by TCC.”
e. The Claimant met the MPNR on 27 September 2010.39
f. On 28 September 2010, the Government of Balochistan sent the MPNR its “Views … regarding issues relating to Reko-Diq project and Mineral Agreement”. These “Views” indicated that:
“TCCP has been asked to submit it [sic] revised proposals on the subject as per GoB’s principled stance for further consideration.”40
The MPNR forwarded these “Views” to TCC on 18 October 2010 requesting a response.41 None was ever received.42
g. The Claimant wrote to the Chief Minister on 5 October 2010 referencing recent discussions:
“Following our recent interaction, where you desired an improved offer that corresponded better to the aspirations of your Government and the people of Balochistan, we have been working hard to explore all possibilities…”43
38 Supplemental Statement of Mr Khokhar, §27; Minutes of meeting between Prime Minister and TCC, 14 July 2010, Ex RE-162. 39 Ministry of Petroleum & Natural Resources Meeting Note dated 27 September 2010, Ex RE-80; see also Supplemental Statement of Mr Khokhar, §27. 40 Report from the Government of Balochistan to MPNR, 28 September 2010, Ex RE-143. 41 Report from the Government of Balochistan to MPNR, 28 September 2010, Ex RE-143. 42 Supplemental Statement of Mr Khokhar, §27. 43 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257.
26 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 28 of 212
h. The Claimant attended a meeting with officials from both Governments on 21 July 2011. 44 The minute records continuing discussions regarding ‘value addition’ and that:
“TCC will evaluate alternate proposals to the current 25% equity and will submit to the GOB during 3rd quarter, 2011.”45
78. These discussions gainsay the Claimant’s assertion that “[a]fter December 2009 … the Mineral Agreement negotiations stalled and never resumed”.46
79. It is, nevertheless, true to say that the Feasibility Study, once received and analysed by the Government of Balochistan in late 2010, dealt a serious blow to the Claimant’s prospect of securing a Mineral Agreement.47
B. THE CLAIMANT’S FEASIBILITY STUDY WAS WOEFULLY INADEQUATE
80. It is difficult to overstate the inadequacy of – and the disappointment generated by – the Claimant’s Feasibility Study of 26 August 2010.
81. First, it was late. Second, despite the delay, and the Claimant’s repeated promises to submit a “full” feasibility study, it was incomplete. Third, it disclosed a worryingly low financial rate of return, and admitted that obtaining financing for the project would be “particularly challenging”. Fourth, instead of improving roads or railway infrastructure, it proposed a cost-cutting but attack-prone 682-km slurry pipeline without examining or costing the security risks or addressing the need for governmental approvals. Fifth, it failed to identify a proven water source. And, sixth, despite repeated requests, it made no mention whatsoever of the possibility of smelting/refining in Balochistan.
44 Review Meeting held in Ministry of Petroleum & Natural Resources dated 21 July 2011, Ex RE- 79; Supplemental Statement of Mr Khokhar, §27. 45 Review Meeting held in Ministry of Petroleum & Natural Resources dated 21 July 2011, §4, Ex RE-79. 46 Reply, §122. 47 Note, for example, that the Federal Government was only entitled, under Article 4.8.12.1 of the National Mineral Policy, 1995, to become party to a Mineral Agreement “after independently examining viability of the project”, Ex RE-81
27 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 29 of 212
82. We examine these failings in turn below.
(1) The Feasibility Study was late
83. At the meeting of the CHEJVA Operating Committee on 11 February 2006, the Claimant recognised that:
“at the previous Operating Committee meeting it has been estimated that the Feasibility Study would be completed by July 2005.”48
84. It was agreed in the Summary of Resolutions that:
“the term for completion of the Feasibility Study be extended until at least the next Operating Committee …”49
85. At the next meeting of the Operating Committee on 15 July 2006:
“[TCC] … estimated 18 months for pre-feasibility, 12 months for feasibility [i.e. by January 2009] … [TCC] stated that the company would be looking for opportunities to reduce that schedule.”50
86. On 12 September 2006, the Director General of the Licensing Authority wrote to the Claimant saying:
“In 2001, TCC had informed of commissioning a feasibility study on developing of H4 prospect aiming to develop and commercially exploit the deposit. On this commitment Government of Pakistan extended concession of EPZ to H4 project area for a period of [illegible] years for commissioning of this project.
After lapse of 5 years, we believe that TCC must have finalized the feasibility study on H4 prospect, incurring reported expenditure of US$ over 10 million. According to the Balochistan Mineral Concession Rules, TCC is required to submit a copy of the feasibility study to the licensing authority, which unfortunately has not been received by this office. You are requested to provide a copy of feasibility study of H4 project carried out during 2001-5 on priority please.”51
87. On 21 November 2006, Zafar Iqbal (of TCC) wrote to Tim Hargreaves (of TCC) in the following terms:
48 Minutes of Operating Committee Meeting held on 11 February 2006, p.3, CE-55. 49 Minutes of Operating Committee Meeting held on 11 February 2006, p.9, CE-55. 50 Minutes of Operating Committee Meeting held on 15 July 2006, CE-57. 51 Letter from Licensing Authority to the Claimant, 12 September 2006, Ex RE-67; see also Counter-Memorial, §219.
28 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 30 of 212
“I visited the Mines and Minerals Department today … While I was discussing with the Director General, Mr Maqbool Ahmed … he again raised the issue of feasibility report for Tanjeel Project to GOB; slow work progress of TCC on the Reko Diq project, etc … He warned me (TCC) that people in Balochistan and Islamabad have closed eyes on this project and in case of slow progress, TCC may be caught in problems, this could also become a political issue, etc.”52
88. At a meeting on 2 September 2009, Mr Jazek (of TCC):
“highlighted that [the Claimant] are expecting feasibility study to be completed by the end of this year …”53 [i.e. by end of 2009]
89. On 2 December 2009, Mr Jazek (of TCC) wrote that:
“we are now finalizing the project’s bankable feasibility study and expect to complete the required ESIA during the first half of 2010 …”54
90. It is not hard to see why the Government of Balochistan became frustrated in late December 2009 when they had still not received the Feasibility Study.
91. Even in 2010, the Claimant continued to miss its own deadlines for submitting the Feasibility Study:
a. On 2 June 2010, Mr Borries (of TCC) promised CS Lehri that:
“the Feasibility Study was almost completed and would be presented to Government of Balochistan (GOB) in two weeks.”55 [i.e. by 16 June]
b. On the same day, 2 June 2010, Mr Borries (inconsistently):
“informed [Mr Khokhar] that the Feasibility Study was ready and would be presented to GOB next week.”56 [i.e. by 7-11 June]
52 Email from Zafar Iqbal of TCC to Tim Hargreaves of TCC, 21 November 2006, Ex RE-144. 53 Minutes of Board of Investment Meeting held on 2 September 2009, CE-78. 54 Letter from Tethyan Copper Company Pakistan (Private) Limited to Chief Secretary, Government of Balochistan re: Reko Diq Project, dated 2 December 2009, CE-241. 55 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 2 June 2010, CE-90. 56 Notes of Tethyan Copper Company’s Meeting with the Director General, Ministry of Petroleum and Natural Resources, Pakistan, of 2 June 2010, CE-91.
29 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 31 of 212
(2) The Feasibility Study was incomplete
92. Despite the Claimant’s inordinate delay in finalising the Feasibility Study, the supposedly final version, circulated in August 2010, was incomplete.
93. More particularly, it only covered deposits H14 and H15.57
94. The Claimant knew that the Feasibility Study should have extended to all of the discovered deposits within the 435 sq km area of EL-5, as is evident from the Operating Committee Meeting Minute of 26 October 2007:
“TCC pointed out that EL-5 is to expire in February, 2008 and an application for renewal of the licence has to be filed with the Government of Balochistan by November 22, 2007. TCC stated that given the wide area over which discoveries had been made and the time that would be needed to carry out the feasibility study to tie all the deposits together … TCC was recommending that the request for renewal be over 90% of the existing EL-5 area and that the term of the renewal be three years. TCC pointed out that under the Balochistan Mining Rules a renewal on the said basis was possible.”58 (emphasis added)
95. This knowledge was reflected in the Claimant’s second application to renew its exploration licence filed a week later on 2 November 2007:
“the Applicant faced a number of technical and other challenges which have or will affect its ability to complete a full feasibility study during the first renewal period. … With EL-5 to expire in February, 2008 the Applicant will be able to commence activities for drawing up the Feasibility Study in the first renewal period but will not be able to complete the same given the time that will be needed to carry out the Feasibility Study to tie the development of all the deposits, which are spread over a large area of EL-5 … together into one mining project … the Applicant considers that it requires a renewal for the full three year period over 90% of the existing EL-5 area to be in a position to fully develop the discoveries.”59 (emphasis added)
96. The reference to a “full” Feasibility Study reflected BMR 29(2)(c)(iii):
57 The Claimant concedes this obvious fact in Ch 5, p5-2 (“Mining starts with the H15 deposit and finishes with the H14 deposit.”), Feasibility Study, dated August 2010, Ch. 5-2, Ex RE-131. 58 Minutes of Operating Committee Meeting held on 26 October 2007, Agenda Item 5, CE-64. 59 Application for Second Renewal of EL-5, dated 2 November 2007, pp.317-318 (original numbering), Ex RE-15.
30 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 32 of 212
“An application for the renewal of a licence shall … not be made … in the case of a second renewal, unless the applicant can satisfy the authority that such a renewal is necessary for the completion of a full feasibility study of the discovered deposits …”60 (emphasis added)
97. The Claimant admits in the Feasibility Study itself that:
“The objectives of the study are … to develop a business case for mining the ore deposits identified during the exploration stage.”61 (emphasis added)
(3) The Feasibility Study failed to demonstrate a profitable project
98. The Claimant knew62 that it had no prospect of securing a mining lease:
“unless the feasibility studies show that the mine can be profitably developed and operated.”63
99. Its predecessor, BHP, recorded its awareness of this fact in a letter to the BDA of 31 October 1991:
“Bearing in mind that a mine will not proceed unless it is to be profitable …”64
100. Ultimately, as the Claimant’s CEO, Mr Borries, later confirmed in a presentation to the Supreme Court:
“BHP did not find this resource financially interesting enough, so they walked away.”65
101. In full knowledge of the above, the Claimant’s Feasibility Study records:
60 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 29(2)(c)(iii), Ex RE-1. 61 Feasibility Study, dated August 2010, Ch 1.2, CE-97. 62 The Claimant concedes at Reply, §420, that “the BM Rules …required an applicant to show that “the mine can be profitably developed and operated”, and that “the proposed plans for development and operation of the mine and programme of the mining operations … will ensure the efficient, beneficial and timely use of the mineral resources.” 63 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 48(3)(a)(i), Ex RE-1. 64 Letter from Bernard M Joyce, solicitor for BHP to Mr Farooqi, GM Planning of the BDA, dated 31 October 1991, regarding “BHPM-BDA Joint Venture Agreement”, point 5, Ex RE-34: 65 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 56, Ex RE-58(ix)(b).
31 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 33 of 212
a. A base case Internal Rate of Return (IRR) of only 12.3%.66
b. The “inability to negotiate Mineral Agreement” as one of eight ‘high risk’ items impacting the project. 67 In Chapter 1.8.4, the Claimant concedes that “[t]he objective of the MA is to … guarantee a long term stability that allows the project to be financed.”68
c. “It is expected that the financing of the project will be possible but particularly challenging … It is likely that commercial appetite for the funding of the project will be limited …”69
d. “Based on an assessment of qualitative, non-technical factors, TCC and its current owners (Barrick and Antofagasta) treat mineralization at Reko Diq as measured and indicated resources, rather than proven and probable reserves for securities reporting, accounting and other public accounting purposes.”70
e. “Economic Risks: A number of residual risks have been identified during the study which will require further mitigation attention [sic] during the subsequent stages. Residual risk values have not been included in the current economic evaluation. These risks include direct violent attack in-country by any hostile force resulting in … business disruption.”71 (emphasis added)
102. The weak economics of the project, as disclosed in the Feasibility Study, reflect:
a. The Claimant’s earlier comments to CS Lehri on 4 March 2010:
66 Feasibility Study, dated August 2010, Ch 1.7, CE-97. This figure does not appear to include any country risk premium. 67 Feasibility Study, dated August 2010, Ch 1.7.1, CE-97; see also Feasibility Study, dated August 2010, Ch 28.4.4, Ex RE-133. 68 See Claimant’s presentation of 18 December 2007, “Economic viability of the project depends on fiscal stability which requires “freezing” the royalty regulations”, p.64, CE-219. 69 Feasibility Study, dated August 2010, Ch 29.2, Ex RE-163. 70 Feasibility Study, dated August 2010, Ch 2.8, CE-98. In other words “Resources which are not reserves do not have demonstrated economic viability”, Barrick Gold Corporation Annual Report 2008, appended to the Mining Lease Application, (Enclosure (xii)), pp. 142-147, Ex RE-140. 71 Feasibility Study, dated August 2010, Ch 28.4.2, Ex RE-133.
32 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 34 of 212
“I pointed out that we (TCC and CS) indeed have a problem in the context of the above outlined fictitious riches, since the project is relatively skinny in economic terms, pointing out the estimated 13% IRR, too low for any Pakistani business house to invest in the project.”72
b. Mr Borries’ presentation to the Supreme Court of 25 January 2011:
“this is a project with a return rate of 10-12%, far too low compared with the risk rating of the country.”73
c. The conclusions of the Risk Assessment report prepared by Behre Dolbear in October 2007 as part of TCC’s Scoping Study:74
“The unfortunate history of Mega-Projects is that their unique characteristics generally make these projects most vulnerable to economic failure. The unique characteristics that pertain to Reko Diq, will be more fully discussed later, but most importantly the current scoping study’s modest IRR decrees that the Reko Diq project will be vulnerable to potential economic failure …”
103. Even the Claimant’s weak ‘Base Case’ economic projections were overly optimistic. For example:
a. the Feasibility Study wrongly assumes that the applicable royalty rate was 2%:
“According to BMR, copper and gold fall in the category of Base Metals and the current royalty rate as specific in the rule is 2% ... For the purpose of the economic analysis, Normal tax and EPZ tax regime scenarios are run with current royalty rate of 2%.”75
72 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84. 73 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 61 Ex RE-58(ix)(b). 74 Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §2.1, Ex RE-130. 75 Feasibility Study, dated August 2010, Ch 28.1.8, Ex RE-133. This statement is also wrong in asserting that both copper and gold are categorized as Base Metals in the BMR. It is clear from Part I of the Third Schedule to the BMR that gold is categorized as a Precious Metal. The royalty rate for Base Metals and Precious Metals is, nevertheless, the same.
33 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 35 of 212
In fact, the applicable royalty rate rose from 2% to 5% on 17 July 2009 (i.e. over a year before the Feasibility Study was finalised).76
b. The Feasibility Study unreasonably assumes in its ‘Base Case’ model that the Governments would have agreed to a special EPZ tax rate (rather than the normal tax rate of 35%) for the first 15 years of the project.77 During the Mineral Agreement negotiations, the Claimant dropped its request for an exemption from the normal tax regime and accepted that the EPZ regime was “no longer politically viable.”78 The Claimant’s ‘sensitivity’ figures confirm79 that the application of the normal tax rate would have generated a negative NPV figure at a discount rate of 12%.80
104. Despite these weaknesses, the Claimant tried to mislead the Governments and potential investors as to the economic viability of the project:
a. The Claimant describes the risk of “inability to negotiate Mineral Agreement” 81 as only 20%-55% likely to occur. 82 In light of the Claimant’s clear unwillingness to accommodate the Governments’ need for a smelter/refinery, and other outstanding issues, the Claimant must have known that this 20%-55% risk assessment was unreasonably optimistic and liable to mislead potential lenders and investors.
b. “Performance against Objectives: The following are the objectives for this feasibility study against which this report has been measured … Demonstrating the technical and economic viability of the business
76 See the Notification of 17 July 2009 replacing the previous rate of 2% in Part I of the Third Schedule. Balochistan Mineral Rules 2002, dated 9 March 2002, pp.100 and 153, Ex RE-1. 77 Feasibility Study, dated August 2010, Ch 28.16, Ex RE-133. 78 Letter from Ms Boggs to Mr Khokhar, dated 29 January 2009, Ex RE-145. 79 Feasibility Study, dated August 2010, Ch 28.27, Ex RE-133. 80 Even a real discount rate of 12% appears low given the remoteness and harsh climate of the geographical location of the Reko Diq project and due to the fact that an investment in a business in Pakistan, particularly one in north-western Pakistan between the borders of Iran and Afghanistan, would have a significantly increased profile risk as compared to an investment in an economy such as the US due to political, macroeconomic, social and environmental factors. 81 Feasibility Study, dated August 2010, Ch 1.7.1, CE-97. 82 Feasibility Study, dated August 2010, Ch 30, Tables 30.4, 30.5 and 30.7, Ex RE-134.
34 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 36 of 212
opportunity … In TCC’s opinion, this has been adequately demonstrated and is reported in detail in Section 1, Executive Summary.”83 (emphasis added)
c. The Claimant failed to amend the Feasibility Study when filing the Mining Lease Application to admit its awareness of the 5% (not 2%) royalty rate and the obvious negative impact that the application of this rate would have on the economics of the project/IRR.84 The Claimant’s awareness of the 5% royalty rate is revealed in the Barrick Annual Report of 2009 appended to the Mining Lease Application.85
d. The Claimant assumed the application of an EPZ tax rate in its ‘Base Case’ economic model 86 despite conceding during the Mineral Agreement negotiations 18 months earlier that “we are willing to drop our request for a reduced corporate tax rate …We were advised by the Negotiating Committee that … the EPZ regime is no longer politically viable …”87
e. In the Operating Committee Meeting of 25 August 2010: “Mr Von Borries concluded that this was a technically and financially feasible project with no fatal flaws and will bring significant benefit to the people of Balochistan.”88
f. In a recently disclosed letter of 9 September 2010, the Claimant wrote to the Respondent describing the project as “commercially viable.”89
g. In his presentation to the Supreme Court of 25 January 2011, Mr Borries stated that: “We are still confident that the international
83 Feasibility Study, dated August 2010, Ch 31.2.1, Ex RE-135. Note the inconsistency of this statement with the quotation above from Feasibility Study, dated August 2010, Ch 28.4.2, Ex RE- 133. 84 As admitted, implicitly, by Ms Boggs, First Statement of Ms Boggs, §51. 85 Barrick Gold Corporation Annual Report 2009, appended to the Mining Lease Application, (Enclosure (xii)), p.112, Ex RE-141. 86 Feasibility Study, dated August 2010, Ch 28.16, Ex RE-133. 87 Letter from Ms Boggs to Mr Khokhar, dated 29 January 2009, pp. 2-3, Ex RE-145. 88 Minutes of Operating Committee Meeting held on 25 August 2010, p.4, CE-102. 89 TCC letter to the Government, 9 September 2010, Ex RE-146.
35 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 37 of 212
financing community will be willing and happy to finance this project …”90
105. The Claimant’s misleading behaviour is consistent with:
a. its non-transparency on financial issues during the Mineral Agreement negotiations;91 and
b. its failure to disclose the Expansion Feasibility Study.92
106. The Government of Balochistan was concerned by the project’s apparent lack of economic viability, as revealed in the following documents:
a. The Feasibility Review Committee Report of January 2011:
“Production prices appear quite low compared to international prices, the internal rate of return (IRR) of the base case is 12.33% at a discount rate of 10% which is not a comfortable IRR for undertaking such a large scale investment in a remote area with attended risks. …
The net present worth of the dividend to GOB and royalty (US$ 5,089m plus US$1,116m) is US$494 million. GOB however, would be exposed to a financial risk of US$716 million (US$580m loan equity + interest) whereas the NPV of dividend and the royalty combined is much less i.e. US$494 million. It is a point of consideration for GOB whether an exposure of US$716 million is justified under these circumstances. …
There is no justification for the GOB to expose them to a financial risk which is of much higher magnitude than the net present value of the benefits (including royalty) which are projected to accrue even by assuming such operating cost which appear to be lower than the international lenders.”93
b. The Summary for the Chief Minister of 8 September 2011:
“FS estimates financing requirements of the mining project [H14 & H15 only] as US $ 3,870 million which is proposed to
90 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p.61, Ex RE-58(ix)(b). 91 Supplemental Statement of Mr Khokhar, §§28-36. 92 Counter-Memorial, §§231-235. 93 Feasibility Review Committee Report, January 2011, pp. 1, 2 and 15, Ex RE-142.
36 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 38 of 212
be financed 60% from equity and 40% from loan, raised mainly from TCC partners and a very small part as a commercial loan. Both types of loans are proposed to be contracted at Libor plus 55, up-front fee 2% on principal, commitment fee of 1% on un- withdrawn amount and advisory expenses of US $ 20 Million. The proposed mix of equity and loan [60:40] is unconventional and particularly the raising of loan from TCC partners rather than contracting project loans from the Banks creates lots of doubts on FS. Such large projects are generally done with 30%- 40% equity while the rest are Bank loans, which are contracted on the strength of the project after the Bank has thoroughly scrutinized the FS and evaluated all types of risks involved. In the instant case either through the proposed financing arrangements TCC does not want to divulge their FS for scrutiny / validation to any project financing bank / institution of the financial benefits of the proposed project are projected to be so low that no bank willing to finance it.
The Internal Rate of Return [IRR] of the proposed project has been projected as 12.4% while IRR of Tethyan Copper Company Private Limited TCC’s investment has been shown as 11% only. Unless the capital and operating costs in the FS have been extremely overstated which has lowered the IRR, there is little economic justification to make investment of billions of dollars in a mining project, attended by so many risks including cyclic fluctuations in international metal prices.”94 (emphasis added)
(4) The Feasibility Study failed to examine or cost the security risks of the slurry pipeline, or address the need for governmental approvals
107. The above economic weaknesses were compounded by the failure to address the security risk, and related cost, of the proposed slurry pipeline.
108. At Chapter 2.5.3 of the Feasibility Study, the Claimant concedes that:
“The highest residual risks that were identified during the study, and that will require further mitigation, can be categorised as security, environmental and community related.”95
94 Letter from Mines & Mineral Development Department (Technical Section) to Director General, Mines and Minerals, re: Reko-Diq Gold Project Acquisition of Non-Participating Party’s Percentage Interest, dated 8 September 2011, CE-354. 95 Feasibility Study, dated August 2010, Ch 2.5.3, CE-98.
37 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 39 of 212
109. Indeed, four of the eight ‘high ranked’ residual risks identified in the Feasibility Study were security related.96
110. In the words of Salamanca Risk Management, a security expert instructed by the Respondent to review the project documents:
“At the very least, the identification of four “High” ranked [security] risks after mitigation should have triggered a comprehensive security risk analysis report, but again there is no documented evidence that this step was being considered. This should have raised concerns, especially when considered alongside the issues relating to TCC’s apparently limited situational awareness of the threat environment. In any case, it is inadvisable to construct a mitigation strategy based solely on such a superficial appreciation of the threats. By their very definition, ‘high probability’ risks are likely to occur. Furthermore, when these risks are also ranked as ‘high impact’, it is impossible not to conclude that their manifestation would have caused significant or even terminal damage to the project.”97
111. Moreover, the Pipeline Bankability Feasibility Study records that:98
“No safety and security has been included in the estimate due to the unknown issues related to Pakistan. These issues need to be understood to provide a better costs estimate for this important task.” (emphasis added)
112. Despite this failure to cost the security risks of the pipeline, the Claimant included the following misleading conclusion in the Feasibility Study:
"Performance against Objectives: The following are the objectives for this feasibility study against which this report has been measured … Defined the scope, quality, cost and time of the proposed project … This was been completed to the required level of accuracy. Ensured no residual [sic] of future issues which could significantly affect the assessment set out in this feasibility study: It is considered that there are no major outstanding issues which could materially affect the assessment of this project. Quantitatively assessed the risk profile of the project: This has been achieved." 99 (emphasis added)
96 Feasibility Study, dated August 2010, Ch 1.7, CE-97. 97 Preliminary report dated 8 July 2014, p.3 (not exhibited in light of the Tribunal’s Order of 21 June 2014). 98 Feasibility Study, dated August 2010, Appendix 6.01, Ch. 16.1.2, Ex RE-119. 99 Feasibility Study, dated August 2010, Ch 31.2.1, Ex RE-135.
38 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 40 of 212
113. It is a mystery how the Claimant could honestly reach this conclusion when:
a. It stated earlier in the Feasibility Study that “residual risk values have not been included in the current economic evaluation … includ[ing] direct violent attack in-country by any hostile force resulting in … business disruption”.100
b. The risk of “direct violent attack in-country by any hostile force resulting in … business disruption” was identified in the Feasibility Study as one of eight ‘high ranked’ residual risks.101
c. The Pipeline Bankability Feasibility Study confessed that “no safety and security has been included in the [pipeline cost] estimate due to the unknown issues related to Pakistan”.102
d. The pipeline would obviously be exposed to the same frequent terrorist attacks experienced by other pipelines in Pakistan.103
e. Other projects – for example, the Mareb-Ras Isa Oil Pipeline project in Yemen – have suffered major downtime and financial losses as a result of terrorist attacks on pipelines.104
114. In the words of Salamanca Risk Management:
“The absence of any documented attempt to quantify the losses that could realistically be expected to occur as a result of the known risks presents the impression that the FS proceeded on the basis of unwarranted optimism. In our view, this would have left the project vulnerable not only to business disruption as a direct result of the threats, but more importantly, if the threats had reached a critical level,
100 Feasibility Study, dated August 2010, Ch 28.4.2, Ex RE-133. 101 Feasibility Study, dated August 2010, Ch 1.7, p.1-14, CE-97. In fact, four of the eight high ranked risks are security-related. 102 Feasibility Study, dated August 2010, Appendix 6.01, p.71, Ex RE-119. 103 Number of attacks on Gas pipelines in Balochistan: 2005-2013, Ex RE-33. 104 “Yemen loses $383 mln due to oil pipeline sabotage in 2014, Saba News, 8 May 2014, http://www.sabanews.net/en/news352387.htm, RE-150, Ex RE-150; Yemen Country Profile, US Energy International Administration, http://www.eia.gov/countries/cab.cfm?fips=YM, Ex RE-151.
39 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 41 of 212
this could quite conceivably have undermined the financial case for the project.” 105
115. The Claimant’s reckless approach to the obvious security risks – and consequential financial impact – of the slurry pipeline was driven by the commercial imperative of cutting cost.106
116. The “skinny” economics of the project did not allow the Claimant to invest in much-needed road infrastructure improvements:
“Area of project clearly lacks suitable infrastructure … Providing or upgrading infrastructure would make the project uneconomical from Tethyan Pakistan’s perspective.”107
117. The Claimant knew that the Government wanted to improve road108 or railway109 infrastructure.
118. In its Reply, the Claimant seeks to evade this issue by propagating the myth that “the pipeline … promised the greatest benefits for the local population.”110
119. The Claimant’s statement is self-evidently untrue.111 It is also contradicted by its own Transportation Trade-Off Study:112
“Economy: Economic growth would be more significant for the trucking options as more people would be employed and there would
105 Preliminary report dated 8 July 2014, p.7 (not exhibited in light of the Tribunal’s Order of 21 June 2014). 106 See Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 64: .“The concentrate pipeline to Gwadar is only a means of transport. If constructing a railway or a road for 300 trucks had shown to be more cost effective it would have been decided to proceed with any of the alternative solutions.” Ex RE-58(ix)(b). 107 Claimant’s presentation of 18 December 2007, “Economic viability of the project depends on fiscal stability which requires “freezing” the royalty regulations”, p.63, CE-219. 108 Minutes of Operating Committee Meeting held on 24 February 2007, p.4, CE-60; Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84. 109 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, p.1, CE-84; Notes of Tethyan Copper Company’s Meeting with the Secretary, Board of Investment, Pakistan held on 2 June 2010, CE-92. 110 Reply, §§428-429. 111 Supplemental Statement of Mr Khokhar, §§46-51. 112 Feasibility Study, dated August 2010, Appendix 30.2, §7.2, Ex RE-134.
40 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 42 of 212
be more secondary economic opportunities along the transportation corridor.”
120. As well as failing to benefit the local population, the Claimant’s pipeline proposal caused great offence.113 It was perceived as contradicting the Governments’ desire for a smelter/refinery.114
121. Without consulting the Governments, and without recording any openness to further discussion:
a. The Claimant presented the pipeline in the Feasibility Study as a fait accompli;115
b. The Claimant made no reference whatsoever in the Feasibility Study to the Governments’ desire for a smelter/refinery; and
c. The Claimant evinced a clear intention to export all the concentrate for smelting/refining abroad: “The end product leaving the mine will be high-value copper concentrate destined for export to custom smelters.”116
122. The Claimant’s proposal was also surprising in light of:
a. Its failure to obtain the necessary prior approvals from the relevant authorities in Pakistan relating, for example, to rights of way and usage of port facilities, without which the pipeline proposal could never have been implemented.117
b. Its awareness that “the main challenge in Reko Diq is to obtain the ‘social license to operate’ from the communities, authorities and all the relevant stakeholders.”118
113 Supplemental Statement of Mr Khokhar, §49. 114 Supplemental Statement of Mr Khokhar, §49. 115 Feasibility Study, dated August 2010, Ch 1.14.2, CE-97. 116 Feasibility Study, dated August 2010, Ch 19.6.4, Ex RE-132. 117 Statement of Mr Khokhar §51; Supplemental Statement of Mr Khokhar §50. 118 Feasibility Study, dated August 2010, Ch 2.5.3, CE-98.
41 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 43 of 212
c. CS Lehri’s warning that “if copper and gold are not produced from the Reko Diq ore within Balochistan, many will never believe copper and gold yields declarations TCC will make based on the concentrate being processed in foreign refineries.”119
123. The Claimant’s insensitivity to the Governments’ legitimate needs and concerns further undermined the already frayed relations between the parties.
124. It also further exacerbated the unaddressed security risks associated with the pipeline, as Sussman Corporate Security, a security expert engaged by the Respondent, explain:
“TCC failed to account for the impact of culture upon company operations. We assess that the ethno-sectarian environment would have significantly impacted the pipeline. Most notably, the pipeline’s mere presence represents western interests and the exploitation of Pakistan and Balochistan resources … we believe the pipeline would have been critically vulnerable.”120
(5) The Feasibility Study failed to demonstrate a proven water source
125. The Risk Assessment report prepared by Behre Dolbear in October 2007, as part of the Claimant’s Scoping Study, states that:
“The pre-establishment of identifiable project trigger points, also called “kill points” is critical to the proper establishment of a mega-project. Each trigger point is a potential “fatal flaw” to the overall project so it is totally necessary that each trigger point is brought to full finality before any major project expenditures are made. …
Behre Dolbear considers the following to be the trigger points for the Reko Diq project:
Project Shareholding and Licensing Water Supply Transportation Port Facility Permitting
119 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84. 120 Preliminary report dated 28 July 2014, p.24 (not exhibited in light of the Tribunal’s Order of 21 June 2014). See also Counter-Memorial §53.
42 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 44 of 212
and to a lesser extent Community Relations Labour Supply
…
The most critical limitation to the entire project is that of an adequate water supply.”121 (emphasis added)
126. Contrary to Behre Dolbear’s advice that “it is totally necessary that each trigger point is brought to full finality before any major project expenditures are made”, the conclusions of the Water Resource Assessment attached to the Feasibility Study are far from final:
“Each Preferred Groundwater Source is located near an international border. In many cases, the majority of the water resource is in neighbouring countries. The geographical and political locations of the aquifers are unavoidable. Permission from the Client to assess the groundwater resources by visiting Iran and Afghanistan was not received. Thus, detailed hydrogeological assessment of parts of the aquifers has not been carried out, except from a few reports and Google Earth satellite imagery. Even though most alluvium aquifers appear regionally extensive and the confidence level of hydrogeological extrapolation appears reasonable, there is a risk of hydrogeological misinterpretation as parts of the aquifers could not be physically assessed and tested. TCC needs to acknowledge the imposed limitations in field data collection and interpretation constraints.”122 (emphasis added)
127. Despite these non-conclusive findings:
a. there is no reference to the risk of water unavailability in Chapter 1.7 (Risks) of the Feasibility Study; and
b. Chapter 30 (Risks) refers only to two ‘low’ ranking residual risks relating to water management.123
121 Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §§2.2.2 and 2.3.1.2, Ex RE-130. 122 Excerpt from Expansion Pre-Feasibility Study, Appendix 24.04, SMEC Water Resource Assessment Study Final report December 2009, ES1.0, Ex RE-137. The Respondent understands that, due to the same name and date of the document, this is the same document attached as an Appendix to the Feasibility Study, dated August 2010 – however, the Respondent confirms that it does not have a copy of that Appendix to the Feasibility Study. 123 Feasibility Study, dated August 2010, Ch 30, Tables 30.6 in Ex RE-134.
43 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 45 of 212
128. It is only upon close inspection of the Risk Register, buried in Appendix 20,124 that the reader finds a “medium” ranked residual risk entry for:
“available water source insufficient to supply operating requirements (including slurry pipeline), resulting in production interruptions and/or additional expenses.”
129. It is, in reality, far from clear that the aquifer selected by the Claimant contained sufficient water to service the needs of the project.
130. In the words of Frank Farquharson, a water resources expert engaged by the Respondent to review the water related aspects of the Claimant’s proposed project:
“We believe that there is considerable uncertainty over this estimate of the water available from the Bachicha fan aquifer and that there has to date been insufficient exploratory investigation of the aquifer to enable reliable estimation of groundwater availability. In our opinion, there is considerable risk that these estimates are too high. The main reasons for this conclusion are:
1. The geometry (thickness and extent) of the aquifer is not known although this is a fundamental requirement of any water resource assessment.
2. The degree of aquifer heterogeneity is not known. Typically fan deposits are a complex succession of gravels, sands, silts and mudstones that vary in thickness and lateral extent throughout the sequence. Assumptions of homogeneity for the purposes of resource calculation can inevitably introduce substantial errors.
3. The extent of confined and unconfined conditions throughout the aquifer, are unknown. In the absence of any data unconfined conditions have been assumed, though it is possible that some or perhaps most areas of the aquifer are confined; in confined regions storage capacity will be several orders of magnitude lower than for the unconfined state. The presence of confined conditions will therefore lead to a considerable overestimate of resources by TCC.
4. Aquifer permeability is only available for two sites; whether the figures from these sites are representative of the whole region is questionable.
Even if the water availability estimate were accurate, there would be considerable technical challenges in abstracting the water required
124 Feasibility Study, dated August 2010, Appendix 20, p20, entry WAT01, Ex RE-136.
44 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 46 of 212
from what is stated to be an aquifer consisting of mixed sediments ranging from gravels to clays, that is of uncertain depth, with identified fault lines and where some of the aquifer is likely to be confined by overlying clay lenses, with resulting dramatic reductions in the extractability of water. In addition, not all extractable water will be usable in light of the increased salinity of water coming from greater depths within the aquifer. Furthermore abstraction of water from the lower parts of the aquifer is constrained by drawdown in the pumped wells; as saturated aquifer thickness is reduced by drawdown, transmissivity is also reduced. Even if water levels are drawn down close to the base of pumped well there is still a huge amount of water untapped at distance from the well. This is because of the shape of the cone of depression which dips steeply toward the abstraction point. The only way to access this water would be to have a large number of boreholes with intersecting cones of depression; the number required would depend on aquifer parameters. In short, there is a high risk that it would be impossible to extract sufficient usable water from the aquifer to service the needs of the project.
Moreover, TCC’s predicted yield of existing boreholes and the results of the pump testing and 3D model are based on a whole host of assumptions any one, or all, of which could be in error. For instance the Transmissivity of the aquifer will not be a uniform 500m2d-1. Instead it will vary enormously depending on the lithology, which in this type of deposit will change rapidly both vertically and laterally. Furthermore, the boundaries of the aquifer are not well defined. It is possible that they are much closer to the well field area than supposed, in which case drawdowns will be greater and the total volume of water in the aquifer overestimated. To provide a more reliable conceptual model of the region more exploration, pump testing and monitoring work should have been undertaken. As things stand the model is at best a gross simplification of the actual system.” 125 (emphasis added)
(6) The Feasibility Study failed to provide, or even discuss, value addition
131. As discussed above, the Claimant made no reference whatsoever in the Feasibility Study to the Governments’ desire for a smelter/refinery.
132. Indeed, contrary to the Governments’ desire, the Feasibility Study recorded an intention to export all the concentrate for smelting abroad:
“The project is privileged from a logistics perspective in relation to proximity to smelters, being in a very competitive position for regional
125 Preliminary report dated 15 August 2014, pp2-3 (not exhibited in light of the Tribunal’s Order of 21 June 2014).
45 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 47 of 212
and Chinese smelters and an attractive distance from Europe, Japan and South Korea.”126
“The end product leaving the mine will be high-value copper concentrate destined for export to custom smelters.”127
133. As well as defeating the Governments’ desire, the Claimant’s failure to investigate smelting/refining locally in the Feasibility Study was also a breach of the CHEJVA:
“The Feasibility Study shall include (but not be limited to): …
c) an engineering investigation of the method of mining and treating the product of the proposed mining operations;
d) an investigation of the method of treatment of the output of the proposed mining operations and the disposal of all tailings and other waste generated by mining and treatment operations.”128
134. The reference in sub-clause (c) to “treating the product of the proposed mining operations” refers logically to the mineral processing of ore from the mining operations, i.e. the production of a concentrate.
135. The reference in sub-clause (d) to “the method of treatment of the output of the proposed mining operations”, read alongside “the disposal of all tailing and other waste”, refers logically to the method of treatment of the concentrate “output”, i.e. smelting and refining.129
136. Thus, the CHEJVA envisages that the Feasibility Study “shall include” an investigation of smelting and refining possibilities.130
137. No such investigation was, in fact, included in the Claimant’s Feasibility Study and the Governments’ disappointment was understandable.
126 Feasibility Study, dated August 2010, Ch 1.3.4, CE-97. 127 Feasibility Study, dated August 2010, Ch 19.6.4, Ex RE-132. 128 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Clause 1, CE-01. 129 If the reference to “treatment of the output” in sub-clause (d) were not intended to be different from the reference to “treating the product” in sub-clause (c), it is hard to see why two separate sub-clauses were included in the CHEJVA. 130 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Clause 1, CE-01.
46 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 48 of 212
138. In the words of Mr Khokhar:
“I was surprised to find that, despite being aware of the GoP’s and GoB’s requirement for a smelter and refinery in its August 2008 counter-proposal, TCCP made its Mining Lease Application without such provision. The Governments’ counter proposal required the full scale refining. The Feasibility Study submitted in support of TCCP’s application provides only for processing of ore up to concentrate stage and completely disregards the proposal of the GoP and GoB for value- addition up to the stage of metal refining.
The refinery was critical for the GoB and GoP because, presently, Pakistan is fulfilling its copper requirements through imports and we naturally wanted to have the first right to utilize our own mineral resources. TCCP’s proposal envisaged that all the processed concentrate would go straight to third countries for smelting and refining, and then Pakistan would have to buy the metal from the international market at London Metal Exchange (LME) rates. TCCP had made it clear that they were unable to process the concentrate any further (smelting and refining). This was simply not an acceptable solution for the utilisation of our country’s natural resources. Pakistan imports about 100,000 tons of copper every year.”131
139. Similar sentiments were expressed in the Government of Balochistan’s “Comments / Observations” on the Feasibility Study, included as part of the Summary for the Chief Minister on 8 September 2011:
“The Feasibility report is silent about final processing and refining of copper, gold and other metals in Pakistan, while it is in the supreme interest of the people of Balochistan and Pakistan to encourage metal mining and its refining in Balochistan. Besides, Pakistan buys / imports copper for its domestic consumption from other countries.”132
C. THE REJECTION OF THE MINING LEASE APPLICATION WAS IN ACCORDANCE WITH THE BMR AND UNSURPRISING
140. As described above, the Claimant knew full well that it had not provided a “full” feasibility study, as it promised in the context of the application for a second renewal of its exploration licence.
131 First Statement of Mr Khokhar, §49-50. 132 Letter from Mines & Mineral Development Department (Technical Section) to Director General, Mines and Minerals, re: Reko-Diq Gold Project Acquisition of Non-Participating Party’s Percentage Interest, dated 8 September 2011, p4, point (xi), CE-354.
47 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 49 of 212
141. The Claimant also knew that the Licensing Authority was duty bound to reject a mining lease application unless, inter alia, it: (a) “show[ed] that the mine can be profitably developed and operated”; (b) addressed “value addition”; (c) was “satisfactory”; (d) was “in the interest of the development of the mineral resources of Balochistan”; and (e) was not in default of the BMR.133
142. Nevertheless, ignoring the Claimant’s Undertaking of 2006 134 and the preconditions in the CHEJVA, TCCP purported to file a “sole participant” Mining Lease Application with the Licensing Authority based on the same defective Feasibility Study of August 2010.135
143. Upon the Claimant’s request, the Supreme Court directed the Licensing Authority to decide the Mining Lease Application in accordance with the BMR.136
144. It is obvious that the Claimant had no genuine expectation of securing a mining lease via the Mining Lease Application. Its goal had always been to procure a “right to mine” via a Mineral Agreement without the need to satisfy the requirements of the BMR. But the Claimant now realised that its ploy to override the BMR via a Mineral Agreement was doomed to fail. It also realised that there was no prospect of fashioning an investment treaty claim out of the failure to conclude a Mineral Agreement. The Claimant, therefore, sought to manufacture a treaty claim via the Mining Lease Application.137
133 Balochistan Mineral Rules 2002, dated 9 March 2002, Ex RE-1. 134 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 135 Letter from Tethyan Copper Company Pakistan (Private) Limited to Director General, Mines and Minerals Balochistan enclosing Mining Lease Application, dated 15 February 2011, CE-06; Counter-Memorial §§260-261. 136 Order of the Supreme Court of Pakistan, Islamabad, in the Matter of Maulana Abdul Haq Baloch v. Government of Balochistan and Others, C.P. 796/ 2007, etc., dated 25 May 2011, §14, CE-176. 137 The Claimant’s Privilege Log, 3 May 2014, records the Claimant taking legal advice from Audley Sheppard (a well-known international arbitration specialist at Clifford Chance) on 16 November 2010, p.20, item 165, Ex RE-152. The timing of this consultation is telling as it follows shortly after the Claimant’s attempt to secure the GOB’s participation in the Mining Lease Application (Letter from William Hayes, Chairman, Tethyan Copper Company Pty Limited to Mr. Gerhard von Borries, CEO, Tethyan Copper Company Pty Limited re: Notice of intention to participate in the development of the Mineral deposits of the Reko Diq Project, dated 8 November 2010, CE-23) and the GOB’s stated awareness of “many flaws” in the Feasibility Study (Minutes of Operating Committee Meeting held on 8 November 2010, CE-103).
48 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 50 of 212
145. As the Claimant knew full well, the rejection of the Mining Lease Application was a “foregone conclusion”.138
146. The succinct nature of the Licensing Authority’s rejection letters139 reflected (a) the obvious weaknesses of the Mining Lease Application, and (b) the ‘house- style’ in Balochistan.140
147. The principal elements of the Licensing Authority’s decision to reject are summarised below.141
(1) The Feasibility Study (and therefore the Mining Lease Application) was incomplete
148. As discussed above, the Claimant undertook in the second licence renewal application of 2 November 2007:
“to complete a full feasibility study … to tie the development of all the deposits, which are spread over a large area of EL-5 … together into one mining project.”142
138 Memorial, §19. 139 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07; Letter from Director General, Mines and Minerals Balochistan to Tethyan Copper Company Pakistan (Private) Limited re: Rejection of Mining Lease Application, dated 15 November 2011, CE-11. 140 Other examples of similar succinct decisions include Letter from Director General, Mines and Minerals Balochistan to M/S BDA/BHP Chagai Hills Joint Venture re: Request for the Assignment of Exploration License No. EL(5) for Copper, Cold, Lead Zinc, Silver, Platinum Group Metal, Molybdenum & Iron in District Chagai, dated 8 April 2006, CE-18, Letter from Director General, Mines and Minerals Balochistan to Tethyan Copper Co. (Private) Limited re: Application Under Rule 29(2) of the Balochistan Mineral Rules, 2002 for a Second Renewal of EL-5 District Chagai Balochistan, dated 1 December 2007, CE-20; Government of Balochistan, Industries, Commerce and Mineral Resources Notification Order re: Relaxation of Balochistan Mining Concession Rules for the Implication of the BDA-BHPM Joint Venture Agreement, dated 20 January 1994, CE-189. Note also CS Lehri’s warning to the Claimant in March 2010 (Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84) about the preference in Balochistan for short documents (“Why did TCC table thick contracts that no one in the Government could/would read and no one would understand … [CS Lehri] acknowledged the tribal nature of the important people and their lack of sophistication; convincing them with a scientific document is not the way…”). Despite this warning, the Claimant responded to the Notice of Intent to Reject with a 22-page Western-style legal submission with 18 appendices (Tethyan Copper Company Pakistan (Private) Limited’s Interim Response to 21 September 2011 Licensing Authority Notice, dated 19 October 2011, CE-08). 141 See also Counter-Memorial, Sections III.6-III.8. 142 Application for Second Renewal of EL-5, dated 2 November 2007, pp.317-318 (annotated numbering), Ex RE-15.
49 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 51 of 212
149. The requirement of a “full” feasibility study when applying for a second licence renewal is laid down in BMR 29(2)(c)(iii):
“An application for the renewal of a licence shall … not be made … in the case of a second renewal, unless the applicant can satisfy the authority that such a renewal is necessary for the completion of a full feasibility study of the discovered deposits …”.143 (emphasis added)
150. In the context of mining lease applications, BMR 47(2)(f) provides that:
“An application for a mining lease … shall be accompanied by the relevant feasibility studies …”.144
151. In circumstances where the Claimant (a) breached its obligation and undertaking to produce a full feasibility study in the context of the second licence renewal application, and (b) submitted the same incomplete Feasibility Study in support of its Mining Lease Application over an area many times larger than the area considered in that Feasibility Study, it is self-evident that the Mining Lease Application was not accompanied by the “relevant feasibility studies.”
152. The Claimant’s continuing failure to comply with its obligation and undertaking to produce a full feasibility study in the context of its second licence renewal application also meant that the Licensing Authority was debarred from granting a Mining Lease by BMR 48(3)(b):
“… a mining lease shall not be granted … if at the time of the application the applicant in question is in default.”145
153. It is immediately obvious from the Licensing Authority’s Notice of Intent to Reject Letter that the incompleteness of the Feasibility Study featured strongly in its decision to reject the Mining Lease Application:
143 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 29(2)(c)(iii), Ex RE-1. 144 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 47(2)(f), Ex RE-1. 145 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 48(3)(b), Ex RE-1. The Claimant’s failure to comply with the preconditions in the CHEJVA to making a ‘sole participant’ Mining Lease Application, read together with the Claimant’s undertaking of 10 April 2006 (Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206) to comply with the terms of the CHEJVA, also debarred the Licensing Authority under BMR 48(3)(b) from granting the Mining Lease Application – see Counter-Memorial §§260-261.
50 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 52 of 212
“2. That the company did not make proper feasibility or exploration of the discovered deposits and achieve the targets required under the rules.
3. That the second renewal application submitted by the applicant, had given declaration that the applicant will submit the complete feasibility of the entire lease/exploration area. The applicant has utterly failed to submit the said feasibility report and meaning thereby that they have failed to conduct and complete exploration in the exploration licence / granted area.
7(i) That the Company has failed to comment or dilate upon rest of discover deposits except H-14 and H-15;
7(ii) The proposed development, operation and scheme of the mines in programme of the mining operation for the 11 other potential resources is missing/omitted to be considered in feasibility report;
7(iv) … Despite being a world class Exploration / Mining Company so called partner has failed to submit the technical, financial, economic viability report of the entire resources of EL-5 enjoying with special relaxations in all respect allegedly granted by the Government of Balochistan for the last 17 years.
7(v) There is a default and violation committed under rule 29(2)(c)(iii) of Balochistan Mineral Rules, 2002 as well as failure to provide the required information as contemplated under rule 47 of Balochistan Mineral Rules, 2002.
8. That the submission of the application relating to H-4, H-8, H-13, H- 35, and H-79 etc is in violation of rule 48 of Balochistan Mineral Rules, 2002.”146
154. It is hard to see how the Claimant can object to this clear-cut, and obviously justified, ground for rejecting the Mining Lease Application.
(2) The Mining Lease Application was an attempt at a ‘land grab’
155. In addition, contrary to the CHEJVA and the BMR, the Mining Lease Application covered an area many times the size of the area covered in the Feasibility Study.
156. Clauses 11.7 and 11.8 of the CHEJVA read as follows:
“… the Participating Parties shall segregate from the Exploration Area boundaries of the Mining Area established by the said Study
146 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07
51 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 53 of 212
and shall thereby establish a joint venture in respect of such areas (the “Mining Venture”).”
“Unless otherwise unanimously agreed by all Parties, the boundaries of the Mining Venture shall not contain a greater land area than is necessary to encompass all ore resources which may be properly mined as a single mining enterprise together with any necessary plant or facilities for the milling and treatment of ore and other infrastructure and, thereafter, a new joint venture shall be deemed to exist between the Participating Parties in respect of that area (the Mining Area).
Where the Joint Venture, or pursuant to sub-clause 11.3.2, a Participating Party elects to develop a mine then, subject to compliance only with routine Government requirements, it shall be entitled to convert the relevant Prospecting License(s) held by it into Mining Licenses so as to give secure title over the required Mining Area.”147 (emphasis added)
157. In other words:
a. the boundaries of the “Mining Area” are determined by the scope of the Feasibility Study;148 and
b. the Participating Party at sole risk is entitled – “subject to compliance with routine Government requirements”149 – to a Mining Lease over such “Mining Area”.
158. Since the Claimant’s Feasibility Study was limited to H14 and H15, it was only entitled – “subject to compliance with routine Government requirements” and in accordance with the terms of the CHEJVA – to a Mining Lease over H14 and H15.
159. By applying for a Mining Lease over an area extending many times beyond H14 and H15,150 the Claimant (through TCCP) breached the terms of the CHEJVA and
147 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, CE-01. 148 This interpretation is supported by the definition of Feasibility Study in the CHEJVA, which provides that “The Feasibility Study shall include (but not be limited to) … (k) the area which will be included within the Mining Area”: Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development A uthority and BHP Minerals International Exploration Inc., dated 29 July 1993, Clause 1, CE-01. 149 See Section V.B.(3).(a).(ii) below. 150 The area covered by the Mining Lease Application was approximately 16 times larger than the area covered by H14 and H15.
52 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 54 of 212
lost its potential entitlement – “subject to compliance with routine Government requirements” – to a Mining Lease over H14 and H15.
160. The Claimant’s attempt to effect a ‘land grab’ over areas beyond H14 and H15 was also contrary to BMR 48(3)(a)(ii):
“… a mining lease shall not be granted unless … the proposed plans for development and operation of the mine and the programme of the mining operations of the applicant will ensure the efficient, beneficial and timely use of the mineral resources.”151
161. It is self-evident that the granting of a mining lease over areas in which the Claimant had no present intention of mining, and in respect of which it had submitted no feasibility study, would not “ensure the efficient, beneficial and timely use of the mineral resources” in those areas.152
162. The Licensing Authority held as such in the Notice of Intent to Reject:
“7(ii) The proposed development, operation and scheme of the mines in programme of the mining operation for the 11 other potential resources is missing/omitted to be considered in feasibility report.”153
163. By definition, if there are no “proposed plans for development and operation of the mine” in certain areas, and no “programme of … mining operations”, those plans and programme cannot “ensure the efficient, beneficial and timely use of the mineral resources” in those areas.
(3) The Mining Lease Application failed to provide ‘value addition’
164. As discussed in Sections II.A.(2) and II.B.(6) above, the Claimant was at all times aware of the Governments’ core requirement of a smelter/refinery.
151 Balochistan Mineral Rules 2002, dated 9 March 2002, Rule 48(3)(a)(ii), Ex RE-1. 152 Cf Statement of Mr Khokhar Statement, §23 (“The core concern [in BMR 48(3)(a)(i)] was to address hoarding of mineral rich land without actually mining the deposits.”) 153 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07.
53 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 55 of 212
165. Whilst an express requirement for ‘value addition’ was only introduced into the BMR on 1 October 2010,154 the Claimant cannot pretend that it did not understand the importance of addressing this issue.
166. For example:
a. BMR 48(3)(a)(vii) already provided that any mining lease application had to be in the interest of the development of mineral resources in Balochistan;
b. The Claimant undertook on 10 April 2006:
“[to] abide by all other applicable conditions of the National Mineral Policy read with the Balochistan Mineral Rules, 2002 as approved/amended from time to time.”155 (emphasis added)
c. The Claimant wrote to the Chief Minister on 5 October 2010 saying:
“you will find us ready and willing to cooperate to any reasonable extent should GOB wish to undertake the smelting/refining project on its own …We also undertake to supply … up to a mutually agreeable portion of the annual production of concentrate to feed the smelter that you might install …”156
167. Despite their knowledge, undertaking and assurances, the Mining Lease Application of 15 February 2011 contained no reference to smelting/refining in Balochistan.
168. Instead, the Mining Lease Application upheld the intention to build a slurry pipeline to transport the copper concentrate out of the province for smelting abroad:
154 Following a proposal submitted to the Chief Minister on 11 June 2010. See Summary for Chief Minister from Secretary, Mines & Mineral Development Department, re: Amendment in Rule 47, 48 & 52 of Balochistan Mineral Rules 2002, dated 11 June 2010, CE-345 155 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 156 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257.
54 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 56 of 212
“For the purpose of the feasibility study, it was assumed that the majority if not all output will be shipped to independent smelters.”157
169. The omission of any reference to smelting/refining in Balochistan was a clear breach of:
a. BMR 47(2)(e)(i):
“An application for a mining lease … shall be accompanied by … a technological report on mining and treatment possibilities …”158
b. BMR 47(2)(n):
“An application for a mining lease [shall be accompanied by] … a concrete proposal for value addition of the ore to be produced / exploited from the applicant’s mining lease within the country is submitted, or if the facility is not available in the province, the Ore could be taken out of province with the prior approval of the Provincial Government.”159
170. As a consequence, the Licensing Authority was obliged to reject the Mining Lease Application under BMR 48(3)(n):
“… a mining lease shall not be granted unless … a concrete proposal for value addition of the ore to be produced / exploited from the applicant’s mining lease within the country is submitted, or if the facility is not available in the province, the Ore could be taken out of province with the prior approval of the Provincial Government.”160
171. The Licensing Authority duly rejected the Mining Lease Application on the ground:
157 Enclosure (ix) of the Mining Lease Application, “Statement Giving Particulars of Expected Infrastructure Requirements”, dated 15 February 2011, §1.2, Ex RE-139; see also Fifth Statement of Mr Livesey, §3 (“The mineral output from Reko Diq was to be processed to form a concentrate which would then be transported to a smelter/refinery complex outside of Pakistan for toll treatment”). 158 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 47(2)(e)(i), Ex RE-1. 159 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 47(2)(n), Ex RE-1. 160 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(n), Ex RE-1.
55 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 57 of 212
“9. That feasibility report is silent about the processing, smelting and refining of the metals / minerals to be extracted from the mining area.”161
(4) The proposals in the Mining Lease Application were not satisfactory, and the grant of the Mining Lease was not in the interests of Balochistan
172. The Claimant was – or should have been162 – well aware of the ‘subjective’ requirements in BMR 48(3):
“… a mining lease shall not be granted unless …
(v) the proposals submitted with the application are satisfactory; and
(vi) it is in the interests of the development of the mineral resources of Balochistan to grant the lease.”163
173. Mr Khokhar explains in his witness statement the background to the inclusion of these subjective requirements in BMR 48(3):
“The Licensing Authority’s discretion under BM Rules 2002 is broader than that provided for under the Punjab Mineral Rules 2002. We were conscious of the need to ensure that mineral development takes place while keeping in view of unique socio-economic scenario of Balochistan [i.e., the extreme poverty and need for development]. A quick comparison of Article 48 in each of the Punjab and Balochistan Rules makes it plain that the latter was crafted to maintain greater regulatory discretion for the Balochistan Licensing Authority.”164
161 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07. 162 There are suggestions in the record that the Claimant may have failed to realise that the BMR contained subjective elements. For example, Mr Borries, in a presentation to the Supreme Court of 25 January 2011 (Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p.59 Ex RE-58(ix)(b).) suggests that the BMR were “investor friendly” (contrary to the Joint Note prepared by the World Bank Report, Mineral Sector Development Policy Note, 20 November 2003, Ex RE-65), and Ms Boggs in her Second Statement, at §3, says that: “Through our review of the Rules and our discussions with the Governments, we understood that as a holder of an exploration license, TCC was entitled to the grant of a mining lease on submission of an application fulfilling certain objective criteria set forth in the BM Rules …”. 163 World Bank Report, Republic of Pakistan, Mineral Sector Development Policy Note, 20 November 2003, Ex RE-65. 164 Statement of Mr Khokhar, §19 (see also §28).
56 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 58 of 212
174. The Claimant tried to negotiate a ‘relaxation’ from the application of these subjective requirements during the Mineral Agreement negotiations.
175. But it was not legally possible to exclude the application of these, or any other, requirements of the BMR, and no such ‘relaxation’ was granted.
176. The Claimant cannot, therefore, credibly complain about the Licensing Authority’s application of these subjective requirements.
177. Aware of this fatal weakness in its case, the Claimant disingenuously argues in the Reply that:
“Balochistan already exercised any discretion it may have had by entering into the CHEJVA and the 2006 Novation Agreement in which it agreed that TCCA would receive a mining lease subject only to routine Government requirements.”165
178. This argument is obviously wrong. The question of whether entering into agreements in 1993 and 2006 was in the interests of Balochistan is different from whether granting a mining lease in 2011 was in the interests of Balochistan. The independent reference to the interests of Balochistan in BMR 48(3)(a)(vi) was clearly designed to oblige the Licensing Authority to ensure that any mining lease application, at the date of submission, was in the interests of Balochistan.
179. The Claimant’s argument also flies in the face of its undertaking of 10 April 2006:
“we hereby undertake that we shall observe and abide by all the terms and conditions as contained in your letter no. DG (MM) – EL (5)/2555- 65 dated 8th April 2006 and will also abide by all other applicable conditions of the National Mineral Policy read with the Balochistan Mineral Rules, 2002 as approved/amended from time to time.”166(emphasis added)
180. In any event, it is crystal clear that the Licensing Authority’s application of these subjective requirements was objectively justified.
165 Reply, §381. 166 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. The Respondent notes that this undertaking post-dates the CHEJVA and Novation Agreement in which the Respondent allegedly “exercised its discretion”.
57 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 59 of 212
181. The Licensing Authority expressly tied its invocation of these subjective requirements to the Claimant’s failure to comply with objective requirements:
“10. That in view of aforementioned reasons, the Committee found that the application submitted by the applicant is not satisfactory. It is also not in the interest of Government and people of Balochistan that the lease cannot [sic] be granted on a documents that is in complete [sic] and sketchy.”167 (emphasis added)
182. In other words, the Licensing Authority concluded that the Mining Lease Application was unsatisfactory and not in the interests of Balochistan because, inter alia:
a. the Feasibility Study was incomplete; and
b. the Mining Lease Application failed to address ‘value addition’.
183. For the reasons mentioned above, the Licensing Authority’s conclusions on these issues were clearly correct.
(5) Feasibility Study failed to demonstrate that the mine could be profitably developed and operated
184. It is also reasonable to infer that the Licensing Authority’s decision to reject the Mining Lease Application was based on the failure of the Feasibility Study to achieve the target of “show[ing] that the mine could be profitably developed and operated”.168
185. The Licensing Authority was certainly made aware of the Government’s concerns about economic viability via the letter of 8 September 2011.169
186. The Licensing Authority’s concerns in this regard can be gleaned from the following grounds:
167 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07. 168 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(a)(i), Ex RE-1. 169 Letter from Mines & Mineral Development Department (Technical Section) to Director General, Mines and Minerals, re: Reko-Diq Gold Project Acquisition of Non-Participating Party’s Percentage Interest, dated 8 September 2011, CE-354.
58 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 60 of 212
“2. That the company did not make proper feasibility or exploration of the discovered deposits and achieve the targets required under the rules. …
7(iii) That the information given by the company in all respect keeping in to consideration the Balochistan Mineral Rules, 2002, the Company has further failed to identify all the resources and achievements of all the targets within stipulated time.
7(iv) … Despite being a world class Exploration / Mining Company so called partner has failed to submit the technical, financial, economic viability report of the entire resources of EL-5 …
10. … It is also not in the interest of Government and people of Balochistan that the lease cannot [sic] be granted on a documents that is in complete [sic] and sketchy.”170 (emphasis added)
D. THERE WAS NO PLOT TO OUST THE CLAIMANT
187. It is apparent from the above discussion that the Claimant realised in early 2011 (if not earlier) that the Mineral Agreement negotiations were doomed to fail. It also realised that the rejection of a mining lease application was a better platform for manufacturing an arbitration claim than the failure of the Mineral Agreement negotiations.
188. To bolster its manufactured claim, the Claimant has since invented a full-blown “ouster” theory, according to which the Licensing Authority’s rejection of the Mining Lease Application was the culmination of a preconceived plot to oust the Claimant.171
189. According to the Claimant:
“the MMDD designed and executed the plan to oust TCC from Reko Diq and clear the way for Balochistan’s project.”172
190. Anyone familiar with the structure and workings of the political machinery in Pakistan would know that it is fanciful to suggest that the MMDD173 is capable of
170 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07. 171 Reply, §14. 172 Memorial, §16. 173 One of a total of 39 Departments within the Government of Balochistan.
59 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 61 of 212
masterminding a grand conspiracy between multiple entities and individuals within the Provincial and Federal Governments.
191. According to the Claimant, the alleged ending of the Mineral Agreement negotiations in December 2009 is evidence of this plot.174 Tellingly, however, these negotiations in fact continued into 2010 and 2011.175
192. The other strands of the Claimant’s ouster theory are:
a. Balochistan’s Reko Diq project;
b. The interest of one firm, China Metallurgical Group Corporation (“MCC”), in mining in the Reko Diq area;
c. The MMDD’s takeover of the BDA’s operations; and
d. The Cabinet Decision of 24 December 2009.
193. As explained below, none of these strands come close to revealing a plot to oust, let alone an actual ouster of, the Claimant.
(1) Balochistan’s Reko Diq Project was limited to refining
194. This issue has already been addressed at length in the context of the provisional measures application and the Counter-Memorial.176
195. Balochistan’s Reko Diq project envisaged the creation of a processing facility complementing – not competing with – the Claimant’s mining project.177
196. This fact is evident on the face of the three PC-1 proposals for the Balochistan Reko Diq project:
“This project proposal is based on the processing of copper ore 5000- tons per day to produce copper metal and other valuables such as Gold, Silver Molybdenum and Sulphuric Acid.”178
174 Reply, §122 (“[a]fter December 2009…due to Balochistan’s decision to oust TCC from Reko Diq, the Mineral Agreement negotiations stalled and never resumed”). 175 See Section II.A above. 176 Counter-Memorial, §§277-283(a). 177 Statement of Dr Mubarakmand, §§12-34.
60 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 62 of 212
197. Pursuit of the project was a reaction to the Claimant’s failure to address the Governments’ desire for a smelter during the Mineral Agreement negotiations.
198. The Claimant was aware from the outset in early 2009 that the Governments were considering options for setting up a smelter/refinery in Pakistan. For example:
a. The Working Paper circulated prior to the Second Meeting of the Steering Committee on 23 January 2009 records that:
“The Ministry of P&NR has also been working on the following proposals in consultation with concerned: …
To initiate the proposal of establishing a Copper Ore Refining Company in Pakistan or shareholding in foreign company for this purpose to safeguard the economic interest associated with this project.”179
b. The Working Paper circulated prior to the Third Meeting of the Steering Committee on 13 March 2009 records that:
“Second meeting of the Steering Committee was held on 23rd January 2009…After detailed deliberations, the following decisions were made: …
BOI to work out modalities and search for investors for establishment of a dedicated Railway Company to fulfil transportation requirements of this mega project and a Copper Ore Refining Company in Pakistan or shareholding in foreign company.”180 (emphasis added)
199. The Claimant was also aware of the independent scope of the PC-1 proposal:181
a. The Claimant’s note of meeting with CS Lehri of 4 March 2010 records that:182
178 Letter from Additional Chief Secretary, Balochistan to Secretary, Planning and Development Division, Pakistan re: Reko Diq Gold / Copper Project, with attachments, dated 1 September 2009, CE-77; Pro forma for “REKO DIQ Gold / Copper,” Government of Pakistan Planning Commission, dated 19 October 2009, CE-80; Government of Pakistan Planning Commission, PC- 1 Form, Pro Forma for Reko Diq Gold/Copper, dated 9 December 2009, CE-242. 179 Meeting Notice: Second Meeting of Steering Committee on Reko Diq Copper Gold Project, Balochistan, with attachments, dated 13 January 2009, CE-69. 180 Letter from Government of Pakistan, Ministry of Petroleum and Natural Resources re: Draft Mineral Agreement Regarding Reko Diq Copper Gold Project, Balochistan, with attachment, dated 6 March 2009, CE-71. 181 Fourth Statement of Mr Livesey’s, §§84-85.
61 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 63 of 212
“The CS confirmed that he was present when the PC-1 idea was born…and that indeed the PC-1 project was not intended to replace the TCC project; in fact it was designed to fill the gap created by TCC rejection of smelter/refinery being a part of the TCC Reko Diq project. …
I [the Claimant] recounted to the CS our interactions with Sardar Aseff and Dr Mubarakmand, pointing out…the confusion that resulted from the PC-1 project being named The Reko Diq Copper Gold Project, giving raise to the incorrect understanding that the PC-1 project was to replace the TCC project…”183 (emphasis added)
b. The Claimant’s note of meeting with CS Lehri of 2 June 2010 records that:
“The CS made it very clear and said that there has been some misunderstanding. He clarified and confirmed that the first meeting of the Board of Governors-Reko Diq Refinery (BOG) was held on 28 May and that he attended the meeting. This meeting was held to discuss the decision of the GOB to install a smelter/refinery which would be operated through its own resources.”184
c. The Claimant’s note of meeting with Mr Khokhar of 2 June 2010 records that:
“GOB made its final decision to go for a refinery that would be made with the help of GOP at site. The refinery would get its concentrate / ore from Tethyan and Saindak and processing of Copper would be carried at site. It was decided that Tethyan would be told to apply for a mining lease and the lease would be approved under the Balochistan Mining Rules. Tethyan would supply concentrate / ore to the refinery set up by the GOB and GOB would buy it on international market rate.”185
d. The Claimant’s letter to the Chief Minister of 5 October 2010 states that:
182 See Statement of CS Lehri, §51. 183 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84. 184 See CS Lehri’s witness statement, §77. 185 Notes of Tethyan Copper Company’s Meeting with the Director General, Ministry of Petroleum and Natural Resources, Pakistan, of 2 June 2010, CE-91.
62 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 64 of 212
“you will find us ready and willing to cooperate to any reasonable extent should GOB wish to undertake the smelting/refining project on its own … We also undertake to supply … up to a mutually agreeable portion of the annual production of concentrate to feed the smelter that you might install …”186
200. Despite the above, the Claimant chooses to argue in its Reply that:
“shortly after the Steering Committee rejected MCC’s proposal on 23 January 2009, the Planning Commission…began to develop its own clandestine plan to mine Reko Diq …
the available record…clearly establishes that the Governments designed and implemented their own Plan to mine Reko Diq while actively misleading TCCA into believing that its rights were secure.”187
201. Contrary to the Claimant’s position, the “available record” clearly indicates that PC-1 related to refining, not mining, and was openly discussed with the Claimant.
202. The Claimant’s inference that the Governments hatched a plan to oust the Claimant and mine in the Reko Diq area themselves appears to be based on a one- line entry in an annex to a summary submitted to the ECNEC in May 2010. This entry – also contained in the third version of PC-1 submitted on 9 December 2009188 – records an allowance of Rs 2,725 million for “Mining of Ore at 15,000 ton/day @ Rs 500/ton”.189
203. However, the minute of meeting of the CDWP on 18 March 2010 – which also formed part of the summary submitted to the ECNEC in May 2010 – confirms that this Rs 2,725 million sum was towards “cost of ore”.190
204. In Dr Mubarakmand’s words:
“… the Third PC-1 … sensibly made provision for the supply of ore to feed the smelter and refinery. Item 10 of the Financial Plan sets out a
186 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257. 187 Reply, §§156, 159. 188 Government of Pakistan Planning Commission, PC-1 Form, Pro Forma for Reko Diq Gold/Copper, dated 9 December 2009, p.18, CE-242. 189 Summary f or ECNEC dated M ay 2010 prepared by Secretary Hayat, A nnex 1, Ex RE-87. 190 Summary f or ECNEC dated M ay 2010 prepared by Secretary Hayat, Annex 2, Ex RE-87.
63 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 65 of 212
budget of Rs. 2.7 million for mining 15000 tons of ore per day. The proposal provided for the contingency to mine ore to feed the smelter and refinery. At the time, however, it was not decided whether the project would mine the ore itself, out-source it to a third party or purchase it from the CHEJVA or any other mining project in Reko Diq.”191
205. In other words, the Governments had reached no decision but, as a precaution, reserved an allowance of Rs 2,725 million to cover the cost either of purchasing ore to supply their smelter or of conducting limited (i.e. 15,000 tonnes/day) mining activities themselves.
206. Contrary to the Claimant’s assertions, 192 the limited equipment listed in the “Funds Required” document193 does not evidence the Governments’ intention to mine Reko Diq. Page 9 of the third version of PC-1 194 suggests, and the Respondent’s mining industry expert confirms, that the heavy machinery listed by the Claimant (such as bulldozers and trucks) was needed for processing (e.g. “heap leaching”). 195 Mining operations would have required, for example, blasthole drills and explosive chargers, which do not appear on the list.
207. The Governments clearly had no intention, or capability, of mining the Claimant’s area, as can be seen from the Government of Balochistan’s report to the MPNR of 28 September 2010:
“Reko Diq being a major project cannot be undertaken by the Federal / Provincial Governments without the assistance of international companies.”196
191 Witness Statement of Dr Mubarakmand, §29. 192 Memorial, §219. 193 Government of Pakistan Planning Commission, PC-1 Form, Production Sectors, Funds Required for Reko Diq Gold/Copper, dated 2009, CE-233. The Respondent notes that it is unclear whether this document in fact “accompan[ied]” the third version of PC-1, as alleged by the Claimant. 194 Government of Pakistan Planning Commission, PC-1 Form, Pro Forma for Reko Diq Gold/Copper, dated 9 December 2009, CE-242. 195 See Memorial §221: “As Mr Livesey has testified, the heap-leaching process is appropriate for copper oxide orebodies such as Tanjeel.” 196 Letter from the Government of Balochistan to MPNR, 28 September 2010, Ex RE-143; see also Statement of CS Lehri, §40.
64 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 66 of 212
208. Balochistan’s continuing open-mindedness towards the Claimant mining Reko Diq is reflected in the minute of meeting of the Board of Governors of the Governments’ Reko Diq project on 28 May 2010:
“Chief Minister … observed that if TCC is keen on a mining licence, then they can have it. We will buy the ore from them and do refining and metal production ourselves.”197
209. The Claimant’s understanding that the Governments were still exploring different options regarding their refining project is evidenced by:
a. its letter to the Chief Minister of 5 October 2010 stating that:198
“We also undertake to supply … up to a mutually agreeable portion of the annual production of concentrate to feed the smelter that you might install …”
b. the meeting of 21 July 2011, at which:
“The Director General pointed out that Jinchuan Group China has offered this Ministry that they can set up full facility for processing of concentrate up to final refining of Gold and Copper based on the concentrate produced by TCC at Reko Diq. The TCC representative stated that the company will have no objection to this proposal. TCC are willing to negotiate an off take agreement for the sale of concentrate within Balochistan.”199
210. Despite this knowledge, the Claimant’s Feasibility Study, and Mining Lease Application, made no mention of refining in Balochistan and envisaged instead that:
“The end product leaving the mine will be high-value copper concentrate destined for export to custom smelters.”200
211. The internal letter of 12 September 2011201 from the Director General MMDD to his superior, the Secretary MMDD, must be read in the above context.
197 As cited in Mr Tariq Asad vs Federation Government and others, CMA No. 4909/2011 in CP No.68/2011. Application Under Order 23 Rule 6 of the Supreme Court Rules for Urgent Hearing and to Place the Documents on Record in the Supreme Court of Pakistan, Islamabad, p.26, CE-31. 198 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257. 199 Review Meeting held in Ministry of Petroleum & Natural Resources dated 21 July 2011, Ex RE- 79. 200 Feasibility Study, dated August 2010, Ch 19.6.4, Ex RE-132.
65 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 67 of 212
212. The Director General was not involved in the Government’s project. He knew that the Claimant’s proposed Reko Diq project was widely discussed in the media and the subject of Supreme Court proceedings. Upon learning of an apparent decision on the Government’s project, he sensibly sought clarification from his superior.
213. The Director General refers to the following “remarks” (presumably in manuscript) of the Chief Minister on the letter of 8 September 2011:
“It was decided by the Board of Governors that:-
i) We will do the mining
ii) We will do the refining” 202
214. Since the Board of Governors was only constituted to consider Balochistan’s 15,000 tonnes/day refinery project, it is obvious that any such decision to mine must have been limited to the ore required for the refinery project. A decision to mine 15,000 tonnes/day to supply their refinery from somewhere within the vast area of Reko Diq cannot be interpreted as an intention to oust the Claimant from their proposed project to mine 110,000 tonnes/day in one small area of EL-5 (itself one small area in Reko Diq).
215. In the words of the Claimant’s CEO, Mr Borries:
“Our ML area will – according to the BMR’s [sic] – take only 0.2% of the whole Chagai district. Other mining companies and the Government of Balochistan if it decides to do so and comes up with the risk investment, have plenty of room to find the next 5 or 10 Reko Diq’s and hopefully even better and richer ones.”203
216. The fact that the Chief Minister’s “remarks” were not intended to convey any intention to oust the Claimant – is confirmed by his press statement of 15 September 2011 that:
201 Letter from the Director General, Mines and Minerals to Secretary, MMDD, 12 September 2011, CE-355. 202 Letter from Mines & Mineral Development Department (Technical Section) to Director General, Mines and Minerals, re: Reko-Diq Gold Project Acquisition of Non-Participating Party’s Percentage Interest, dated 8 September 2011, CE-354. 203 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 57, Ex RE-58(ix)(b).
66 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 68 of 212
“If Tethyan wants to do the mining, well and good, but I have decided that the total refining will be done by us.”204
217. The Claimant’s attempt to infer a conspiracy to oust the Claimant from the Chief Minister’s “remarks” is also contradicted by the Secretary MMDD’s clear instruction to the Director General on 16 September 2011 to “dispose off [sic] the Mining Lease application” (i.e., consider the application in accordance with the BMR). 205
218. The Licensing Authority’s decision to reject the Claimant’s Mining Lease Application in late 2011 was self-evidently unaffected by the Government’s later steps in 2012 to implement its Reko Diq project.
219. In any event, the Respondent notes that:
a. The Government’s draft mining lease application of 25 April 2012 recorded an intention to mine only 15,000 tons of ore per day.206
b. H4, one of the many deposits over which the Claimant failed to submit a Feasibility Study, was proposed for the start of the Government’s mining and refining activities.207
c. The Government’s Reko Diq project was never in fact implemented and has now been abandoned.
220. In summary, the Government’s project was never intended to – and, more importantly, never did – oust the Claimant from its rights, if any.208
204 Pakistan Mine Hits Nationalist Vein, Wall Street Journal, dated 15 September 2011, CE-26. 205 Letter from China Metallurgical Group Corporation (MCC) to Ambassador, Embassy of Pakistan, Beijing, dated 8 July 2008, CE-356; note the similar usage of the word “dispose” in paragraph 2 of the Foreword to the Balochistan Rules of Business (Government of Balochistan, Rules of Business 1976, Ex RE-20), and the quoted passage in §9 of the Supreme Court’s Order of 25 May 2011 (“However, it would not dispose of the application, if submitted until the decision of this Court...”); see also paragraph 174(f) and (g) of Supreme Court Case SCMR 396 of 214, RLA-124, in which the word “dispose” is clearly used as a synonym for “decide”. 206 Un-received Application for Mining Lease, Reko Diq Copper Gold Project, dated 25 April 2012, CE-369. 207 Summary for the Chief Minister from the Secretary, Mines & Mineral Development Department, dated 9 October 2012, CE-373. 208 See also Section V.C.
67 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 69 of 212
221. If, as the Claimant contends, there had been a “plan to oust TCC from Reko Diq and clear the way for Balochistan’s project”, 209 the Government’s project would be mining the Claimant’s proposed mining area now. But it is not.
(2) MCC’s expression of interest in mining Reko Diq was not entertained by the Respondent and, in any event, reveals MCC’s, not the Respondent’s, desire to oust the Claimant
222. The Claimant’s reliance upon MCC’s interest in mining Reko Diq as evidence of a supposed ouster is even less convincing. The Claimant is, again, unable to establish either an intention by the Governments to oust the Claimant or, more importantly, an actual ouster.
223. The Respondent has already explained in the Counter-Memorial that MCC’s proposal to mine in the Reko Diq area was rejected in January 2009.210
224. It is hard to understand how the Respondent’s rejection of a third party offer to mine Reko Diq can be evidence of an intention to oust the Claimant.
225. The Claimant purports to rely on “assurances” from Mr Khokhar that:
“it has been officially decided to decline the proposal of MCC… the Canadian High Commissioner…was told by the Advisor that MCC proposal was declined.”211
226. But these “assurances” do not advance the ouster theory. They simply record the agreed fact that the Governments rejected MCC’s proposal.
227. In her letter to MCC of 25 May 2009, Ms Boggs emphasises that:
“MCC and its subsidiaries are continuing their efforts to have the Governments of Balochistan and Pakistan improperly take the Reko Diq project from TCC … MCC are maliciously interfering with TCC’s contractual rights and seeking to damage TCC’s reputation and cause the
209 Memorial, §16. 210 Counter-Memorial, §518-519. 211 Reply §149; Iran-Pakistan Pipeline May Extend Till China, Natural Gas Asia, dated 3 April 2014, CE-338.
68 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 70 of 212
Government of Balochistan to improperly expropriate TCC’s property.”212 (emphasis added)
228. But MCC’s proposals to mine Reko Diq are (obviously) not evidence of the Governments’ intention to oust the Claimant, especially in circumstances where – as Ms Boggs accepts – those proposals were “definitively rejected”. 213
229. At paragraphs 152-154 of its Reply, the Claimant refers to a subsequent proposal sent by MCC to the Embassy of Pakistan in Beijing on 12 June 2009.
230. This proposal refers to a letter of 9 June 2009 and states that:
“the Ministry of Petroleum and Natural Resources has…advised us to submit our Reko Diq project proposal including a copper gold refinery through the Embassy of Pakistan.”214
231. The Claimant infers that Mr Khokhar advised MCC, in the letter of 9 June 2009, to submit this proposal and actively encouraged their intervention.215
232. The Claimant’s inference is wrong. The letter of 9 June 2009216 is a reminder sent by the MPNR to MCC following a previous letter of 30 May 2009.217 These letters were sent following a request from the Pakistani Embassy in Beijing that the Respondent invite MCC to Pakistan for consultations regarding various projects, including a project in the Reko Diq area. For diplomatic reasons, in light of the Respondent’s strong bilateral relations with China and involvement with MCC on several other projects, the MPNR invited MCC to submit their proposal to the Respondent via the Embassy in Beijing.218
212 Letter from Tethyan Copper Company Pakistan (Private) Limited to China Metallurgical Group Corporation, dated 25 May 2009, CE-72. 213 Letter from Tethyan Copper Company Pakistan (Private) Limited to China Metallurgical Group Corporation, dated 25 May 2009, p.1, CE-72. 214 Letter from MCC to Ambassador, Embassy of Pakistan, Beijing, CE-339. 215 TCC’s inference that Mr Khokhar somehow intended to further MCC’s interest in mining Reko Diq is contradicted by Ms Boggs’s First Statement §61 (“We had been alerted by Mr. Khokhar … of repeated attempts by MCC to try and acquire the project …”); see Supplemental Statement of Mr Khokhar, §§40. 216 Letter from Ministry of Petroleum and Natural Resources to MCC, 9 June 2009, Ex RE-148. 217 Letter from Ministry of Petroleum and Natural Resources to MCC, 30 May 2009, Ex RE-149. 218 Supplemental Statement of Mr Khokhar, §§42-43.
69 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 71 of 212
233. This invitation to submit a further proposal was not motivated by a decision to oust the Claimant from the Reko Diq project. It was simply a diplomatic exercise designed to preserve relations with MCC and China. The MPNR does not even have responsibility for approving mining projects in Balochistan, and simply forwarded MCC’s proposal to the MMDD in Balochistan.219
234. No further steps were taken in relation to MCC’s proposal, and MCC has never been awarded any mining rights in Reko Diq.
235. In summary, the Governments’ receipt, and rejection, of proposals from MCC does not come close to establishing an ouster of the Claimant.220
236. If the Claimant’s ouster theory were correct, MCC would be mining the Claimant’s proposed mining area now. But they are not.
(3) The MMDD took over the BDA’s, not the Claimant’s, operations
237. The Claimant’s attempt to rely upon the MMDD’s takeover of the BDA’s operations as evidence of a supposed ouster is likewise misconceived.
238. At paragraph 166 of the Reply, the Claimant mischaracterises the MMDD’s takeover of the BDA’s operations as:
“a move[] to extend its control over TCCA’s work at Reko Diq.”
239. The Claimant adduces no evidence supporting the view that this takeover went beyond the operations of the BDA and encroached upon the Claimant’s rights.
240. The Claimant’s conspiracy theory ignores the documents,221 which reveal that the MMDD’s takeover of the BDA’s operations was motivated by serious misgivings about the BDA’s competence to manage large projects.
241. The BDA’s Summary to the Chief Minister records:
219 Supplemental Statement of Mr Khokhar, §44. 220 Statement of CS Lehri, §§42-44. 221 Reply, §167.
70 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 72 of 212
a. The MMDD’s view “that BDA … could not handle these projects efficiently”; and
b. The BDA’s admitted need to “be further strengthened to handle such projects efficiently.”222
242. In addition, CS Lehri confirms in his witness statement that:
a. The BDA’s operations, including but not limited to the Reko Diq project, were transferred to the MMDD for professional management; and
b. The MMDD’s takeover of the BDA’s operations was not intended to, nor did it, oust the Claimant.223
243. Finally, the Respondent notes that the Claimant made no objection to the handover from the BDA to the MMDD; nor to the latter’s appointment to or participation in the Operating Committee from August 2010.224
(4) The Cabinet Decision of December 2009 was not definitive and the door was left open to the Claimant mining Reko Diq
244. The Cabinet Decision of 24 December 2009 was only a decision “in principle” and was never, in fact, implemented. It does not and cannot, therefore, advance the Claimant’s ouster theory.
245. The Provincial Cabinet Decision was triggered by the frustration of certain members of the Cabinet at the Claimant’s delay, poor communication and refusal
222 Summary by Balochistan Development Authority for Chief Minister re: Proposal for Transfer of Reko Diq Copper Gold Deposit Project from BDA to Mines & Mineral Department, dated 24 December 2009, CE-342. 223 Statement of CS Lehri, §66. 224 Minutes of Operating Committee Meeting held on 25 August 2010, Agenda Item 1, CE-102; Minutes of Operating Committee Meeting held on 8 November 2010, Agenda Item 1, CE-103; see also Memorial §224.
71 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 73 of 212
to address the issue of value addition during the Mineral Agreement negotiations.225
246. The Government was also offended by the Claimant’s attempt, in its draft Mineral Agreement, to procure a guaranteed “right to mine” even before a Feasibility Study had been submitted and without any offer of value addition.226
247. In its eagerness to invent a conspiracy theory, the Claimant fails to note that the Cabinet Decision was provisional in nature and subject to further determination by the Chief Minister:
“The agenda was approved in principle. It was further decided not to go ahead with the proposed Mineral and Shareholders agreements with TCC. Further course of action would be determined by the Chief Minister.”227 (emphasis added)
248. Tellingly, the Government’s conduct post-24 December 2009 demonstrates clearly that the Chief Minister did not determine to take over the project from the Claimant.
249. As CS Lehri confirms, the Chief Minister never mentioned the Cabinet Decision and certainly gave no instruction to oust the Claimant.228
250. Indeed, the Chief Minister met with the Claimant in January 2010 and the Claimant agreed to submit a new proposal.229
251. In like fashion, CS Lehri continued to negotiate in good faith with the Claimant on behalf of the Government in 2010 and at all times wanted the project to proceed with the Claimant.230
225 Statement of CS Lehri, §21-39. 226 Statement of CS Lehri, §77. 227 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257. 228 Statement of CS Lehri, §71. 229 Notes of Tethyan Copper Company’s Meeting with the Secretary, Mining of Petroleum and Natural Resources, Pakistan, held on 1 April 2010, points 4 and 6, CE-85. Point 10 also records the MPNR Secretary’s view that “the matters can be discussed at the negotiation table and resolved.” See also First Statement of Ms Boggs, §§82-83. 230 Statement of CS Lehri, §§40-41.
72 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 74 of 212
252. For example, CS Lehri met with the Claimant on 4 March 2010. 231 As the Claimant’s own note of meeting records,232 CS Lehri explained that:
a. “in his assessment TCC (Antofagasta/Barrick) was the best company to implement the Reko Diq project.”
b. “his concern over TCC not building up a foundation in Pakistan for understanding the copper business in general and the Reko Diq project in particular (he pointed out that he previously expressed his concern to Cassie and Peter).”
c. “TCC must develop a lobby in support of the project … for the position of the cabinet of Balochistan to change from the current negative position … He acknowledged the tribal nature of the important people and their lack of sophistication; convincing them with a scientific document is not the way; find lobbyists who are trusted in those quarters and get them to do the convincing for TCC.”
d. “[TCC should] agree to supply 25% of your output to “our smelter”; he … understood that smelter economics were poor, but he pointed that if copper and gold are not produced from the Reko Diq ore within Balochistan, many will never believe copper and gold yields declarations TCC will make based on the concentrate being processed in foreign refineries.”
e. “The politicians/population … are looking for a rode [sic] from Gwadar to Reko Diq … finding a way to build a road from Gwadar to Reko Diq is very important – it does not need to be all funded by TCC, he suggested.”
f. “[TCC should] set up 20-25 scholarships for students from several (4- 6) important districts in western Balochistan at the Khuzdar University
231 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84; First Statement of Ms Boggs, §§82-83. 232 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84.
73 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 75 of 212
of Technology and Engineering – the good will derived from this arrangement would be very large.”
g. “TCC [should] make public its plans for large scale training of Baloch people being prepared by TCC to meet its commitment to employ as many Baloch people as possible.”
253. CS Lehri’s advice to the Claimant amply reveals its failure to understand and manage the cultural norms and social structures in Balochistan. In mining industry jargon, the Claimant failed to maintain a ‘social licence to operate’.233
254. In the words of Sussman Corporate Security, a security expert instructed by the Respondent to review the Claimant’s project documents:
“Unlike some societies where community engagement is an act of good faith, in tribal based societies such as Balochistan, forging strong relations is a requirement. It is a necessity for employee productivity as well as to maintain security and safety standards. In establishing a sound community plan, TCC failed to:
• Identify groups in power and how they work.
• Determine how to earn the trust of the groups.
• Determine tribal alliances and foes.
Upon determining these points, a broad community plan based on proper incentive programs that take into account tribal structure could have been established. Because this was not done local relations would likely have deteriorated to the point of financial loss to TCC.” 234
255. The continuing open-mindedness of the Government towards working with the Claimant is also apparent from the minute of meeting of the Board of Governors of the Reko Diq Project on 28 May 2010:
“Chief Minister … observed that if TCC is keen on a mining licence, then they can have it. We will buy the ore from them and do the
233 See Feasibility Study, dated August 2010, Ch 2.5.3, CE-98, in which the Claimant admits that: “the main challenge in Reko Diq is to obtain the social license to operate from the communities, authorities and all the relevant stakeholders. If the latter objective is achieved, other risk considerations will be well controlled and the project will have a good chance of being a success for all parties.” 234 Preliminary report dated 28 July 2014, p.14 (not exhibited in light of the Tribunal’s Order of 21 June 2014).
74 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 76 of 212
refining and metal production ourselves. Chief Secretary stated that the position will be clear after obtaining the point of view of the contractor when they apply for mining lease. Chief Minister further stated that future role of the contractor (Tithium [sic] Copper Company) will be decided at that point by the Balochistan Government.”235
256. CS Lehri’s discussions with the Claimant continued on 2 June 2010. As the Claimant’s own note of the meeting records:236
a. CS Lehri again advised the Claimant to be “more proactive” and “to step up its PR efforts in the province”.
b. CS Lehri referred to “the last proposal sent by Tethyan to the GOB”, which clearly evidences continuing negotiations in this period, and “advised [TCC] to present the [new] proposal soon and be ready to present the project to the cabinet and clear their doubts.”
c. CS Lehri “advised the Tethyan team to bring good image of the company by helping some needy students of the province in higher education in Universities who could be of some use at some stage for the project.”
d. CS Lehri “advised the Tethyan team to make efforts to satisfy the hostile cabinet and clarify their doubts on the project and the agreement; he offered his help and made the point that the politicians in the Cabinet and the Provincial Assembly are under pressure from their constituency which makes more difficult to get an approval unless we are able to show them very clearly the benefits of the project for Balochistan and the people of Balochistan.”
e. CS Lehri “advised the team to invite the CM to visit site and desired more interaction of the company with GOB …”
235 As cited in Mr Tariq Asad vs Federation Government and others, CMA No. 4909/2011 in CP No.68/2011. Application Under Order 23 Rule 6 of the Supreme Court Rules for Urgent Hearing and to Place the Documents on Record in the Supreme Court of Pakistan, Islamabad, p.26, §5, CE- 31. 236 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 2 June 2010, CE-90.
75 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 77 of 212
257. The Government’s report to MPNR of 28 September 2010 further confirms the existence of ongoing negotiations with the Claimant:
“TCCP has been asked to submit it revised proposals on the subject as per GoB’s principled stance for future consideration.”237
258. The above report also records the Government’s view that:
“Reko Diq being a major project cannot be undertaken by the Federal / Provincial Governments without the assistance of international companies.”238
259. Likewise, the Claimant’s letter of 5 October 2010 to the Chief Minister evidences continuing negotiations:
“Following our recent interaction, where you desired an improved offer that corresponded better to the aspirations of your Government and the people of Balochistan, we have been working hard to explore all possibilities …”239
260. And, even in 2011, there were meetings. The minute of meeting between the Claimant and officials from the Governments on 21 July 2011 records discussions regarding ‘value addition’ and that:
“TCC will evaluate alternate proposals to the current 25% equity and will submit to the GOB during 3rd quarter, 2011.” 240
261. It is, therefore, crystal clear from the record that the “further course of action” determined by the Chief Minister after the Cabinet Decision of December 2009 was to continue to negotiate with the Claimant.
262. Any statements made by the Governments that the Provincial Government had not decided to take over the project were, thus, true.241
237 Letter from the Government of Balochistan to MPNR, 28 September 2010, Ex RE-143. 238 Letter from the Government of Balochistan to MPNR, 28 September 2010, Ex RE-143; see also Statement of CS Lehri, §40. 239 Letter from Tethyan Copper Company Pty Limited to Chief Minister, Balochistan re: Reko Diq Project, dated 5 October 2010, CE-257. 240 Review Meeting held in Ministry of Petroleum & Natural Resources dated 21 July 2011, Ex RE- 79; Supplemental Statement of Mr Khokhar, §27.
76 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 78 of 212
E. THE SUPREME COURT HAS ALREADY DETERMINED THAT THE CHEJVA AGREEMENTS ARE “ILLEGAL, VOID AND NON EST”
263. The CHEJVA agreements have been the subject of a 149-page judgment of Pakistan’s highest court, reached after six weeks of back-to-back hearings and six years of proceedings.242 The Supreme Court proceedings started years before this arbitration was commenced. As the Claimant notes, the proceedings were constituted by way of appeal from the Balochistan High Court Judgment of 2006 and supplemented by additional petitions submitted directly to the Supreme Court.243
264. The Supreme Court ordered that the complete documentary record be produced for inspection. 244 There followed a detailed examination and analysis of the record, culminating in a six-week hearing before “Bench No. 1” of the Supreme Court, including the then Chief Justice of Pakistan.
265. It is common ground that the Pakistani Supreme Court determined that the CHEJVA and related agreements are illegal, void ab initio and non est. In summary, the Supreme Court held, inter alia:245
a. In light of the non-competitive and non-transparent circumstances of their conclusion,246 combined with the fact that it was undisputed that
241 Reply §157, last sentence. Any assurances given by the Chief Minister to TCC “that TCC’s project was not cancelled … [and] that License EL-5 would not be cancelled before its scheduled expiration in February 2011” (First Statement of Ms Boggs, §82) were likewise true. 242 Hearings were held on the following dates: 11 and 24 November 2010; 15 December 2010; 12, 13, 17, 25-28, 31 January 2011; 1-3, 8, 15, 22 February 2011; 5-6 April 2011; 23-25 May 2011, 7, 29 February 2012; 5-6, 12, 29 March 2012; 4, 10 April 2012; 8, 24 May 2012; 4 July 2012; 12-23, 13 November – 21 December 2012. 243 Memorial, §§296, 334, 374. See also Article 185(1), Constitution of Pakistan, RLA-16: “Subject to this Article, Supreme Court shall have jurisdiction to hear and determine appeals from judgments, decrees, final orders or sentences of a High Court.” 244 See: Supreme Court Order, 8 February 2011, §§2-3. Ex RE-7. 245 See Sections III(B)(1) and IV(B)(2) below. 246 Supreme Court Judgment, 10 May 2013, §44, Ex RE-18: “The processing of the matter by GOB in the above manner substantiates that public advertisements were not resorted to in the interest of transparency and to obtain the best competitive price for the disposal of public property, i.e., mineral resources in Reko Diq, and thereby denied participation to other investors of the field to the detriment of the general public, and especially the people of Balochistan. Such a handling of an issue of great public
77 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 79 of 212
certain terms were in violation of the Balochistan Mining Concession Rules 1970,247 the CHEJVA and Novation Agreement were opposed to public policy, and therefore unlawful and void under section 23 of the Contract Act 1872.
b. The Novation Agreement and the Joint Venture depended for their existence on the validity of the CHEJVA. Since the CHEJVA was unlawful and void ab initio, the same was true of the Novation Agreement.248 Similarly, the Joint Venture ceased to exist and could not be the holder of any rights under Exploration Licence EL-5.249
c. The Addendum and Novation Agreement were also void for independent reasons, including for fundamental mistake under section 20 of the Contract Act 1872.250
d. The relaxations granted to BHP and later extended to the Claimant were illegal under rule 98, Balochistan Mining Concession Rules 1970.251
importance was against public policy as well because it certainly caused injury to the public good and, therefore, provides a basis for denying the legality of the transaction in question.” (emphasis added) 247 Supreme Court Judgment, 10 May 2013, esp §44, pp.59-60 Ex RE-18: “In the instant case, CHEJVA was entered into in violation of a large number of provisions of BMCR 1970. It is therefore opposed to public policy which calls for across the board enforcement and application of the laws of the land. CHEJVA is hit by section 23 of the Contract Act, on this score.” (emphasis added) 248 Supreme Court Judgment, 10 May 2013, §36, Ex RE-18: “CHEJVA having been found and declared to be a void agreement in the earlier part of this judgment, there was no room left for BHP to build the superstructure on its basis, namely, Addendum No. 1, Option Agreement, Mincor Option, Alliance Agreement, Novation Agreement, or the subsequent share-purchase agreements.” 249 Supreme Court Judgment, 10 May 2013, §122, Ex RE-18; repeating Supreme Court Order, 7 January 2013, §12, CE-289: “EL-5 was tantamount to exploration contrary to the rules and regulations as the claim of TCCP was based on CHEJVA, which document itself had been held to be non est. Therefore, before exploration it was incumbent upon it to have sought rectification of its legal status.” 250 Supreme Court Judgment, 10 May 2013, §§69, 75 Ex RE-18: “This confusion on the part of BDA as well as GOB hierarchy unfortunately led to a fundamental uncertainty and ambiguity in CHEJVA, which rendered the contact void ab initio on this score as well. … [T]he very premise of the Addendum as well as the Novation Agreement that BDA was an agent of GOB constitutes a “mistake of fact” within the ambit of section 20 of the Contract Act.”
78 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 80 of 212
e. The Government of Balochistan is not a party to the CHEJVA agreements. The Provincial Government could never have validly authorised the Chairman of the BDA to contract on its behalf. Any attempt to do so was ultra vires rule 7 of the Balochistan Rules of Business 1976.252 This conclusion was confirmed by the plain terms of the CHEJVA253 and reflected in professional legal advice provided to the Claimant’s predecessor, BHP, and the BDA.254
266. The Supreme Court upheld the constitutional petitions and, on appeal, overturned the decision of the Balochistan High Court below. The Claimant, alongside its subsidiary (TCCP) and parent companies (Antofagasta and Barrick) voluntarily submitted to the Supreme Court’s jurisdiction and participated actively in the proceedings through senior Pakistani counsel. 255 Indeed, the bulk of the
251 Supreme Court Judgment, 10 May 2013, §23, p.39, Ex RE-18: “In view of the matter, in absence of the requirements of rule 98 being fulfilled in the instant case, all relaxations were granted in excess of authority and were entirely beyond the scope of the provisions of the law and therefore ultra vires the powers granted under rule 98 of the BMCR of 1970 as read with section 5 of the Act of 1948 and thus void.” 252 Supreme Court Judgment, 10 May 2013, §88, Ex RE-18: “[A]s per the mandate of rule 7 of the GOB Rules of Business … [the] GOB could not validly have appointed [the] BDA or its Chairman to act as [the] GOB’s agent either at the time of execution of [the] CHEJVA or at any time thereafter.” See also, §70: “Inclusion of GOB as a new party to the contract required an affirming signature under the hand of a duly authorised representative or agent of GOB in terms of Rule 7 of GOB Rules of Business, 1976. This not having been done, the signature of Chairman BDA on the Addendum…did not fulfil the requirement of rule 7” See also Supreme Court Order, 7 January 2013, §8, CE-289: “The Novation Agreement was purportedly made for the purpose of substituting CHEJVA, and the GOB was also made a party to the Joint Venture, which was not permissible under BMR 2002 as well as Rules of Business of the Government of Balochistan, particularly Rule 7 and other rules.” 253 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18 citing the definition of “Parties” in Clause 1.1, CHEJVA (“both BHPM and the BDA”) and numerous clauses referring to the Provincial Government as a third party. 254 Supreme Court Judgment, 10 May 2013, §70, Ex RE-18. 255 On 7 February 2012, three years after the start of the Supreme Court proceedings, the Claimant’s counsel informed the Court, without explanation and for the first time, that he was only acting for TCCP (the Claimant’s wholly-owned subsidiary) and not TCCA. See Order of the Supreme Court, 7 February 2012, §§2, 5, Ex RE-8. See also Kanrani, §45. This tactical conduct provoked an understandable reaction from the Supreme Court: see Supreme Court Judgment, 10 May 2013, §112, Ex RE-18. “[T]he respondent company has been changing positions and has not been forthcoming before this Court. For example, it was described as TCCA before the Balochistan High Court (as described in the impugned judgment at page 27 of CPSLA No. 796/2007, Part I). Thus, in the appeal, it is TCCA that would continue to be present before this Court. However, it was later stated that it is not TCCA, but TCCP that is before this court without making any application
79 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 81 of 212
substantial six-week hearing was devoted to hearing submissions from counsel for the Claimant.256
267. The Supreme Court’s Judgment constitutes, as a matter of fact, a binding statement of Pakistani law to which the Tribunal must defer. It is not the role of this Tribunal to sit as an appellate body in respect of the Supreme Court Judgment, especially in circumstances where the Claimant submitted to those proceedings and agreed that the Supreme Court was vested with jurisdiction over the disputes arising under the Novation Agreement.
268. Finally, the Claimant’s suggestion that the Supreme Court of Pakistan took steps to assist the Respondent’s alleged strategy of ousting the Claimant is contemptuous and wrong.257 It is remarkable that the Claimant would level such a serious and baseless allegation of bad faith and venality against one of the most fiercely independent Supreme Courts in the Commonwealth.
269. The Claimant commenced this arbitration on 28 November 2011. The Respondent raised jurisdictional objections in early 2012, noting that the Supreme Court proceedings were on-going. Rather than jumping to the aid of the Respondent in this arbitration, the Supreme Court waited for almost a year before issuing its short order on 7 January 2013,258 and a further four months before providing its detailed judgment of 10 May 2013.259
for the change of parties. This Court accordingly issued notices to TCCA…Such an evasive style of TCC could hardly mislead the Court”. See also ICC Reply on Preliminary Issues, 14 May 2014, §§72-74, Ex RE-157; Transcript of ICC Preliminary Issues hearing, 26 June 2014, Day 4, pp.46-57, Ex RE-161. 256 Statement of Mr Kanrani, §47: “Out of the 6 weeks, almost four and a half weeks were taken up by TCC’s counsel and five days by BHP’s counsel.” 257 Reply, §§224 and 444: “The Supreme Court took up Balochistan’s invitation and, in time for Pakistan’s deadline in this arbitration on 7 January 2013, issued a short Order declaring the CHEJVA and Agreements based on the CHEJVA ‘illegal, void and non est’”; “To meet the 18 January deadline indicated by counsel for Balochistan, the Supreme Court rushed to issue, less than three weeks after the closing of the hearing, an Order in which it declared the CHEJVA and its related Agreements to be ‘illegal, void and non est’”. 258 Supreme Court Order, 7 January 2013, §8, CE-289. 259 Supreme Court Judgment, 10 May 2013, §70, Ex RE-18.
80 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 82 of 212
III. JURISDICTION AND ADMISSIBILITY
A. INTRODUCTION
270. The Tribunal recognised, in its Decision on Trifurcation of 29 May 2013, that the Respondent’s jurisdictional objections raised “central issues in the case”.260 It is trite law that the Tribunal derives its jurisdiction from the four corners of the BIT and the ICSID Convention. If an ICSID tribunal were to accept jurisdiction over the whole or part of a dispute when there is none, this would amount to a ground for annulment of any subsequent award.261
271. The Claimant bears the burden of proving that all of the conditions for the existence of the Tribunal’s jurisdiction are satisfied.262 This entails proving, on the balance of probabilities, the existence of any essential facts, including any relevant matters of municipal law.
272. Contrary to the Claimant’s view, the Tribunal cannot determine the issue of jurisdiction “assuming pro tem that [the Claimant’s account of the facts] may be sustained.”263 The Tribunal is not limited to assessing whether the Claimant has
260 Procedural Order No. 2, 29 May 2013, §4: “[I]t appears to the Tribunal, at this stage of the proceeding, that one of the central issues in the case will be the nature of the legal obligations and commitments, if any, undertaken by Balochistan and Respondent vis-à-vis the Claimant.” 261 See e.g. Hussein Nuaman Soufraki v United Arab Emirates, ICSID Case No. ARB/02/07, Decision of the ad hoc Committee on the Application for Annulment of Mr. Soufraki, 5 June 2007, §42, RLA-125: “There is, in principle, an excess of power…if a tribunal: - Asserts its jurisdiction over a subject-matter which does not fall within the ambit of the jurisdiction of the tribunal; - Asserts its jurisdiction over an issue that is not encompassed in the consent of the Parties.” See also: Malaysian Historical Salvors SDN BHD v Government of Malaysia, ICSID Case No. ARB/05/10, Decision on the Application for Annulment, 16 April 2009, §80, RLA-126, in which the ad hoc committee annulled the tribunal’s decision on the ground that it “failed to take account of and apply” the BIT definition of “investment”. 262 Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011, §678, RLA-49: “[I]t is Claimant who bear the burden to prove that all conditions for the Tribunal’s jurisdiction and for the granting of its substantive claims are met.” 263 Reply, §266. The cases relied upon by the Respondent at §226 of its Reply do not support the pro tem approach to jurisdictional facts. It is plain that those tribunals were not concerned with the determination of jurisdictional facts. Instead, their comments were directed towards the assessment, at the jurisdictional stage, of facts alleged to amount to a treaty violation. See Plama
81 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 83 of 212
established a prima facie case for the alleged facts it relies on.264 The Tribunal must make a dispositive ruling on facts relevant to jurisdiction. This is especially so considering that the Tribunal previously decided not to bifurcate jurisdiction on the basis that “the question of the legality of the Claimant’s investment is closely related to and cannot be decided separated from the merits”.265 The Tribunal now has the benefit of the Parties’ full pleadings and sufficient evidence to enable it to reach a final decision as to its jurisdiction.266
Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, §132, CA-118: “[I]f on the facts alleged by the Claimant, the Respondent’s actions might violate the [Treaty], then the Tribunal has jurisdiction to determine exactly what the facts are and see whether they do sustain a violation of that Treaty.” See also Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2004, §194, CA-103: “The tribunal must be “satisfied that, if the facts or the contentions alleged by [the claimant] are ultimately proven true, they would be capable of constituting a violation of the BIT.” 264 See e.g. Phoenix Action, Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, §§60-64, RLA-127: “In the Tribunal’s view, it cannot take all the facts alleged by the Claimant as granted facts … [I]f jurisdiction rests on the existence of certain facts, they have to be proven at the jurisdictional stage. For example, in the present case, all findings of the Tribunal to the effect that there exists a protected investment must be proven…[W]hen a particular circumstance constitutes a critical element for the establishment of the jurisdiction itself, such fact must be proven, and the Tribunal must take a decision thereon when ruling on its jurisdiction. In our case, this means that the Tribunal must ascertain that the prerequisites for its jurisdiction are fulfilled, and that the facts on which its jurisdiction can be based are proven.” (emphasis added) See also Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No. ARB/09/12, Decision on Jurisdictional Objections, 1 June 2012, §§2.8-2.10, RLA-8: finding that the prima facie standard “cannot apply to a factual issue upon which a tribunal’s jurisdiction directly depends”. The tribunal, therefore, applied the higher “balance of probabilities” test to “all disputed facts relevant to the jurisdictional issues”. 265 Procedural Order No. 2, 29 May 2013, §4. 266 Tulip Real Estate and Development Netherlands B.V. v Republic of Turkey, ICSID Case No. ARB/11/28, Award, 10 March 2014, §280, RLA-128 citing Gustav F W Hamester GmbH & Co KG v Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, §§143-145, RLA-48: “As the Tribunal has not accepted bifurcation with respect to questions of jurisdiction…and has joined those jurisdictional objections to the merits, it now has the benefit of the Parties’ full pleadings. In those circumstances, and taking into account that the question of attribution is also relevant to the merits, the Tribunal may not limit its enquiry to a prima facie standard and must, instead, make an informed and dispositive ruling on the question of attribution.” See also Libananco Holdings Co. Limited v Republic of Turkey, ICSID Case No. ARB/06/8, Award, 2 September 2011, §121, RLA-129: “[F]or the avoidance of doubt, the Tribunal confirms its view that it is not required to make a pro tem assumption of the truth of a fact if the evidence of that fact has been fully presented, and sufficient evidence exists for the Tribunal to make an informed and dispositive finding at this stage.”
82 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 84 of 212
273. The Claimant’s vague articulation of its investment boils down to its alleged contract-based rights – especially its purported “right to mine” – under the CHEJVA agreements. Similarly, the Claimant’s alleged BIT breaches are premised on an alleged breach of contract, namely the rejection of the Mining Lease Application by the Licensing Authority.
274. The Claimant’s treaty case, therefore, rests on a contractual foundation. Most obviously, the Claimant must (and cannot) prove that the CHEJVA agreements are valid and binding. This gives rise to two fatal flaws in the Claimant’s case, which must fail in limine.
275. First, the Claimant is unable to show that it satisfies either of the two limbs of the definition of “investment” in Article 1(1)(a) of the BIT, as it is required to do under Article 2(1) for the BIT to apply at all.267 More specifically, the Claimant’s alleged rights: (a) do not constitute “assets”; and (b) were not admitted subject to the “laws and investment policies” of Pakistan.
276. Second, it follows that the dispute submitted by the Claimant does not relate to an “investment”. The Tribunal, therefore, also lacks jurisdiction under Article 13 of the BIT.
277. In addition, the Claimant’s core claim is inadmissible. On the Claimant’s own case, this Tribunal is not the appropriate forum for the determination of contractual issues. The Claimant has seized the ICC tribunal and asked that tribunal to decide issues determinative of the existence and nature of the Claimant’s contractual rights which, on the Claimant’s case, constitute an “investment” but was allegedly subjected to allegedly wrongful conduct. These include: (a) whether the CHEJVA agreements are valid under their proper law; (b) whether the Government of Balochistan is a party to the CHEJVA agreements; and (c) whether the terms of the CHEJVA, if valid, confer upon the Claimant a right to a mining lease. Thus, on the Claimant’s own case, it is necessary for the
The Respondent notes that almost all of the authorities relied upon by the Claimant, in its Reply at §266, take the form of decisions on jurisdiction. 267 It is noteworthy that the Claimant appears to overlook the significance of Article 2 of the BIT: see Memorial, §377: “The jurisdiction of this Tribunal is based on Article 25(1) of the ICSID Convention and Article 13 of the Australia-Pakistan Treaty.”
83 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 85 of 212
ICC tribunal to determine these issues before this Tribunal can decide whether the Claimant had an “investment” and whether it is able to invoke the purported contractual rights upon which the alleged breach of the BIT is predicated.
278. The Claimant is the author of its own misfortune in all the above respects. It decided voluntarily to submit these contractual issues to both the Supreme Court and the ICC tribunal. In addition, at the time it entered into the project, the Claimant knew (or ought to have known) that the CHEJVA agreements suffered from fundamental defects under Pakistani law. It is well-settled law that BITs “are not insurance policies against bad business judgments” and that the investor has its own duty to investigate the host State’s applicable law.268
B. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THE CLAIMANT’S CLAIMS IN THIS ARBITRATION
(1) The Claimant’s vague articulation of its “investment” belies the fact that its purported “assets” are contractual in nature269
279. The CHEJVA agreements were the mechanism through which the Claimant entered, and attempted to conduct business in, Balochistan.270 In summary, the Claimant’s claim to have had an “investment” that qualifies for protection under the BIT must be assessed against that factual and legal background. Under the auspices of the CHEJVA agreements, the contractual Joint Venture was granted Exploration Licence EL-5, which the Licensing Authority permitted to be
268 See Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000, §64, RLA-130; MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, §178, RLA-131; Total S.A. v Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability, 27 December 2010, §124, CA-30; Alasdair Ross Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010, §58, RLA-132. See also Marion Unglaube and Reinhard Unglaube v Republic of Costa Rica, ICSID Case Nos. ARB/08/01 and ARB/09/20, Award, 16 May 2012, §258, RLA-133: the claimants were “of course, required, as part of their due diligence, to become familiar with Costa Rican law and procedure.” 269 Investment arbitration tribunals have “unanimously found that they do not have jurisdiction unless the claimant can establish” the existence of an “investment” under the particular treaty definition: see Vito G. Gallo v Government of Canada, PCA Case No. 55798, Award (Redacted), 15 September 2011, §328, RLA-134. 270 See Counter-Memorial, pp.22-50.
84 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 86 of 212
assigned to the Claimant subject to the latter’s undertaking to comply with the National Mineral Policy read together with the BMR.271
280. The Respondent has already observed that the Claimant’s articulation of its alleged investment is extremely vague.272 Rather than providing greater clarity in its Reply, the Claimant now expands its list of purported investments to include “the mining business it developed in Pakistan”.273
281. In reality, the source of all the Claimant’s purported rights is the CHEJVA via the gateway of the Novation Agreement.274
282. For example, the Claimant appears to rely upon:
a. A “right to mine” under Article 11.8.2, CHEJVA275 and BMR 48.276
There is no “right to mine” under the BMR,277 and the Claimant’s alleged “right to mine” under Article 11.8.2 of the CHEJVA is obviously contractual in nature.
b. Other (unspecified) contractual rights under the CHEJVA (also referred to as a “form of participation” in the Joint Venture).278
It is self-evident that the Claimant’s reliance on these alleged rights is premised on the existence of valid contractual entitlements.
271 See Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 272 Counter-Memorial, §§293-299. 273 Reply, §251. 274 Counter-Memorial, §299. See also: Request for Arbitration, §60; Reply, §241. 275 Memorial, §§507, 509, 537. 276 Memorial, §§418-423, 509, 537. 277 As the Respondent has already explained, under BMR 48, only the “holder of an exploration licence” is entitled to apply for a mining lease: Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48, Ex RE-1. The holder of Exploration Licence EL-5 was the Joint Venture, not the Claimant or TCCP. However, the Mining Lease Application was made by TCCP in February 2011 for its sole benefit and at its sole risk, rather than on behalf of the Joint Venture. See Counter- Memorial, §§321-331. 278 Memorial, §537; Reply, §§251, 255.
85 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 87 of 212
c. Intellectual and industrial property rights in the feasibility study and other work (also referred to as a “comprehensive plan to mine”).279
The Claimant’s alleged rights are grounded in a particular construction of the CHEJVA’s terms, in particular, clauses 1, 3.2 and 18 of the CHEJVA.280
d. Exploration rights under exploration licence EL-5.281
Exploration licence EL-5 and its two renewals were granted to the Joint Venture established under the CHEJVA, not the Claimant or TCCP. 282 It follows that any rights in EL-5 were held under the auspices of, and derive from, the CHEJVA joint venture.
e. A surface rights lease.283
Any right to a surface lease is dependent upon holding a mineral title which the Claimant purports to derive from the CHEJVA.
f. “[M]any varied ‘activities associated with investments’”284 and capital expenditure.285
279 Memorial, §§524-528; Reply, §255. 280 Memorial, §§524-527. 281 Memorial, §537; Reply, §§251, 253, 255. 282 See Letter from Director General to Chagai Hills Joint Venture, dated 18 May 2002, CE-16; Letter from Director General to Chagai Hills Joint Venture, dated 9 April 2005, CE-17; Letter from Director General to Chagai Hills Joint Venture, dated 1 December 2007, CE-20. 283 Memorial, §537; Reply, §255. 284 Reply, §255; Memorial, §381. 285 Memorial, §§381, 427, 145, 133, 135; Reply, §258. It is clear that mere expenditure, without more than an expectation or hope of return, does not amount to an “asset”. As explained in Inmaris Perestrolka Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, 8 March 2010, §§100-101, RLA-135, asset-based treaty definitions of “investment” exclude payment streams: “it is necessary to identify an “asset” to constitute an investment that is protected by the BIT (provided all other jurisdictional requirements are met). The payments identified by the Claimant may reflect the contributions they made to obtain, or in furtherance of, investments; indeed, in the vernacular of quantum calculations, they might constitute Claimants’ “amounts invested” in the financial sense. But the payment streams themselves are not necessarily “investments” covered by the BIT. It is the asset acquired by an investor, typically as a result of such payments, that is the investment – be it tangible, such as an enterprise or real
86 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 88 of 212
Any associated activities (whatever this means) and capital expenditure took place under the rubric and terms of the CHEJVA joint venture. They were directly related to, and would not have been undertaken but for, the existence of a valid contract. It is common ground that any expenditure was made pursuant to the terms of the CHEJVA.286
283. The Claimant accepts that its core claim is a “claim to performance” of the CHEJVA and related agreements.287
284. However, the Supreme Court of Pakistan has already determined that the Claimant’s purported contractual rights are non-existent and illegal. The Claimant’s attempt to argue that the above alleged contract-based rights constitute an investment under the BIT must fail for the reasons set out below.
(2) The Claimant does not have an “investment” under the BIT
285. The gateway to the BIT is found in Article 2(1), which states:
“Application of Agreement 1. This Agreement shall apply to investments wherever made.”288
286. The definition of “investment” is found in Article 1(1)(a), which states:
“(a) “investment” means every kind of asset, owned or controlled by investors of one Party and admitted by the other Party subject to its law and investment policies applicable from time to time and includes: (i) tangible and intangible property, including rights such as mortgages, liens and other pledges,
property, or intangible, such as claims to money or claims to performance (as here)” (emphasis added) This is sufficient to disprove of the Claimant’s bald assertion that it is “well-settled law” that the ordinary meaning of “asset” includes mere capital expenditure: Reply, §258. The Claimant must look elsewhere for an “asset” – which is why it now focuses on alleged contractual rights under the CHEJVA agreements. 286 Counter-Memorial, §341. 287 Reply, §255. Further, to the extent that the Claimant relies on its shareholding in TCCP as a purported investment, as explained below in Section III.B.(3) the dispute that it has submitted to this Tribunal does not relate to any rights connected with that purported investment. 288 Australia-Pakistan BIT, Article 2(1), CE-04.
87 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 89 of 212
(ii) shares, stocks, bonds and debentures and any other form of participation in a company, (iii) a loan or other claim to money or a claim to performance having economic value, (iv) intellectual and industrial property rights, including rights with respect to copyright, patents, trademarks, trade names, industrial designs, trade secrets, know-how and goodwill, (v) business concessions and any other rights required to conduct economic activity and having economic value conferred by law or under a contract, including rights to engage in agriculture, forestry, fisheries and animal husbandry, to search for, extract or exploit natural resources and to manufacture, use and sell products, and (vi) activities associated with investments, such as the organisation and operation of business facilities, the acquisition, exercise and disposition of property rights including intellectual property rights, the raising of funds and the purchase and sale of foreign exchange.”289 (emphasis added)
287. Article 1(1)(a) imposes a two-stage test for the existence of an “investment”. The Claimant must prove that: (a) it had an “asset”; and (b) that such asset was admitted “subject to the laws and investment policies” of Pakistan. The Respondent will demonstrate that the Claimant is unable to satisfy either limb of the test. The Tribunal, therefore, lacks jurisdiction under the BIT. In these circumstances, the question of whether the Claimant has an “investment” for the purpose of Article 25 of the ICSID Convention does not even arise.290
a) The Claimant has failed to demonstrate that it has an “asset” within the meaning of Article 1(1)(a)
288. The first limb of the Article 1(1)(a) definition of “investment” is that the rights the Claimant purports to have must constitute an “asset”. Applying the general rule of treaty interpretation under Article 31(1) of the Vienna Convention on the Law of Treaties, the words “investment” and “asset” must be given their ordinary meaning read in their context.291
289 Australia-Pakistan BIT, Article 1(1)(a), CE-04. 290 For this reason, the Respondent does not intend to address the definition of “investment” under Article 25, ICSID Convention. 291 Article 31(1), Vienna Convention on the Law of Treaties 1969, CA-141: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”.
88 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 90 of 212
289. The Oxford English Dictionary defines an “asset” as:
“A financial contract or physical object with value that is owned by an individual, company, or sovereign, which can be used to generate additional value or provide liquidity.”292
290. The correctness of this ordinary meaning is confirmed by reading the term “asset” in the context of Article 1(1)(a) as a whole. Each of the enumerated examples of assets in sub-paragraphs (i) to (iv) relates to rights, entitlements or claims which have an economic value. Indeed, the words “having economic value” are explicitly mentioned in sub-paragraphs (iii) and (v).
291. By definition, rights that do not exist cannot have “economic value”.
292. Two ICSID tribunals, in particular, have provided useful guidance on how to approach the question of whether an investor’s alleged legal rights amount to an “asset” or “investment”, and the law that governs this question.
293. First, in Nagel v Czech Republic, the claimant contended that its rights under a cooperation agreement concluded with a State enterprise amounted to an investment. Faced with a substantially similar asset-based definition of “investment”293, the tribunal held:
292 Oxford English Dictionary (online edition), RLA-136. See also Blacks Law Dictionary (2nd online edition) RLA-137: “A financial contract or physical object with value that is owned by an individual, company, or sovereign, which can be used to generate additional value or provide liquidity” (http://thelawdictionary.org/asset-2/). 293 Article 1(1) of the Czech Republic-UK BIT, cited at William Nagel v Czech Republic, SCC Case No. 049/2002, Final Award, 9 September 2003, §17, RLA-104, states: “For the purposes of this Agreement: (a) the term “investment” means every kind of asset belonging to an investor of one Contracting Party in the territory of the other Contracting Party under the law in force of the latter Contracting Party in any sector of economic activity and in particular, though not exclusively, includes: (i) moveable and immovable property and other related property rights including mortgages, liens or pledges; (ii) shares in and stock and debentures of a company and any other form of participation in a company; (iii) claims to money or to any performance having a financial value; (iv) intellectual property rights, goodwill, know-how and technical processes; (v) business concessions conferred by law or, where appropriate under the law of the Contracting Party concerned, under contract, including concessions to search for, cultivate, extract or exploit natural resources.” (emphasis added)
89 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 91 of 212
“It follows that, when read in their context, the terms ‘asset’ and ‘investment’ in Article 1 shall be considered to refer to rights and claims which have a financial value for the holder. This creates a link with domestic law, since it is to a large extent the rules of domestic law that determine whether or not there is a financial value. In other words, value is not a quality deriving from natural causes but the effect of legal rules which create rights and give protection to them. … In order to determine whether Mr Nagel had an ‘asset’ which constituted an ‘investment’ under Article 1 of the Investment Treaty, the Arbitral Tribunal will therefore have to examine what right or claim, if any, he could derive from the Cooperation Agreement.”294
294. Thus, the tribunal was required to determine whether the cooperation agreement was a valid and binding contract under Czech law:295
“The Arbitral Tribunal has already noted that the basis of Mr Nagel’s claims in this case is the Investment Treaty and that that Treaty should be interpreted in accordance with the rules of public international law. However, Czech domestic law will be of some relevance, since the terms ‘investment’ and ‘asset’ in Article 1 of the Investment Treaty cannot be understood independently of the rights that may exist under Czech law. It is therefore necessary to determine what is the legal significance of that Cooperation Agreement under Czech law.”296
295. Second, in EnCana v Ecuador, the claimant argued that it had a right to receive refunds owing to its subsidiaries under Ecuadorian law. Applying the asset-based definition of “investment” in Article 1(g) of the Canada-Ecuador BIT, 297 the tribunal held that:
“The relevant clause, Article XIII(7) of the BIT, provides only [that] a tribunal exercising jurisdiction under the BIT ‘shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law’. Unlike many BITs there is no express reference to
294 William Nagel v Czech Republic, SCC Case No. 049/2002, Final Award, 9 September 2003, §§300, 302, RLA-104. The Respondent notes that the Claimant relies upon this authority at §261 of its Reply. 295 William Nagel v Czech Republic, SCC Case No. 049/2002, Final Award, 9 September 2003, §300, RLA-104: “There is however a dispute between the parties in regard to the question of whether or not the Cooperation Agreement was a valid and binding contract under Czech law.” 296 William Nagel v Czech Republic, SCC Case No. 049/2002, Final Award, 9 September 2003, §316, RLA-104. See also §164 finding that the claimant’s expropriation claim failed because the rights derived from the agreement lacked any financial value. 297 Article 1(g), Canada-Ecuador BIT: ““investment” means any kind of asset owned or controlled either directly, or indirectly through an investor of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws and, in particular, though not exclusively, includes …”: quoted at EnCana Corporation v Republic of Ecuador, LCIA Case UN3481, Award, 3 February 2006, §117, RLA-71.
90 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 92 of 212
the law of the host State. However for there to have been an expropriation of an investment or return (in a situation involving legal rights or claims as distinct from the seizure of physical assets) the rights affected must exist under the law which creates them, in this case, the law of Ecuador.”298 (emphasis added)
296. The Claimant must therefore prove that its alleged contract-based rights exist (i.e., have economic value) under their governing law.299
297. The Novation Agreement is the sole gateway through which the Claimant purports to derive contract-based rights under the CHEJVA. There is no doubt that Pakistani law is the governing law of the Novation Agreement. Clause 11 provides as follows:
“This Agreement is governed by the law in force in Pakistan, and the parties submit to the non-exclusive jurisdiction of the courts of Pakistan.”300
298. It is also clear that Pakistani law applies to the CHEJVA. Clause 16 of the CHEJVA states:
“The Law applicable to this Agreement is the law of Pakistan which the Parties acknowledge and agree includes the principles of international law.”301
298 EnCana Corporation v Republic of Ecuador, LCIA Case UN3481, Award, 3 February 2006, §179, RLA-71. See also Kardassopolous v Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, §§145-146, CA-134: “While this tribunal is not authorized to apply Georgian law, it is well established that there are provisions of international agreements that can only be given meaning by reference to municipal law. In the present case, Georgian law is relevant as a fact to determine whether or not the Claimant’s investment is covered by the terms of the ECT and the BIT.” 299 See Z. Douglas, The Law of International Investment Claims (2009, Oxford University Press), Ch 2, p.1, RLA-139: “The law applicable to an issue relating to a claim founded upon a contractual obligation … or an incidental question relating thereto, is the law governing the contract … in accordance with generally accepted principles of private international law.” As the Respondent explained in its Counter-Memorial, the first task for the Tribunal is to determine the existence, nature and scope of the Claimant’s purported contractual rights under Pakistani law: Counter- Memorial, §422. 300 Novation Agreement to Chagai Hills Exploration Joint Venture Agreement, 1 April 2006, CE-03. 301 It is self-evident that international law contains no rules concerning the existence of contractual rights. See e.g Z. Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2003) 74 British YearBook of International Law 151, 205, RLA-139: “If the law of the host state is to have any role in an investment dispute, this is precisely the context in which it must do so … [G]eneral international law cannot purport to regulate the complex problems of proprietary and contractual rights”.
91 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 93 of 212
299. Similarly, Exploration License EL-5 (held by the Joint Venture – a contractual creation – and not the Claimant) can only have been created by Pakistani law. Additionally, Clause 9 of the Novation Agreement for the transfer of EL-5 provides that the assignment of BHP’s interest to the Claimant is governed by Pakistani law and subject to the jurisdiction of the courts of Pakistan:
“This Agreement is governed by the law in force in Pakistan, and the parties submit to the jurisdiction of the courts of Pakistan.”302
300. The Claimant’s case appears to be that Pakistani law is irrelevant because: (a) “this is not a contract case”303; and (b) the Tribunal should not “engage in a fragmented analysis”.304 These protestations are misconceived.
301. The Claimant disregards the fact that contractual issues, including the existence and value of its alleged contract-based rights under the CHEJVA and Novation Agreement, must be governed by Pakistani law as the law governing those contracts. This reflects the widely accepted general principle explained above that the existence of an “investment” or “asset” depends on “whether there is an underlying right, and this assessment, properly conducted, must refer to municipal law” under which the relevant asset is alleged to have been created.305
302. This is not a novel argument. It is a basic principle, which is accepted by international tribunals and commentators alike, including the Claimant’s own lead
302 Novation Agreement – Exploration License EL-5, Clause 9, Ex RE-153. 303 Reply, §232. 304 Reply, §252. 305 M. Sasson, Substantive Law in Investment Treaty Arbitration (2010, Kluwer), p.37, RLA-140. See also Z. Douglas, The Law of International Investment Claims (2009, Oxford University Press), p.171, §348, RLA-28: “An investment treaty does not establish a legal regime for the creation, possession, use or disposal of investments by foreign nationals. This is hardly surprising: municipal laws governing these acts or rights with respect to real property, for instance, are necessarily voluminous and intricate and cannot be swept away by the stroke of a drafter’s pen for the benefit of a certain class of investors. The municipal law of the host state continues to apply to questions pertaining to the creation, possession, and disposal of investments...” (emphasis added)
92 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 94 of 212
counsel in this case.306 For example, following a survey of the relevant case law, Kjos concludes:
“[A]rbitral practice of both territorialized and internationalized tribunals supports the need to refer to the national law of the host state for questions pertaining to the existence and scope of the investment… [A]rbitral practice demonstrates that the necessity of applying national law…does not stand or fall on any explicit choice by the parties that national law shall apply in combination with international law.”307
303. As the AAPL v Sri Lanka tribunal explained, the BIT is not a “self-contained closed legal system”. It exists within a:
“wider juridical context in which rules from other sources are implied incorporation methods, or by direct reference to certain supplementary rules, whether of international law character or of domestic law nature.”308
304. In determining the content of Pakistani law, the Tribunal must give effect to the law which would be applied by Pakistani courts. As the Emmis v Hungary tribunal explained:
306 D. F. Donovan, ‘The Relevance (or Lack Thereof) of the Notion of “Mandatory Rules of Law” to Investment Treaty Arbitration’ (2007) 18(1-2) American Review of International Arbitration 205, 208, RLA-141: “Some multinational treaties and BITs specifically refer to the law of the host state in addition to the “rules and principles of international law” (including the substantive rules of the BIT). Even if they fail to do so, the law of the host state may be relevant, for example, for the determination of property rights or the interpretation of an investment contract.” (emphasis added) 307 H. Kjos, Applicable Law in Investor-State Arbitration (2013, Oxford University Press), p.246, RLA-142. See also T. Roe and M. Happold, Settlement of Investment Disputes under the Energy Charter Treaty (2011, Cambridge University Press), p.51, RLA-143: “The rule or principle that a tribunal must first determine as a matter of national law what the claimant’s rights are (or were until the matters complained of) is itself an applicable rule or principle of international law.” 308 Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award, 27 June 1990, §21, RLA-144. See also Bosh International, Inc and B&P Ltd Foreign Investments Enterprise v Ukraine, ICSID Case No. ARB/08/11, Award, 25 October 2012, §113, RLA-81. Indeed, Article 42(1) of the ICSID Convention explicitly recognises that the municipal law of the host state (including its rules on the conflict of laws) has an important role to play. As the Claimant accepts, the BIT does not contain an express choice of law in relation to ICSID proceedings: Reply, §230. The Tribunal must therefore apply Article 42(1), which provides an additional gateway to the application of Pakistani law under which the Claimant alleges its purported contractual rights were created. In light of the requirements of Article 42(1) of the ICSID Convention, it is noteworthy that the Contracting Parties only felt it necessary in the BIT to direct non-ICSID tribunals to apply domestic law: see Article 7, Annex B, Australia-Pakistan BIT, CE-04.
93 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 95 of 212
“Where the Tribunal is presented with a question of municipal law essential to the issues raised by the Parties for its decision, the Tribunal, whist retaining its independent powers of assessment and decision, must seek to determine the content of the applicable law in accordance with evidence presented to it as to the content of the law and the manner in which the law would be understood and applied by the municipal courts.”309
305. In the present case, the Tribunal need look no further than the judgment of the Supreme Court of Pakistan whose conclusions were reached on the very same facts. The Supreme Court was seized under clause 11 of the Novation Agreement and held that the entire Novation Agreement is void ab initio. As a consequence, the Claimant never became a party to the CHEJVA. The Supreme Court also found that the CHEJVA agreements were void. As a result, the contractual Joint Venture ceased to exist and could not be the holder of any rights in Exploration Licence EL-5.
306. It is common ground that the Supreme Court of Pakistan has already determined that the CHEJVA and related agreements are illegal, void ab initio and non est. In summary, the Supreme Court made three crucial findings in relation to the validity and legality of the CHEJVA agreements, as a conclusive matter of Pakistani law, which must be treated as fact in this arbitration:
a. First, the CHEJVA, Addendum and Novation Agreement are contrary to public policy, and therefore unlawful and void under section 23 of the Contract Act 1872. Additionally, the relaxations granted to BHP and later extended to the Claimant were illegal under rule 98, Balochistan Mining Concession Rules 1970.
b. Second, the Addendum and Novation Agreement were void for fundamental mistake under section 20 of the Contract Act 1872.
c. Third, the Novation Agreement and the Joint Venture depended for their existence on the validity of the CHEJVA. Since the CHEJVA was unlawful and void ab initio, the same was true of the Novation
309 Emmis International Holding, B.V. and others v Republic of Hungary, ICSID Case No. ARB/12/2, Award, 16 April 2014, §175, RLA-145.
94 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 96 of 212
Agreement. Similarly, the Joint Venture ceased to exist and could not be the holder of any rights under Exploration Licence EL-5.310
307. The Supreme Court’s judgment constitutes a binding statement of Pakistani law to which the Tribunal must defer. The Supreme Court’s decision that the CHEJVA agreements and Exploration License EL-5 are invalid and void ab initio is binding on this Tribunal.
308. It follows that from the Supreme Court’s judgment that the Claimant’s purported contractual rights, together with any alleged rights under Exploration EL-5, were non-existent. The Claimant is, therefore, unable to show that it had an “asset”, as required by the first limb of Article 1(1)(a). As a result, the Tribunal lacks jurisdiction ratione materiae under Article 2 of the BIT.
309. It would be impossible for the Claimant to argue as a matter of fact that Pakistani law is other than as found by the Supreme Court. The Supreme Court’s decision constitutes binding precedent as a matter of Pakistani law.311 Article 198 of the Pakistani Constitution provides:
“Decisions of Supreme Court binding on other Courts
Any decision of the Supreme Court shall, to the extent that it decides a question of law or is based upon or enunciates a principle of law, be binding on all other courts in Pakistan.”312
310. Pakistani courts have recognised that “[l]aw declared by [the] Supreme Court becomes the law of the land and is binding not only on all Courts in Pakistan but
310 See Annex, Part A, attached, for a detailed explanation of the legal basis of the above three findings of the Supreme Court. 311 The effect would be the same under English law. According to Lord Diplock in Hoffmann-La Roche v Secretary of State for Trade and Industry [1975] AC 295 p.365F-H, RLA-146: “It would be inconsistent with the doctrine of ultra vires as it has been developed in English 146 as a means of controlling abuse of power by the executive arm of government if the judgment of a court in proceedings properly constituted that a statutory instrument was ultra vires were to have any lesser consequence in law than to render the instrument incapable of ever having had any legal effect upon the rights or duties of the parties to the proceedings…Although such a decision is directly binding only as between the parties to the proceedings in which it was made, the application of the doctrine of precedent has the consequence of enabling the benefit of it to accrue to all other persons whose legal rights have been interfered with in reliance on the law which the statutory instrument purported to declare”. 312 Constitution of Pakistan, Article 189, Ex RE-16.
95 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 97 of 212
also on all functionaries of the Government.”313 The Tribunal must, therefore, defer to the conclusions of the Supreme Court.
311. In its Counter-Memorial, the Respondent explained that international arbitral tribunals lack competence to sit as appellate bodies in relation to the interpretation or application of municipal law.314 This principle has been endorsed and applied by numerous investment tribunals.315 For example, in Liman v Kazakhstan, the tribunal stated that:
“[T]he Tribunal recalls again that it must not function as an appeal body to correct errors, if any, of domestic or substantive law committed by the host states’ national courts. Therefore, the Tribunal sees no need to deal with the question of whether the transaction of the Licence from [X] to LCO was a major transaction or a transaction with interest in terms of the JSC Law and whether the requirements of this law were complied with.”316
313 Goreja v Pakistan, 2006 SCMR 1317, p.1323E, RLA-147. See also Zainab Garments Pvt Limited through Chief Executive and others v. Federation of Pakistan through Secretary, Ministry of Housing and Works Islamabad and others, PLD 2010 Karachi 374, p.383, RLA-148: “It is, noted, that where any law, statutory rule etc on being challenged, is interpreted or decided one way or the other by the Superior Courts, then such interpretation, application of law, rule etc do not only decide the right of the person who had approached the court of law but is also, judgment in rem as regards the interpretation and application of impugned law, statutory rules etc applied by the concerned public, statutory agencies, authorities, bodies and functionaries etc.” 314 Counter-Memorial, §301. 315 In addition to the NAFTA cases cited at Counter-Memorial, §301 see e.g. Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002, §159, CA-73; Jan Oostergetel and Theodora Laurentius v Slovak Republic, UNCITRAL ad hoc arbitration, Final Award [Redacted], 23 April 2012, §§291, 299, RLA-101; Quasar de Valors SICAV SA and others v Russian Federation, SCC Case No. 24/2007, Award, 20 July 2012, §94, RLA-149; Tza Yap Shum v Republic of Peru, ICSID Case No. ARB/07/6, Award, 7 July 2011, §184, RLA-150; Lemire v Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, §283, RLA-82/CA-63; RosInvestCo UK Ltd v Russian Federation, SCC Case No. V079/2005, Final Award, 12 September 2010, §§272, 275-276, 280, 446, 454, 489, 497, 518, 524, 603, RLA-151; Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008, §§106-108, RLA-152; Franck Charles Arif v Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, §§398, 416, RLA-153; TECO Guatemala Holdings, LLC v Republic of Guatemala, ICSID Case No. ARB/10/13, Award, 19 December 2013, §477, RLA-154; Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010, §§274, 289, RLA-155. 316 Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010, §325, RLA-155. See also TECO Guatemala Holdings, LLC v Republic of Guatemala, ICSID Case No. ARB/10/13, Award, 19 December 2013,, §§474-475, 483, RLA-154: “It is indeed true that the Guatemalan courts have decided some of the questions in dispute…It is also true that this Arbitral Tribunal will have to apply Guatemalan law to some of the regulatory aspects of the dispute, and that, in doing so, it may have to defer to
96 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 98 of 212
312. In Arif v Moldova, the Moldovan Supreme Court had “irrevocably annulled” the relevant contracts after their validity had been “extensively debated”. The tribunal held that an ICSID tribunal “cannot and should not act as a court of appeal of last instance”. The tribunal, therefore, refused to analyse “ex novo the validity of these instruments under Moldovan law.”317 As the tribunal explained, the crucial point is that international tribunals must take, and apply, municipal law as they find it:
“[I]nternational tribunals … cannot substitute their own application and interpretation of national law to the application by national courts.” 318
313. On the facts, any attempt by the Claimant to argue that the Supreme Court judgment should be ignored because it has suffered a denial of justice will be of no avail. As the Helnan v Egypt tribunal explained:
“An ICSID Tribunal will not act as an instance to review matters of domestic law in the manner of a court of higher instance. Instead, the Tribunal will accept the findings of local courts as long as no deficiencies in procedure or substance, are shown in regard to the local proceedings which are of a nature of rendering these deficiencies unacceptable from the viewpoint of international law, such as in the case of a denial of justice… When it is found by an international tribunal that the holding of the local award was determined strictly by considerations pertaining to contractual issues, it will not be appropriate for an international tribunal to replace the decision of the local court on a contractual issue subject to local law.”319 (emphasis added)
314. Where the claimant cannot demonstrate systemic injustice, tribunals and scholars are in agreement that domestic decisions must be respected.320
the decisions made by the Guatemalan courts when such aspects of the dispute are subject to Guatemalan law” (emphasis added) See also Limited Liability Company Amto v Ukraine, SCC Case No. 080/2005, Final Award, 26 March 2008, §114, RLA-30 finding that: “the Claimant established the contractual responsibility of Energoatom in Ukrainian law in the Ukrainian domestic courts.” 317 Franck Charles Arif v Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, §§398, 416, RLA-153. 318 Franck Charles Arif v Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, §§441, 481, RLA-153. 319 Helnan International Hotels A/S v Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008, §§106, 108, RLA-152. 320 See e.g.: Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010, §349, RLA-155 (holding that the relevant Kazakh court decisions were “irreproachable and must be accepted”); Bosh International, Inc and
97 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 99 of 212
315. The Claimant is obviously uncomfortable with the significance of the Supreme Court’s decision. As a result, it goes on the offensive. Yet, the Claimant is not prepared to allege explicitly that it suffered a denial of justice before the Pakistani judicial system. To the contrary, the Claimant places much stock in the originating judgment of the Balochistan High Court which found in its favour.321
316. During the recent ICC tribunal hearing in June 2014, the Claimant initially accepted that the Supreme Court was “extremely independent”322 and emphasised that it “meant no disrespect to the Pakistan Supreme Court”. 323 While the Claimant later shifted its position (without any clear explanation), it maintained that it was “not attempting to suggest that the [Pakistani judicial] system is itself unsound.”324
317. The Claimant has not explained how it has suffered any unfairness or denial of due process in the Supreme Court proceedings. The Claimant put forward a team of leading lawyers in Pakistan. Not once in the entire seven year duration of the proceedings did those lawyers state that there was any failing of due process or that they did not receive an adequate opportunity to present their case before the Court. There would have been no ground for any such complaint. The Claimant participated actively in the proceedings and was given the majority of the final six-week hearing time to present its case.
318. In these circumstances, the Tribunal should be guided by the comments of the AFT v Slovakia tribunal:
“What international law prohibits is not a possible error in law, but a system of justice which falls below a minimum standard so as to lead to an inevitable denial of justice. However, the Claimant did not dare
B&P Ltd Foreign Investments Enterprise v Ukraine, ICSID Case No. ARB/08/11, Award, 25 October 2012, §282, RLA-81 (holding that it did not have “any ground to reject the decision of the Ukrainian courts as correctly stating the position under Ukrainian law” of res judicata); G. Bottini, ‘Legality of Investments under ICSID Jurisprudence’ in M. Waibel et al (eds), The Backlash Against Investment Arbitration (2010, Kluwer) 297, p.314, RLA-156 (“it is submitted that – absent serious issues as to the legitimacy of domestic procedures in the host state – international tribunals should “accord great weight” to decisions of local judges”). 321 Memorial, §§146-155, 416, 458, 485; Reply, §§300, 352, 441-442. 322 ICC hearing transcript, 25 June 2014, Day 3, 48 (Mr Donovan), Ex RE-160. 323 ICC hearing transcript, 24 June 2014, Day 2, 88:11-18 (Mr Donovan), Ex RE-159. 324 ICC hearing transcript, 26 June 2014, Day 4, 161:11-19 (Mr Donovan), Ex RE-161.
98 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 100 of 212
assert that the Slovak judicial system belongs to such a category, which would be obviously unsustainable. And it was also scarcely convincing when it criticised the judicial decisions as wrong in municipal law.”325
319. For all of the reasons set out above, the Claimant is unable to show that it satisfies the first limb of the definition of “investment” contained in Article 1(1)(a) of the BIT.
b) Even if the Claimant has an “asset”, which is denied, such asset does not constitute an “investment” because it was not admitted “subject to [the] laws and investment policies” of Pakistan
i. The Claimant does not satisfy the legality requirement in Article 1(1)(a) of the BIT
320. Even if the Claimant establishes the existence of an “asset”, the second limb of the definition of “investment” under Article 1(1)(a) requires that:
“every kind of asset, owned or controlled by investors of one Party and admitted by the other Party subject to its laws and investment policies applicable from time to time …”326 (emphasis added)
321. Identical clauses (commonly referred to as “legality requirements”) are found in many other Australian BITs. 327 The Contracting Parties placed considerable importance on the legality requirement, which occupies a central place in the BIT. It appears explicitly in no fewer than four places, both in relation to jurisdiction and the substantive standards.
322. As the Claimant accepts, the legality requirement “establishes a jurisdictional requirement that an investor must meet in order to seek the protection of the BIT”
325 Alps Finance and Trade AG v Slovak Republic, UNCITRAL, Award [Redacted], 5 March 2011, §§249-250, RLA-157. 326 Australia-Pakistan BIT, Article 1(1)(a), CE-04. 327 See C. Brown, “Bilateral Investment Treaty Overview – Australia”, Investment Claims (2010, , Oxford University Press), C3, RLA-158: “The definition of ‘investment’ has consistently contained this requirement, beginning with the first BIT, the Australia/China BIT 1988 – see Article 1(b) …”
99 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 101 of 212
under Articles 2 and 13.328 The legality requirement also explicitly conditions the breadth of the substantive treaty standards: see Articles 3(1),329 5(1)330 and 5(2)331.
323. Pursuant to Article 31 of the Vienna Convention on the Law of Treaties, Article 1(1)(a) must be interpreted in good faith according to the ordinary meaning of the text in light of the BIT’s object and purpose.332
324. The primary focus must be on the particular wording of the particular legality requirement in the particular treaty before the tribunal in any given case. As the Rizvi v Indonesia tribunal explained, each legality requirement “is required to be approached on its own terms.”333
325. The legality requirement in Article 1(1)(a) of the BIT requires that the investor’s assets must be legal at the time of their “admission”334 and must have been created
328 Reply, §492. 329 Australia-Pakistan BIT, Article 3(1), CE-04: “Each Party shall encourage and promote investments in its territory by investors of the other Party and shall, in accordance with its laws and investment policies applicable from time to time, admit investments.” (emphasis added) 330 Australia-Pakistan BIT, Article 5(1), CE-04: “Each Party shall, subject to its laws applicable from time to time relating to the entry and sojourn of non-citizens …” (emphasis added) 331 Australia-Pakistan BIT, Article 5(2), CE-04: “Each Party shall, subject to its laws applicable from time to time, permit investors …” (emphasis added) 332 See: International Law Commission, YBILC [1966], Vol II, 223, §18, RLA-159. See also e.g. Tokios Tokeles v Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, §82, RLA-160; Methanex Corporation v United States of America, NAFTA Arbitral Tribunal, Final Award, 3 August 2005, Part II, Chapter B, §22, RLA-107; Siemens AG v Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction, 3 August 2004, §106, CA-117; ADF Group Inc v United States of America, ICSID Case No. ARB(AF)/00/1, Award, 9 January 2003, §147, RLA-161. 333 Rafat Ali Rizvi v Indonesia, ICSID Case No. ARB/11/13, Award on Jurisdiction, 16 July 2013, §67, RLA-162. The tribunal found that the legality requirement in Article 2(1) of the UK- Indonesia BIT was “quite specific” in referring to a “particular provision of national law [regarding admission of investments], rather than making a general reference to national law”: §68. See also Gustav F W Hamester GmbH & Co KG v Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, §125, RLA-48: “The precise effect of any such express condition will obviously depend upon the wording used.” 334 The Claimant accepts that the clause concerns legality “at the time the investment was made”: Reply, §281. See also C. Brown, “Bilateral Investment Treaty Overview – Australia”, Investment Claims (2010, Oxford University Press), §C3, RLA-158: “[W]ith regard to the scope of the definition of ‘investment’, the BIT links it to the way in which an investment is made. Therefore, only assets invested subject to the ‘law and investment policies applicable from time to time’ of the host state of the investment are considered to be investments covered under and protected by the BIT – Article 1(1)(a).” (emphasis added)
100 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 102 of 212
or acquired in compliance with the entirety of the host state’s “laws and investment policies”.
326. It is a “cardinal rule” of treaty interpretation that every clause is to be interpreted so as to give reason and meaning to every word.335 Any construction that would render a phrase or part of a provision meaningless and without effect should be rejected.336
327. In order to give effect to the ordinary meaning of the words used, Article 1(1)(a) must be read as imposing an absolute requirement that the Claimant’s asset (if any) must have been admitted subject to: (a) Pakistani “laws” and (b) Pakistan’s “investment policies”. These are cumulative requirements. If the Claimant fails on either limb, it will be unable to show that it has an “investment” and the Tribunal will lack jurisdiction ratione materiae under Article 2.
328. Under the first condition, the Claimant is required to show that its asset was created or acquired in compliance with the entirety of the “laws” of Pakistan. The Contracting Parties made no attempt to distinguish between various sub-categories of municipal law either by reference to subject matter or importance. Indeed, the sequence of the words “laws and investment polices” evidences that no such distinction was intended. Whereas “laws” is a general term, the Parties have expressly recorded an intention that only certain types of policies are relevant. It
335 See e.g. CEMEX Caracas Investments B.V. and another v Bolivarian Republic of Venezuela, ICSID Case No. ARB/08/15, Decision on Jurisdiction, 30 December 2010, §107 and the authorities cited there, RLA-163: “The Tribunal recalls that, as recognized by the International Court of Justice, “the principle of effectiveness has an important role in the law of treaties.” As stated by the tribunal in the Eureko v Poland case, “[i]t is a cardinal rule of interpretation of treaties that each and every clause of a treaty is to be interpreted as meaningful rather than meaningless.” The International Court of Justice and ICSID Tribunals have applied that principle in a number of treaty cases.” 336 Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award, 27 June 1990, §40, Rule (E), RLA-144: “[N]othing is better settled, as a canon of interpretation in all systems of law, than that a clause must be so interpreted as to give it a meaning rather than so as to deprive it of meaning.” See also: Empereas Lucchetti S.A. and another v Republic of Peru, ICSID Case No. ARB/03/4 Award, §59, n.7, RLA-164; Wintershall Aloemgesellschaft v Argentine Republic, ICSID Case No. ARB/04/14, Award, 8 December 2008, §§84, 88, 165, RLA-25; Interpretation of Peace Treaties with Bulgaria, Hungary and Romania (Second Phase), Advisory Opinion, [1950] ICJ Reports, 229, RLA-165; Case concerning the Rights of Nationals of the United States of America in Morocco, [1952] ICJ Reports, 196, RLA-166.
101 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 103 of 212
would have been easy for the Contracting States to have qualified the generality of the word “laws” but they chose not to do so.
329. As the Vannessa Ventures v Venezuela tribunal observed, the ordinary meaning of the term “laws” encompasses all “laws and regulations made by, or under the authority of, the public authorities of the State”.337 Similarly, McLachlan, Shore and Weiniger note that the plain meaning of the phrase ‘in accordance with the laws and regulations’ is that “investments which would be illegal upon the territory of the host State are disqualified from the protection of the BIT”.338
330. This ordinary meaning of “laws” is confirmed by the BIT’s object and purpose. The overall objective is the enhancement of “economic activity and development” and the expansion of “economic relations and technical cooperation” between the Contracting Parties:
“RECOGNISING the importance of promoting the flow of capital for economic activity and development and aware of its role in expanding economic relations and technical co-operation between them, particularly with respect to investment by investors of one Party in the territory of the other Party.”339
331. The preamble continues explicitly to record the Contracting Parties:
“ACKNOWLEDGING that investments of investors of one Party in the territory of the other Party would be made within the framework of the laws of that other Party;”340
332. The object and purpose of the BIT is not investment promotion and protection per se, but within the framework of the host state’s laws and investment policies as an aid to the development of the domestic economy.341 As the Fraport v Philippines
337 Vannessa Ventures Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6 Award, 16 January 2013, §§134, 154. See also Alasdair Ross Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010, §57, RLA-167: finding that the phrase “in accordance with the latter’s laws” in Article 1(g) of the Canada-Costa Rica BIT encompasses “all the prevailing laws”. 338 McLachlan, Shore and Weiniger, International Investment Arbitration: Substantive Principles (OUP 2007), §6.63, RLA-168. 339 Australia-Pakistan BIT, Preamble, CE-04. 340 Australia-Pakistan BIT, Preamble, CE-04. 341 See Lemire v Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability, 14 January 2010, §273, RLA-82/CA-63:
102 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 104 of 212
tribunal observed, “[r]espect for the integrity of the law of the host state is also a critical part of development and a concern of international investment law.”342
333. By incorporating the legality requirement in the definition of “investment”, the Contracting Parties have sought to allay the important public policy concern, expressed in the preamble, that investment be made within the confines of the host State’s domestic legal framework. That objective can only be implemented by giving “laws” its naturally broad meaning.343 Given its ordinary meaning, in light of the BIT’s object and purpose, Article 1(1)(a) of the BIT has no further need of interpretation.344
334. Tribunals tasked with determining jurisdictional issues under similar legality requirements have placed reliance on domestic court decisions establishing the lawfulness, or otherwise, of the investment. Indeed, the Alpha v Ukraine tribunal rejected the respondent’s argument that the investment was fraudulently registered, inter alia, because the respondent did not provide any domestic decisions establishing a breach of local laws.345
335. This Tribunal faces no such difficulty. The Supreme Court of Pakistan has already determined, as a matter of binding Pakistani law, that the Claimant’s alleged
“Economic development is an objective which must benefit all, primarily national citizens and national companies, and secondarily foreign investors. Thus, the object and purpose of the Treaty is not to protect foreign investments per se, but as an aid to the development of the domestic economy. And local development requires that the preferential treatment of foreigners be balanced against the legitimate right of Ukraine to pass legislation and adopt measures for the protection of what as a sovereign it perceives to be in its public interest.” 342 Fraport AG Frankfurt Airport Services Worldwide v Republic of Philippines, ICSID Case No. ARB/03/25, Award, 16 August 2007, §402, CA-130. 343 See Alasdair Ross Anderson et al v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, 19 May 2010, §53, RLA-132. 344 Investment treaty jurisprudence is consistent in this regard: Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3, Final Award, 27 June 1990, §40, Rule (A), citing Vattel, RLA-144: Alpha Projektholding GmbH v Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010, §223, CA-72. See also e.g. Philippe Gruslin v Malaysia, ICSID Case No. ARB/99/3, Award, 27 November 2000, §21.6, RLA-169: “If its [the treaty’s] meaning is found to be clear, the Tribunal will not reduce its reach by reference to general considerations or assumptions derived from extrinsic sources”. 345 Alpha Projektholding GmbH v Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010, §295, CA-72. It is also noteworthy that the claimant in Quiborax argued that it could “only be declared to have breached the law ‘by court decision’ i.e. by a decision of a Bolivian court in this case”: Quiborax S.A. and others v Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, §262, CA-135.
103 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 105 of 212
assets – the CHEJVA agreements – were illegal, void and non est from their inception.346
336. The Supreme Court’s judgment was reached on the basis of well-established principles of Pakistani law. As explained above,347 the Supreme Court Judgment is declaratory of Pakistani law, and the Tribunal must apply it. Since the Supreme Court has declared the CHEJVA agreements “illegal”, the Claimant clearly has not satisfied the legality requirement in Article 1(1)(a), with the result that the Tribunal lacks jurisdiction.
ii. The Claimant’s misconceived attempt to narrow the scope of the legality requirement in Article 1(1)(a) of the BIT must fail
337. In an attempt to distract the Tribunal and obfuscate matters, the Claimant seeks to narrow the scope of Article 1(1)(a).
338. The Claimant’s position appears to be that Article 1(1)(a) only applies in relation to: (i) “non-trivial” or “non-technical” breaches of; (ii) “fundamental principles” of; (iii) Pakistani “investment laws”; (iv) by the investor. 348 Each of these proposed limitations is baseless and must be rejected. The Claimant’s construction lacks any textual basis whatsoever, requires the Tribunal to read in words, supplements the text with significant qualifications and renders certain words redundant.
339. The Claimant’s approach to treaty interpretation is fundamentally flawed. It disregards entirety the actual text of the BIT and respect for the principle of effectiveness. It would have been easy for the States Parties to have referred to “investment laws and policies” or “fundamental principles” but they did not do so. The clear inference is that no such qualification was intended.
340. In substance, the Claimant urges the Tribunal to interpret Article 1(1)(a) exclusively in favour of investors. Such a construction would defeat the explicit
346 See Section III.E above. 347 See Section III.E above. 348 Reply, §§278-295.
104 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 106 of 212
object and purpose of the BIT of protecting the interests of the Contracting Parties. 349 In advancing its position, the Claimant fails to heed the warning in Standard Chartered v Tanzania against “inappropriate invocation of authority” and “distorted analogies”.350 In any event, the inapposite authority upon which the Claimant relies is of the weakest form.
341. First, the Claimant’s proposed “investment laws” limitation rests solely on the obiter remarks of the Saba Fakes v Turkey tribunal,351 which was considering a very different treaty.352 Having concluded that the claimant made no investment in the host state at all, the question of the legality of any investment did not arise. 353 However, the tribunal suggested in passing that limiting the legality requirement in Article 2(2) of the Netherlands-Turkey BIT354 to “investment laws” would be consistent with the object and purpose of the Netherlands-Turkey BIT, which it
349 See e.g. Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, §300, CA-44: “[A]n interpretation which exaggerates the protection to be accorded to foreign investments may serve to dissuade host States from admitting foreign investments and so undermine the overall aim of extending and intensifying the parties’ mutual economic relations.” See also Quasar de Valors SICAV SA and others v Russian Federation, SCC Case No. 24/2007, Award on Preliminary Objections, 20 March 2009, §55, RLA-170: “Article 31 must be considered with caution and discipline lest it become a palimpsest constantly altered by the projections of subjective suppositions. It does not for example compel the result that all textual doubts should be resolved in favour of the investor. The long- term promotion of investment is likely to be better ensured by a well-balanced regime rather than by one which goes so far that it provokes a swing of the pendulum in the other direction.” 350 Standard Chartered Bank v United Republic of Tanzania, ICSID Case No. ARB/10/12, Award, 2 November 2012, §239, RLA-171: “The text of other investment conventions, as well as the language of investor-state cases sometimes press into service concepts…distinct from the notion as relevant to the [particular BIT before the tribunal]. Failure to note the variation can result in distorted analogies or inappropriate invocation of authority.” 351 Saba Fakes v Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, §148, CA- 122. 352 Reply, §284. 353 Saba Fakes v Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, §148, CA- 122: “To the extent that Mr Fakes does not hold an investment in the present case, there is no need for this Tribunal to consider whether Mr Fakes[’]” transaction was conducted in accordance with the Respondent’s laws and regulations relating to the admission of investments in Turkey and, thus, satisfied the requirement of legality set forth by the BIT to qualify as an investment protected by that instrument.” 354 Article 2(2), Netherlands-Turkey BIT: “The present Agreement shall apply to investments owned or controlled by investors of one Contracting Party in the territory of the other Contracting Party which are established in accordance with the laws and regulations in force in the latter Contracting Party’s territory at the time the investment was made”: cited at Saba Fakes v Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, §115, CA-122.
105 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 107 of 212
identified as being “investment promotion and protection”.355 Importantly, unlike the present BIT, the legality requirement was not reflected in the preamble or object and purpose of that other treaty.
342. In any event, Saba Fakes v Turkey does not enjoy any wider support. For example, the tribunal in Inmaris v Ukraine did not suggest that the legality requirement was inapplicable to general contract law of the host State. 356 Similarly, the Hamester v Ghana tribunal had no hesitation in finding that it “must examine”357 the Ghanaian law of fraud.358 Likewise, the Vannessa Ventures v Venezuela tribunal rejected the claimant’s argument359 that the “investment laws” limitation applied to the legality requirement in Article 1(f) of the Canada- Venezuela BIT360. 361
355 Saba Fakes v Republic of Turkey, ICSID Case No. ARB/07/20, Award, 14 July 2010, §119, CA- 122. 356 See Inmaris Perestroika Sailing Maritime Services GmbH and others v Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, 8 March 2010, RLA-135 in which the tribunal was interpreting Article 2(2) of the Germany-Ukraine BIT, which it set out at §63: “‘Investments’ which have been undertaken by nationals or companies of the other Contracting Party in accordance with the legal regulations of a Contracting Party in the field of application of its legal system, shall enjoy the full protection of the Treaty.” For the tribunal’s consideration in relation to contract law see §135 et seq. 357 Gustav F W Hamester GmbH & Co KG v Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, §131, RLA-48: “The Tribunal must thus examine whether the investment was illegal from its very inception, because of the foreign investor’s alleged fraudulent behaviour in manipulating the invoices for the machinery to be transferred to Wamco under the JVA.” 358 In Gustav F W Hamester GmbH & Co KG v Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, §131, RLA-48, the tribunal was interpreting Article 10 of the Germany-Ghana BIT, which it set out at §89: “This Treaty shall also apply to investments made prior to its entry into force by nationals or companies of either Contracting Party in the territory of the other Contracting Party consistent with the latter’s legislation.” “‘[I]nvestment’ means any kind of asset owned or controlled by an investor of one Contracting Party either directly or indirectly, including through an investor of a third State, in the territory of the other Contracting Party in accordance with the latter’s laws.” 359 Vannessa Ventures Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6 Award, 16 January 2013, §132, RLA-167. 360 Article 1(f), Canada-Venezuela BIT, quoted at Vannessa Ventures Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6 Award, 16 January 2013, §109, RLA-167: “‘investment’ means any kind of asset owned or controlled by an investor of one Contracting Party either directly or indirectly, including through an investor of a third State, in the territory of the other Contracting Party in accordance with the latter’s laws.” 361 Vannessa Ventures Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6 Award, 16 January 2013, §§134, 154, RLA-167.
106 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 108 of 212
343. Second, as regards its proposed “fundamental principles” limitation, the Claimant places its faith entirely in the obiter comments of the Desert Line v Yemen362 and Rumeli v Kazakhstan 363 tribunals, which were considering differently worded legality provisions.364 Neither the preamble of the Turkey-Kazakhstan BIT nor the Oman-Yemen BIT refers to the legality requirement.365
344. In any event, the approach suggested in Desert Line v Yemen and Rumeli v Kazakhstan has not been followed. The “fundamental principles” limitation was implicitly rejected in Vannessa Ventures v Venezuela. 366 Most recently, the Quiborax v Bolivia tribunal explicitly rejected the claimant’s contention, citing Desert Line v Yemen, that the “fundamental principles” limitation applied to the phrase “laws and regulations” in Article 1(2) of the Bolivia-Chile BIT367:
“The interpretation of the Claimants [is] too narrow … [and] goes beyond the terms of the BIT, in an attempt to further the investor’s protection without due regard for the State’s interests.” 368
345. For these reasons, the Claimant’s argument must be rejected. On its plain wording, as confirmed by the BIT’s object and purpose, the legality requirement applies to any and all breaches of Pakistani law. In the absence of any evidence of an intention to distinguish between different classes of breach, there is no
362 Desert Line Projects LLC v Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, CA-115. 363 Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri A.S. v Republic of Kazakhstan, ICSID Case No. ARB/05/16, Award, 29 July 2008, CA-40. 364 Reply, §283. 365 For the preamble of the Oman-Yemen BIT, see Desert Line Projects LLC v Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008, §100, CA-115: ““[I]nvestment” means any kind of asset owned or controlled by an investor of one Contracting Party either directly or indirectly, including through an investor of a third State, in the territory of the other Contracting Party in accordance with the latter’s laws.” 366 Vannessa Ventures Ltd v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6 Award, 16 January 2013, §132, RLA-167: “Claimant also argued that the “legality requirement” is limited in its application to breaches of fundamental principles of law and of laws concerning foreign investments”. As explained above, the Tribunal rejected this argument and gave effect to the ordinary meaning of the term “laws”. 367 Article 1(2), Bolivia-Chile BIT states that “investment” means “any kind of asset or rights related to an investment so long as the latter has been made in accordance with the laws and regulations” of the host State: see translation in Quiborax S.A. and others v Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, §239, n.366, CA-135. 368 Quiborax S.A. and others v Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Jurisdiction, 27 September 2012, §263, CA-135. The Respondent notes that the Claimant cites this decision in support of its case: see Reply, n.80.
107 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 109 of 212
justification for reading in the Claimant’s desired wording. The same logic applies with equal force to the Claimant’s back-up argument that Article 1(1)(a) is limited to “non-trivial” or “non-technical” breaches of Pakistani law.369
346. Even if the Claimant’s “fundamental principles” qualification were justified, it is clear on the face of the Supreme Court’s decision that the CHEJVA agreements were unlawful and void ab initio because they were, by their very nature, opposed to public policy. It is difficult to see how the Claimant could credibly maintain that sections 20 and 23 of the Contract Act 1872 do not embody “fundamental principles” of Pakistani law.370
347. Lastly, relying on Kardassopolous v Georgia,371 the Claimant contends that the Respondent is not entitled to rely upon its own wrongdoing. In other words, the Claimant’s position appears to be that the legality requirement in Article 1(1)(a) applies only in relation to the investor’s illegal conduct. Once again, the Claimant ignores the text of the BIT and invokes inapposite authority.
348. The Kardassopolous v Georgia tribunal was interpreting the particular language of Article 12 of the Greece-Georgia BIT, which states that:
“This Agreement shall also apply to investments made prior to its entry into force by investors of either Contracting Party in the territory of the other Contracting Party, consistent with the latter’s legislation.”372
349. Article 1(1)(a) of the present BIT is easily distinguishable. It refers to the admission of assets generally, rather than “investments made … by investors”. In other words, whereas the legality requirement before the Kardassopolous v Georgia tribunal expressly referred to the investor’s conduct in making the investment, Article 1(1)(a) of this BIT does not.
350. In any event, the Kardassopolous v Georgia tribunal found that the ordinary meaning of the clause before it was to deny protection to any investments which
369 Reply, §291. 370 See Contract Act 1872, sections 20, 23, Ex RE-21. 371 As cited in Kardassopolous v Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, §182, CA-134. 372 As cited in Kardassopolous v Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, §49, CA-134.
108 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 110 of 212
were made in violation of Georgian law, including contracts which had been concluded ultra vires. Crucially, however, the ordinary meaning was displaced by the particular object and purpose of the Greece-Georgia BIT.
351. Unlike the present BIT, the preamble of the Greece-Georgia treaty identifies its aims as being to provide broad protection for investors and their investments:
“HAVING as their objective to create favourable conditions for investments by investors of either Contracting Party in the territory of the other Contracting Party.
RECOGNIZING that the promotion and protection of investments, on the basis of this Agreement, will stimulate the initiative in this field.”373
352. In light of the treaty text before it, that tribunal concluded that the treaty’s object and purpose would be frustrated if the respondent were able to “preclude an investor from seeking protection under the BIT on the ground that its own actions are illegal under its own laws.”374 It is self-evident that the object and purpose of the present BIT, which is what matters for these proceedings, is very different and explicitly refers to the legality requirement:
“RECOGNISING the importance of promoting the flow of capital for economic activity and development and aware of its role in expanding economic relations and technical co-operation between them, particularly with respect to investment by investors of one Party in the territory of the other Party. …
ACKNOWLEDGING that investments of investors of one Party in the territory of the other Party would be made within the framework of the laws of that other Party;”375
353. The Claimant’s attempt to narrow the scope of Article 1(1)(a) of the BIT is therefore contrary to the ordinary meaning of that provision, and the BIT’s object and purpose.376 The Claimant’s position is thus groundless, and the Tribunal
373 Kardassopolous v Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, §181, CA-134 374 Kardassopolous v Republic of Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, §182, CA-134. 375 Australia-Pakistan BIT, Preamble, CE-04. 376 The plain meaning of Article 1(1)(a) is consistent with the fact that “the purpose of international protection [under the ICSID arbitration system] is to protect legal and bona fide investments”: Phoenix Action, Ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award, 15 April 2009, §100,
109 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 111 of 212
lacks jurisdiction for the reasons mentioned in Sections III.B.(2).(a) and III.B.(2).(b).(i) above.
(3) The dispute submitted to this Tribunal concerning the rejection of the Mining Lease Application does not relate to an “investment”, as required by Article 13 of the BIT
354. The investor-State dispute settlement clause in Article 13 of the BIT can only be triggered by “a dispute between a Party and an investor of the other Party relating to an investment.”377 In order to invoke Article 13 of the BIT, the Claimant must prove that it (a) holds an “investment”; and (b) that the dispute it has submitted to the Tribunal relates to that investment. Neither of these conditions is satisfied here.
355. The Respondent has already demonstrated that none of the Claimant alleged assets meet the definition of “investment” in Article 1(1)(a) of the BIT. It follows that the Claimant cannot show that the dispute relates to an “investment”. Even if, contrary to the Respondent’s case, the Claimant did have an “investment”, it has failed to prove the necessary link between such investment and the dispute it has submitted to this Tribunal.
C. THE CLAIMANT’S CLAIMS ARE INADMISSIBLE
(1) The Claimant has already submitted all contractual issues to the ICC tribunal
356. It is clear that the Claimant’s treaty claim requires the Tribunal to determine many of the same contractual issues that are currently pending before the ICC tribunal. This Tribunal will be required to determine multiple contractual issues, including:
RLA-127. Indeed, it is clear from the travaux preparatoires that the ICSID Convention was designed to protect the interests of host states as well as foreign investors. See: Report of the Executive Directors, §23; Amco v Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, reprinted in 23 I.L.M. 351, §23, RLA-172; Urbaser S.A. and others v Argentine Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, §53, RLA-173. 377 Australia-Pakistan BIT, Article 13, CE-04.
110 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 112 of 212
a. Whether the Claimant’s alleged contractual “assets” exist under the law which is said to have created them and whether those assets are lawful under Pakistani law.
b. Whether any rights under the CHEJVA agreements can be invoked, as against the Respondent.
c. Whether the terms of the CHEJVA, particularly Article 11.8.2, confer upon the Claimant a right to a mining lease.
357. Whatever the ICC tribunal’s ultimate decision, on the Claimant’s own case, the Claimant has elected to submit these issues to the ICC tribunal. The Claimant should be held to the natural consequences of its election to commence the ICC proceeding. Therefore, pending determination of these issues, this treaty Tribunal should decline to exercise any jurisdiction over overlapping contractual issues. As the Biwater Gauff v Tanzania tribunal held in the context of breach of contract:
“It is not the role of this Arbitral Tribunal to decide contractual issues … [t]hese are matters … that are the preserve of the UNCITRAL Arbitral Tribunal which was constituted pursuant to the arbitration agreement contained in the Lease Contract itself.”378
(2) The Claimant’s claims are manifestly without legal merit because it is precluded from re-litigating the contractual issues which have already been determined by the Supreme Court of Pakistan
358. If the Tribunal declines to stay it proceedings pending determination of the contractual issues by the ICC tribunal, it must find that the Claimant is precluded from re-litigating the contractual issues which have already been determined by the Supreme Court of Pakistan on the basis that such claims are manifestly without legal merit.
359. As explained above, the Claimant’s claims are premised and depend upon the existence of valid and binding purported contract-based rights under the CHEJVA agreements. However, the Supreme Court of Pakistan has already determined that:
378 Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, §469, CA-43.
111 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 113 of 212
(a) the CHEJVA agreements are illegal, void and non est; and (b) that the Government of Balochistan is not a party to those contracts. According to the well-established general principle of issue estoppel (also known as “collateral estoppel”), the Claimant is therefore precluded from re-litigating these very same contractual issues before this Tribunal.
360. This question was extensively pleaded and argued before the ICC tribunal. It is important to distinguish issue estoppel from the related broader doctrine of cause of action estoppel. The leading authority in international investment law is RSM v Grenada in which the ICSID tribunal held:
“The disputing parties … agree that a finding concerning a right, question or fact may not be relitigated (and, thus, is binding on a subsequent tribunal), if, in a prior proceeding: (a) it was distinctly put in issue; (b) the court or tribunal actually decided it; and (c) the resolution of the question was necessary to resolving the claims before that court or tribunal.
It is also not disputed that the doctrine of collateral estoppel is now well established as a general principle of law applicable in international courts and tribunals such as this one.”379
361. The test for issue estoppel under international law is clearly met here. The Claimant and/or its privies 380 voluntarily submitted to the jurisdiction of the
379 RSM Production Corp et al v Grenada, ICSID Case No. ARB/10/06, Award, 10 December 2010, §§7.1.1-7.1.2, RLA-56/CA-112, citing Amco Asia Corporation v Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction (Re-submitted case), 10 May 1988, §30. See also V. Lowe, ‘Res Judicata and the Rule of Law in International Arbitration’ (1996) 8 African Journal of International and Comparative Law 38, p.42, RLA-174: “[T]he tribunal in the resubmitted Amco case clearly applied the principle of issue estoppel to the determination of specific facts and of the legal characterisations of facts by the previous tribunal. Moreover, it did so after an extensive inquiry into the principle of res judicata in international law, which resulted in the Tribunal formulating the principle in a manner which made no reference to the need for identity of cause…the statement of the law on res judicata/estoppel, though technically obiter, is sufficiently clear and well argued, and the Tribunal sufficiently distinguished, for it to be a persuasive authority.” 380 Barrick and Antofagasta and its predecessor, BHP. See RSM Production Corp et al v Grenada, ICSID Case No. ARB/10/06, Award, 10 December 2010, §§7.1.4-7.1.7, RLA-56/CA-112, in which tribunal recognised and applied that the concept of privies in international law, such that a previous arbitral award, to which a company had been a party, was held to bind the company’s three shareholders. The Claimant’s attempt to distinguish the present case before the ICC tribunal was entirely unconvincing: see Transcript of ICC Preliminary Issues hearing, June 2014, Day 3, p.25, Ex RE-160.
112 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 114 of 212
Supreme Court, 381 which determined the contractual issues now before this Tribunal.
D. CONCLUSION
362. In summary, the Tribunal lacks jurisdiction in this case because the Claimant has (a) failed to prove that it had an “asset” within the meaning of Article 1(1)(a) of the BIT, and (b) even if it had an “asset”, any such asset does not qualify as an “investment” because it was not admitted “subject to [the] laws and investment policies” of Pakistan. In addition, in the absence of an “investment”, the Claimant is unable to establish the existence of a “dispute … relating to an investment” for the purposes of Article 13 of the BIT. Further, the Claimant’s claims are inadmissible in light of the Claimant’s voluntary submission of overlapping contract-based issues to the ICC tribunal.
363. The constant theme running through the above analysis of jurisdictional issues is that the Claimant is the author of its own misfortune and has precluded itself from satisfying the jurisdictional requirements of the BIT. First, the Claimant voluntarily submitted to the jurisdiction of the Supreme Court and the ICC tribunal, and should be held to the consequences of this decision. Second, it knew, or ought to have known, that the CHEJVA agreements suffered from fundamental defects under Pakistani law. Its predecessor (BHP) had not merely failed to investigate the applicable legal framework, but had taken professional legal advice on the statutory requirements before attempting to circumvent or
381 See Novation Agreement to Chagai Hills Exploration Joint Venture Agreement, 1 April 2006, CE- 03: “This Agreement is governed by the law in force in Pakistan, and the parties submit to the non- exclusive jurisdiction of the courts of Pakistan.” Notably, on 7 February 2012, three years after the start of the Supreme Court proceedings, the Claimant’s counsel informed the Court, without explanation and for the first time, that he was only acting for TCCP (the Claimant’s wholly-owned subsidiary) and not TCCA. See Order of the Supreme Court, 7 February 2012, §§2, 5, Ex RE-8. See also Kanrani, §45. This tactical conduct provoked an understandable reaction from the Supreme Court: see Supreme Court Judgment, 10 May 2013, §112, Ex RE-18. “[T]he respondent company has been changing positions and has not been forthcoming before this Court. For example, it was described as TCCA before the Balochistan High Court (as described in the impugned judgment at page 27 of CPSLA No. 796/2007, Part I). Thus, in the appeal, it is TCCA that would continue to be present before this Court. However, it was later stated that it is not TCCA, but TCCP that is before this court without making any application for the change of parties. This Court accordingly issued notices to TCCA … Such an evasive style of TCC could hardly mislead the Court”. See also ICC Reply on Preliminary Issues, 14 May 2014, §§72-74, Ex RE-157; Transcript of ICC Preliminary Issues hearing, 26 June 2014, Day 4, pp.46-57, Ex RE-161.
113 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 115 of 212
disregard those constraints.382 Upon its entry into the project, the Claimant sought to secure for itself the same illegal rights. As in Fraport v Philippines, BHP and the Claimant “from the outset understood, with precision, the [host State’s] legal prohibition but believed that if it complied with it, the prospective investment could not be profitable.”383 The Claimant should not be allowed to invoke the Tribunal’s jurisdiction: BITs “are not insurance policies against bad business judgment”.384
382 By contrast, the Supreme Court held that the Government of Balochistan had been labouring under a fundamental mistake that the CHEJVA agreements were lawful and enforceable: Supreme Court judgment, 10 May 2013, §§69, 75, Ex RE-18. 383 Fraport AG Frankfurt Airport Services Worldwide v Republic of Philippines, ICSID Case No. ARB/03/25, Award, 16 August 2007, §355, CA-130. 384 Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000, §64, RLA-130.
114 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 116 of 212
IV. STATE RESPONSIBILITY AND ATTRIBUTION
A. THE RESPONDENT ONLY BEARS RESPONSIBILITY IF THE CLAIMANT SHOWS THAT IT MADE AN “INVESTMENT”, WHICH WAS SUBJECTED TO A WRONGFUL ACT, ATTRIBUTABLE TO THE RESPONDENT, AND IN BREACH OF THE BIT
364. It is trite law that in order to succeed in its claim, the Claimant must show (among other things) that the Respondent bears State responsibility.
365. In summary, the Claimant must prove inter alia:
a. that the Claimant made an “investment”;
b. that such “investment” was subjected to a putatively wrongful act;
c. that such act is attributable to the Respondent;
d. that such act amounted to a violation of the BIT; and
e. that such act caused the damage complained of.
366. The Respondent has already demonstrated that the Claimant has failed to prove that it made an “investment”.
367. Even if the Claimant does hold an “investment”, it is important to determine exactly what rights comprise that investment. The Claimant must show that the conduct complained of in relation to that particular investment – i.e. those specific rights – is attributable to the State and amounts to a breach of a treaty obligation. The BIT explicitly only protects against unfair treatment, impairment and expropriation of “investments”. As Douglas observes:
“The tribunal’s examination of the question of the host state’s liability is intertwined with an assessment of whether the prejudice alleged by the claimant can be properly linked to the rights that comprise the investment.” 385
385 Z. Douglas, The Law of International Investment Claims (2009, Oxford University Press), §345, p.165, RLA-28.
115 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 117 of 212
368. The Claimant is not able to rely on one purported investment to pass through the jurisdictional gateway and then another to establish liability.
369. For example, the Inmaris v Ukraine tribunal held:
“Of course, exactly what rights (if any) were held by each specific company, whether any such specific rights were breached by Respondent’s actions, and whether or how such contractual breaches (if any) give rise to breaches of the Treaty, are questions that the Tribunal may need to take up on the merits.”386
370. The Claimant’s case, in essence, appears to be that:
a. The Respondent’s rejection of the Mining Lease Application amounted to expropriation, unfair and inequitable treatment and impairment of its purported “right to mine”.
b. The Respondent’s alleged use of the Joint Venture’s exploration data for its own project amounts to expropriation and impairment of the Claimant’s purported intellectual and industrial property rights in the feasibility study and other work or its “plan to mine”.
c. The Respondent’s position in the Supreme Court amounts to impairment, and possibly unfair and inequitable treatment, of the Claimant’s other (unspecified) rights under the CHEJVA.
d. The Respondent’s alleged denial of access to the Reko Diq site amounts to impairment of the Claimant’s purported rights under Exploration Licence EL-5 and its surface rights lease.
371. Even if, contrary to the Respondent’s primary case, the CHEJVA agreements were extant, it would be necessary to determine exactly what legal rights they confer on the Claimant vis-à-vis the Respondent. That question must be assessed
386 Inmaris Perestrolka Sailing Maritime Services GmbH and others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, 8 March 2010, §92, RLA-135. See also Generation Ukraine v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, §8.8, RLA-105: “Since there cannot be an expropriation unless the complainant demonstrates the existence of proprietary rights in the first place, the legal materialisation of the Claimant’s alleged investment is a fundamental aspect of the merits in this case.”
116 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 118 of 212
in light of the fact that the Respondent is not a party to, and has no obligations under, the CHEJVA agreements.
B. THE RESPONDENT IS NOT A PARTY TO THE CHEJVA AGREEMENTS
372. In its Decision on Trifurcation, the Tribunal recognised that “one of the central issues in the case will be the nature of the legal obligations and commitments, if any, undertaken by Balochistan and Respondent vis-à-vis Claimant.”387
373. It is common ground between the Parties that the Respondent is not a party to the CHEJVA agreements.388 The Claimant is, therefore, unable to invoke any alleged contractual obligations against the Respondent.
374. Yet, the Claimant’s case is framed as if it had entered into a direct contractual relationship with the Respondent.389 This framing technique is a clear attempt to circumvent the fact that a contract cannot engender any legitimate expectations towards a third party.390
375. The Claimant attempts to bind the Respondent to the CHEJVA agreements by invoking the ILC Articles and the international law rules of attribution. Its case appears to be that the conduct of the Government of Balochistan (or the BDA in the alternative) in entering into the CHEJVA agreements is attributable to the Respondent, with the result that the contractual rights exist as against the Respondent.391
376. This argument must be rejected. The Claimant seeks inappropriately to extend the application of the ILC’s Articles on attribution beyond their proper remit to purely contractual issues. In doing so, the Claimant collapses the fundamental distinction between treaty and contract in investment arbitration.
387 Procedural Order No. 2, §4. 388 Reply, §497. 389 Request for Arbitration, §60; Memorial, §399, arguing that the CHEJVA agreements may be relied upon as giving rise to a legitimate expectation vis-à-vis the Respondent.. 390 This is especially true where private parties purport to impose obligations on a non-party sovereign government. 391 Reply, §§302-322.
117 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 119 of 212
377. The starting point is the well-settled law that the ILC Articles do not apply to contract claims brought under BITs. In Impregilo v Pakistan, the claimant argued that it could invoke against the respondent a dispute relating to a contract concluded with the Pakistan Water and Power Development Agency (WAPDA). The tribunal assessed the status of WAPDA under Pakistani law, the law which created it and governed the contract. It found that WAPDA was legally distinct from the State.392 The tribunal explicitly rejected the claimant’s reliance on the ILC Articles:
“Much of Impregilo’s argument on this issue rested upon international law principles of state responsibility and attribution. However, a clear distinction exists between the responsibility of a State for the conduct of an entity that violates international law (e.g. a breach of the BIT), and the responsibility of a State for the conduct of an entity that breaches a municipal law contract (i.e. Impregilo’s Contract Claims).”393
378. The Impregilo v Pakistan tribunal supported its conclusion by reference to the guidance of the ad hoc committee in Vivendi v Argentina:
“[I]n the case of a claim based on a treaty, international law rules of attribution apply, with the result that the state of Argentina is internationally responsible for the acts of its provincial authorities. By contrast, the state of Argentina is not liable for the performance of contracts entered into by Tucumán, which possesses separate legal personality under its own law and is responsible for the performance of its own contracts.”394
379. For the same reasons, the ILC Articles do not apply to the determination of contractual issues which arise in the context of treaty claims. Contractual issues remain governed by the proper law of the contract, in this case Pakistani law. In
392 Impregilo S.p.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, §199 et seq, RLA-54: “The status of WAPDA as a party to the Contracts is a matter for the law of Pakistan, being both the law by which WAPDA was established and exists, and also the law governing the Contracts.” 393 Impregilo S.p.A. v Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005, §210, RLA-54. See also J. O. Voss, The Impact of Investment Treaties on Contracts Between Host States and Foreign Investors (2010, Martinus Nijhoff), 156, RLA-175: “[T]he determination of the parties to a contractual dispute and consequently, the jurisdiction ratione personae follows the contractual principles as laid down in the host State’s domestic law. In case the host State’s laws determine the particular entity as distinct from the State, this distinction has to be acknowledged by arbitral tribunals that sit over contractual disputes.” 394 Compania de Aguas del Aconquija S.A and Vivendi Universal v Argentine Republic, ICSID Case No. ARB/97/3, Decision on annulment, 3 July 2002, §96, RLA-57.
118 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 120 of 212
particular, the rules on attribution cannot be used to join a third party State to a contract. As the ultimate Special Rapporteur of the ILC State Responsibility Articles, Professor Crawford explains:
“[T]here has … been some confusion, particularly over the relationship between the law of attribution and issues of contractual responsibility or liability … Attribution is an international law doctrine ... When international investment tribunals deal with questions of contractual liability, those questions are governed by the proper law of the contract. The international legal rules on attribution have nothing to do with this inquiry, a point made very clear in several awards, particularly Bayendir v Pakistan. It is often assumed that because a State organ has entered into a contract, the State is therefore responsible for compliance with the contract. This depends, however, on what is specified in the proper law of the contract. In most cases, it is the individual legal entity that has entered into the contract that is responsible for breach. The rules of attribution have nothing to do with questions of contractual responsibility.”395 (emphasis added)
380. Applying these principles, the Generation Ukraine v Ukraine tribunal held:
“The Claimant is entitled to bring a cause of action based on alleged expropriation of its investment by acts performed by Ukrainian municipal authorities. It is an international claim and international rules of attribution apply. But such rules do not operate to join the central government of Ukraine to contractual relationships entered into by municipal authorities.”396 (emphasis added)
381. The Claimant’s dispute, and its core investment, relate to its alleged contract- based rights under the CHEJVA agreements. However, the Respondent is not a
395 J. Crawford, ‘Investment Arbitration and the ILC Articles on State Responsibility’, (2010) 25(1) ICSID Review 127, p.134, RLA-176. See also M. Paparinskis, ‘Investment Treaty Arbitration and the (New) Law of State Responsibility’, (2013) 24(2) European Journal of International Law, 617, pp.627-328, RLA-177: “[I]n a number cases where underlying claims addressed contractual issues, tribunals have mistakenly applied rules of attribution to legal issues outside their proper scope. For example, in the Nykomb v. Latvia case decided under the Energy Charter Treaty, the tribunal seemed to rely on criteria of attribution to establish not only attribution of conduct but also the scope and breach of contractual obligation.” 396 Generation Ukraine v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, §8.12, RLA-105.
119 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 121 of 212
party to those contracts – nor is Balochistan, as already found by the Supreme Court.397
382. In addition, the Claimant has been unable to demonstrate that the alleged conduct of the Claimant’s counterparty under the CHEJVA agreements, whether that be the BDA or the Government of Balochistan, is attributable to the Respondent.
383. The Claimant is, therefore, unable to invoke against the Respondent any alleged contract-based rights as part of its treaty claim.
397 See Annex, Part B, attached, for a detailed explanation, and brief supporting analysis, of the basis of the above findings of the Supreme Court.
120 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 122 of 212
V. LIABILITY
A. INTRODUCTION
384. In addition to the Claimant’s claims falling outside the jurisdiction of, and not being admissible before, the Tribunal, the Claimant also fails to establish a breach of the substantive provisions in the BIT. Contrary to the Claimant’s submissions, the Respondent did not breach the fair and equitable treatment obligation in Article 3(2) of the BIT (see Section V.B below). Nor did the Respondent breach either of the other provisions in the BIT that the Claimant has – more for good measure than any merit – included in its claim, namely, the prohibition on unlawful expropriation in Article 7(1) (see Section V.C below) or the obligation of non-impairment in Article 3(3) (see Section V.D below).
B. THE RESPONDENT DID NOT BREACH THE FAIR AND EQUITABLE TREATMENT OBLIGATION IN ARTICLE 3(2) OF THE BIT
385. Contrary to the impression conveyed by the Claimant, the fair and equitable treatment standard in Article 3(2) of the BIT is not a protection against all problems an investor might believe it has suffered in a host State. As explained in the Respondent’s Counter-Memorial, it is an international law standard with a limited scope, which does not protect any expectation that the investor might harbour vis-à-vis its investment. This Section V.B responds to the Claimant’s analysis of the fair and equitable treatment standard in Article 3(2), and shows how the argument that it was violated is fundamentally flawed. These flaws can be grouped into three categories.
386. First, the Claimant is unable to show that its purported investment was the subject of any alleged wrongful conduct by the Respondent which was in breach of the fair and equitable treatment obligation (see Section V.B.(1) below). Second, the threshold invoked by the Claimant for breach of the fair and equitable treatment obligation is wrong (see Section V.B.(2) below). Third, and in any event, the Claimant’s allegations are insufficient to substantiate a finding that the Respondent has breached the obligation (see Section V.B.(3) below).
121 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 123 of 212
(1) The Claimant is unable to show that its purported investment was the subject of any alleged wrongful conduct by the Respondent which was in breach of the fair and equitable treatment obligation
387. Article 3(2) of the BIT states that the Contracting Parties “shall ensure fair and equitable treatment … to investments” (emphasis added). The Claimant’s fair and equitable treatment claim must be rejected because it has failed to establish the requisite components for the establishment of State responsibility. In particular, the Claimant has failed to show that it made a particular investment and that that investment was the subject of a particular breach of the BIT by the Respondent.
388. It is not enough for the Claimant to allege it has an investment, and then identify conduct on the part of the Respondent which in isolation may or may not have been unfair and inequitable. Rather, the Claimant must show how a particular investment was subjected to particular conduct that was specifically in breach of the fair and equitable treatment obligation. This follows both from Article 3(2) of the BIT, which specifically states that “each party shall ensure fair and equitable treatment in its own territory to investments” and from the general rule of international investment law that “the burden of demonstrating the impact of the state action indisputably rests on the Claimant”.398 The Claimant has signally failed to establish that chain.
389. As explained above, the Claimant has advanced various definitions of its “investment” in Balochistan.399 The Claimant has alleged a breach of the fair and equitable treatment obligation in relation to purported “investments” as vague as a “Mining business” in Pakistan400 and other unspecified contract-based rights.401 Even if these could qualify as “investments”, which is denied, the Claimant has been unable to identify a single instance of alleged wrongful conduct against that particular alleged “investments” capable of constituting a breach of the fair and equitable treatment standard.
398 See, for example, Tokios Tokelés v Ukraine, ICSID Case No. ARB/02/18, Award, 26 July 2007, §121, RLA-178. 399 See Section III.B.(1). 400 Reply, §251. 401 Reply, §§251 and 255; Memorial, §537.
122 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 124 of 212
390. After setting out the correct standard imposed by Article 3(2), the Respondent will show that – even if the Claimant had established a linkage between its undefined investment and some alleged government conduct – such conduct would not constitute a breach of the fair and equitable treatment standard.
(2) The threshold for breach of the fair and equitable treatment obligation proposed by the Claimant is wrong; the threshold is in fact significantly higher
391. The Claimant argues that the standard for breach of the fair and equitable treatment obligation is as articulated by the tribunal in Tecmed v. Mexico.402 This position is wrong. As explained below,403 scholarship has roundly criticised the articulation of the fair and equitable treatment standard in Tecmed v. Mexico, subsequent case law has heavily qualified it, and of course the Tribunal is not obliged to follow it.
392. Douglas, for instance, states:
“[t]he Tecmed ‘standard’ is actually not a standard at all; it is rather a description of perfect public regulation in a perfect world, to which all states should aspire but very few (if any) will ever attain”.404
393. Criticism of the standard is not, however, limited to scholarship. Decisions of arbitral tribunals have also highlighted the erroneous nature of the standard articulated in Tecmed v. Mexico. In Saluka v. Czech Republic, for instance,405 the tribunal bluntly criticised the standard as articulated in Tecmed v. Mexico as
402 Memorial, §395. The Claimant then seeks to defend its position in Reply, §§326-338. 403 The Respondent’s submissions on the appropriate standard to be applied to the fair and equitable treatment obligation (i.e. the customary international law standard) is set out in the Counter- Memorial and therefore are not repeated here. 404 Z. Douglas, Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex, (2006) 22(1) Arbitration International, 27, pp. 27-28, RLA-179. See also J. Roman Picherack, The Expanding Scope of the Fair and Equitable Treatment Standard: Have Recent Tribunals Gone Too Far? (2008) 9(4) Journal of World Investment & Trade 255, p.277, RLA-86. This sentiment is echoed in publications by leading academics and practitioners, as set out in Counter-Memorial, footnote 593. 405 Notably, the Claimant relies on this decision in its Counter-Memorial, §395.
123 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 125 of 212
follows: “if their terms were to be taken too literally, they would impose upon host States obligations which would be inappropriate and unrealistic.”406
394. Other tribunals have imposed limitations on the standard focusing in particular on the extent to which the frustration of an investor’s expectations in relation to its investment can found a breach of the fair and equitable treatment obligation. Five such limitations are relevant to this case.
395. First, an investor’s expectations in relation to its investment cannot be taken in isolation; rather, the extent to which they are reasonable and legitimate must be considered in the context of all the surrounding circumstances. Thus in Duke Energy v. Ecuador, the tribunal held:
“The stability of the legal and business environment is directly linked to the investor’s justified expectations. The Tribunal acknowledges that such expectations are an important element of fair and equitable treatment. At the same time, it is mindful of their limitations. To be protected, the investor’s expectations must be legitimate and reasonable at the time when the investor makes the investment. The assessment of the reasonableness or legitimacy must take into account all circumstances, including not only the facts surrounding the investment, but also the political, socioeconomic, cultural and historical conditions prevailing in the host State. In addition, such expectations must arise from the conditions that the State offered the investor and the latter must have relied upon them when deciding to invest.”407 (emphasis added)
396. Investors must be aware of, and take into account, the level of the host country’s development and its administrative standards. Thus, as the tribunal in Generation Ukraine v. Ukraine explained, it is natural that the prospects of greater profits are accompanied by greater risks, including in the regulatory sphere.408 The investor must conduct its own due diligence, and cannot rely on the terms of an investment
406 Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, §304, CA-44. 407 Duke Energy Electroquil & Electroquil Partners S.A.v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, §340, CA-49. See also UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment (United Nations 2012), p.68, RLA-85. 408 Generation Ukraine v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, §20.37, RLA-105.
124 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 126 of 212
treaty to compensate for its own failings. 409 The tribunal in Parkerings v. Lithuania noted that Lithuania was a State in political transition and that the investor should therefore have regarded changes in the legislative regime as likely. In such circumstances, no expectation that the laws would remain unchanged could be legitimate.410
397. Further, the Tribunal in Genin v Estonia made it clear, in finding that there was no breach of the fair and equitable treatment standard, that it was obliged to take into account the fact that the claimants had knowingly chosen to invest in:
“... a renascent independent state, coming rapidly to grips with the reality of modern financial, commercial and banking practices and the emergence of state institutions responsible for overseeing and regulating areas of activity perhaps previously unknown.”411
398. The golden thread of this circumscription is that a claimant cannot rely on its own subjective expectations. As the tribunal in EDF v Romania criticised:
“Legitimate expectations cannot be solely the subjective expectations of the investor. They must be examined as the expectations at the time the investment is made, as they may be deduced from all the circumstances of the case, due regard being paid to the host State’s power to regulate its economic life in the public interest.”412
399. Second, an expectation, to be a legitimate expectation in the context of the fair and equitable treatment obligation, must be referable to a representation that is made by the State specifically to the investor regarding specific commitments,413 or to a representation or rule that is not specifically addressed to a particular investor but which was made with a specific aim to induce foreign investments
409 MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, RLA-131. 410 Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, §§335-336, RLA-180. 411 Alex Genin et al. v. Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, §348, RLA-93. 412 EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, §219, CA-136. 413 See, for example, Glamis Gold, Ltd. v. United States, UNCITRAL (NAFTA), Award, 8 June 2009, §627, RLA-92.
125 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 127 of 212
and on which the foreign investor relied on.414 Thus, for example, the tribunal in Methanex v United States rejected the claim for breach of the fair and equitable treatment obligation on the basis that Methanex had not been given any representations by the United States on which it could reasonably have relied to conclude that the impugned regulatory changes would not occur.415
400. Third, for a legitimate expectation to arise, the representation must be “crucial for the investment decision”.416 Like the Claimant,417 investors in some cases have relied upon a contractual relationship to argue that they had a legitimate expectation to have their contract performed by the State and that, therefore, any violation of the contract amounted to a violation of the fair and equitable treatment obligation. However, in Parkerings v. Lithuania, the tribunal made clear that “not every hope amounts to an expectation under international law ... [C]ontracts involve intrinsic expectations from each party that do not amount to expectations as understood in international law”.418 In Hamester v. Ghana, the tribunal concurred, finding that “it is not sufficient for a claimant to invoke contractual rights that have allegedly been infringed to sustain a claim for a violation of the FET standard”.419
414 See, for example, Enron Corporation and Ponderosa Assets v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, §§264–266, CA-46; LG&E. Argentina, ICSID Case No. ARB/02/1, Award, 25 July 2007, §§130 and 133, RLA-181. 415 Methanex Corporation v. United States of America, UNCITRAL, (NAFTA), Final Award, 3 August 2005, §IV.D.5.7, RLA-107. 416 CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8, Award, 12 May 2005, §275, CA-15. Numerous other cases have held that representations must have been relied upon by the investor when deciding to invest. See, for example, Enron Corporation and Ponderosa Assets v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, §262, CA-46; CME Czech Republic BV (The Netherlands) v. Czech Republic, UNCITRAL, Partial Award, 13 September 2001, §611, CA-48; Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No ARB(AF)/00/2, Award, 29 May 2003, §154, CA-45; LG&E. Argentina, ICSID Case No. ARB/02/1, Award, 25 July 2007, §127, RLA-181. For example, in Continental Casualty v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008, the tribunal dismissed the FET claim inter alia because the general legislative provisions had not been “the basis on which Continental had relied in making its investment in Argentina” (§259), RLA-182. 417 It is common ground that the contract relied upon by the Claimant – the CHEJVA – is not with the Respondent. The implications of this for attribution and State respondent are discussed in Section IV above. 418 Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, §344, RLA-180. 419 Gustav F W Hamester GmbH & Co KG v. Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010, §337, CA-7.
126 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 128 of 212
401. Fourth, the investor’s expectations must be balanced against the legitimate regulatory goals of the host State. The duty to provide fair and equitable treatment cannot prevent a host State wholesale from acting in the public interest, even if such acts may adversely affect the operations of an investor.420 In Saluka v Czech Republic, the tribunal explained that:421
“In order to determine whether frustration of the foreign investor’s expectations was justified and reasonable, the host State’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration as well. ... The determination of a breach of Article 3.1 by the Czech Republic therefore requires a weighing of the Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interests on the other.” 422
402. Fifth, the investor’s conduct must be taken into account. Bilateral Investment Treaties “are not insurance policies against bad business judgments”. 423 In particular, the Tribunal must take into account whether the investor has satisfied the following three duties:
“a duty to refrain from unconscionable conduct, a duty to engage in the investment in light of an adequate knowledge of its risks, and a duty to conduct its investment in a reasonable manner”.424
403. The above circumscriptions of the material scope of the fair and equitable treatment obligation are not only reasonable and correct as a matter of doctrine, but also have direct relevance to the present case.
420 First Statement of Mr Khokhar, §19. 421 Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, CA-44. 422 Ibid, §§304-308. See also Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, §§332-338, RLA-180; Continental Casualty v. Argentina, ICSID Case No. ARB/03/9, Award, 5 September 2008, §258 RLA-182; Compañia de Aguas del Aconquija, S.A. & Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 August 2007, §7.4.31, CA-52; EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, §§217-237, CA-136. 423 Emilio Agustin Maffezini v The Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000, §64, RLA-130. 424 P. Muchlinski, ‘Caveat Investor?’ The Relevance of the Conduct of the Investor Under the Fair and Equitable Treatment Standard, (2006) 55 ICLQ 527, at p.530, RLA-183.
127 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 129 of 212
(3) The Claimant’s allegations are insufficient to substantiate a finding that the Respondent has breached the fair and equitable treatment obligation
404. Even ignoring the Claimant’s incorrect articulation of the standard for breach of the fair and equitable treatment obligation (see Section V.B.(2) above), and failure to establish any real connection between the Respondent’s conduct and the Claimant’s putative investment (see Section V.B.(1) above), the Claimant’s allegations are insufficient to substantiate a finding that the Respondent has breached the obligation. This is because: first, a legitimate expectation does not arise from the Governments’ so-called “assurances” invoked by the Claimant in this case (see Section V.B.(3).(a) below); and second, the impugned conduct of the Respondent was not wrongful and therefore did not breach the fair and equitable treatment obligation as it did not constitute wrongfulness under the BIT (see Section V.B.(3).(b) below).
a) A legitimate expectation does not arise from the Governments’ so-called “assurances” invoked by the Claimant in this case
405. The Claimant asserts, as its principal submission, that it had a legitimate expectation of a “right to mine” Reko Diq as a result of various so-called “assurances” by the Governments. This argument must fail because no such legitimate expectation can arise from any conduct of the Governments. This is so for several reasons. First, as a non-party, the Respondent cannot be bound by any purported representations arising out of, or obligations imposed, by the CHEJVA agreements (see Section V.B.(3).(a).(i) below). Second, no representations were made that reduced “routine Government requirements” in the CHEJVA to mere administrative niceties (see Section V.B.(3).(a).(ii) below). Third, no purported “assurance” could have legitimately been construed as trumping the BMR, as the Respondent made clear any attempt to do so would have been legally impossible (see Section V.B.(3).(a).(iii) below).
128 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 130 of 212
i. The Respondent cannot be bound by expectations arising out of the CHEJVA agreements
406. First, the Respondent was not a party to the CHEJVA agreements, as readily recognised by the Claimant in its Reply.425 The CHEJVA was signed by BHP and the BDA on its own behalf on 29 July 1993. The Addendum was signed by BHP and twice by the Chairman of the BDA, once on its own behalf and once, purportedly, on behalf of the Government of Balochistan on 4 March 2000.426 The Novation Agreement was signed on 1 April 2006 with the BDA – purportedly on behalf of the Government of Balochistan – and BHP.427 The Respondent was not a party to any of these agreements.
407. Nor did the CHEJVA bind the Government of Balochistan, for the reasons given by the Supreme Court as described above. 428 Indeed, it concluded, after a thorough examination of the facts that:
“Having examined this aspect of the matter in some detail, we find that the GOB was not a party to CHEJVA, therefore, GOB could not be said to have entered into an agreement with any company or a prospective licensee of the nature referred to in CHEJVA or the Addendum”.429 (emphasis added)
408. The only authority capable of being bound by CHEJVA – and consequently any expectations arising out of it – was the BDA. Indeed, the Supreme Court has conclusively determined, as explained above, that:
“It is clear that CHEJVA was made between BDA and BHP alone for all practical purposes, and not between GOV through BDA and BHP”.430
425 Reply, §497. 426 Addendum No. 1 to Chagai Hills Exploration Joint Venture Agreement, 4 March 2000, CE-02. 427 Novation Agreement to Chagai Hills Exploration Joint Venture Agreement, 1 April 2006, CE-03. 428 See Section II.E above. Supreme Court Judgment, 10 May 2013 §§69-71, citing the definition of “Parties” in Clause 1.1. of the CHEJVA (“both BHPM and the BDA”), the numerous clauses referring to the Provincial Government as a third party and the fact that the Governor of Balochistan’s purported unilateral authorisation for the Chairman of the BDA to sign the Addendum on behalf of the Provincial Government was “untenable in law”, Ex RE-18. 429 Supreme Court Judgment, 10 May 2013, §88, Ex RE-18. 430 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18.
129 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 131 of 212
409. The Provincial Government could never have validly authorised the Chairman of the BDA to contract on its behalf.431 Aside from the fact that the BDA is not party to these proceedings, it also had no power to guarantee the grant of a mining lease. The power to grant a mining lease falls exclusively within the mandate of the Licensing Authority.432 The BMR provide a formal procedure for the grant of a mining lease.433
410. It follows that it is impossible for the Respondent to be bound by an expectation arising from an agreement to which it was not a party. Consequently, no (legitimate) expectations can have arisen from the CHEJVA agreements.
411. Second, the CHEJVA was a void and illegal agreement.434 Consequently, the Novation Agreement was also illegal and void ab initio, and the Joint Venture ceased to exist and could not be the holder of any rights under Exploration Licence EL-5.435 The Addendum and Novation Agreement were also void for fundamental mistake under section 20 of the Contract Act 1872.436 Similarly, the relaxations granted to BHP, from which the Claimant benefited, were illegal under Rule 98 of the Balochistan Mining Concession Rules 1970.437
412. The Claimant argues that for the purposes of assessing whether the Governments’ assurances gave rise to legitimate expectations, it is irrelevant whether the Supreme Court declared the CHEJVA agreements void.438 In support of this proposition, the Claimant has pointed to case law purportedly establishing that liability under international law will arise even if the acts or representations are
431 See Section II.E above. Any attempt to do so was ultra vires rule 7 of the Balochistan Rules of Business 1976. See, Supreme Court Judgment, 10 May 2013, §88, Ex RE-18. Further, even if the Government was a party to the CHEJVA, it could have transferred its interest in it to a private party. In such a context, any expectation of a guaranteed Mining Lease could hardly be legitimate. 432 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48, Ex RE-1. 433 Balochistan Mineral Rules 2002, dated 9 March 2002, rules 47 and 48, Ex RE-1. 434 See Section II.E above. In light of the non-competitive and non-transparent circumstances of its conclusion, the fact that it was undisputed that certain terms were in violation of the Balochistan Mining Concession Rules 1970, the CHEJVA and Novation Agreement was opposed to public policy, and therefore unlawful and void under section 23 of the Contract Act 1872. Supreme Court Judgment, 10 May 2013, §§44, 59-60, Ex RE-18. 435 Supreme Court Judgment, 10 May 2013, §§36, 122, Ex RE-18. 436 Supreme Court Judgment, 10 May 2013, §§69, 75, Ex RE-18. 437 Supreme Court Judgment, 10 May 2013, §39, Ex RE-18. 438 Reply, §370.
130 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 132 of 212
considered illegal as a matter of domestic law. 439 The correct statement of doctrine is that liability under international law may arise even if the acts or representations are considered legally non-existent or null and void or susceptible to invalidation as a matter of domestic law.440 This is not one of those cases, for all the reasons explained in this pleading. It is important to recall, in particular, that the finding of voidness and illegality in this case was made by the Supreme Court of Pakistan – not by a first instance court or by Executive decision (as in SPP v Egypt). The Supreme Court of Pakistan is one of the most fiercely independent courts in the Commonwealth. No claim for denial of justice has been, or could legitimately be, articulated in respect of the substance of the Supreme Court’s decision. In fact, the Claimant should have been well aware of the invalidity of the CHJEVA agreements from the time it first entered the market.
413. Third, even if the CHEJVA were valid and the Respondent could be bound by it, no legitimate expectation to a guaranteed “right to mine” can be gleaned from the terms of the CHEJVA. Clause 11.8.2 of the CHEJVA provided that:
“subject only to compliance with routine Government requirements, it shall be entitled to convert the relevant Licence(s) held by it into Mining [Leases] so as to give secure title over the requirement Mining Area”.441
414. These “routine Government requirements” are entrenched in the BMR,442 and in particular Rules 47 and 48 – by which the Claimant expressly undertook to abide. 443 Even a cursory reading of these Rules reveals that the Licensing Authority is obliged to reject mining lease applications unless several objective (e.g. the failure to show that a mine could be “profitably developed and operated”
439 Reply, §§370-371. 440 In this connection, the Claimant has, once again, selectively quoted from an authority. As the tribunal in Southern Pacific Properties (Middle East) Ltd. v. Egypt, ICSID Case No. ARB/84/3, Award, 20 May 1992 pp. 82-83, CA-150 noted: “It is possible that under Egyptian law certain acts of Egyptian officials, including even Presidential Decree No. 475, may be considered legally nonexistent or null and void or susceptible to invalidation”. 441 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, CE-01. 442 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48, Ex RE-1. 443 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206.
131 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 133 of 212
and the failure to address ‘value addition’) and subjective (e.g. that the mining lease application is “satisfactory” and “in the interest of the development of the mineral resources of Balochistan”) requirements are satisfied.
415. As explained in further detail below, 444 BMR 9 invalidates any agreement contrary to the BMR:
“(5) Any provision contained in a mineral agreement which is inconsistent with any provision of these rules or any other law shall, to the extent of the inconsistency, be of no force or effect.
(6) Nothing contained in a mineral agreement shall be construed as absolving any party thereto from complying with any requirement laid down by law or from applying for, and obtaining, any licence, approval, permission or other document required by law.”
416. An investor must perform its due diligence when investing in a State.445 It must therefore be deemed to have been aware of the legal framework within which it was operating. Accordingly, as explained below,446 the Claimant was or should have been aware of the BMR provisions. No legitimate expectation of a guaranteed right to mine could, therefore, have arisen from the CHEJVA.
417. As the Respondent will explain, the Claimant’s attempt to reduce “routine Government requirements” in the CHEJVA to mere administrative niceties must fail. Any expectation to this effect therefore cannot have been legitimate and cannot be relied upon.
ii. No representations were made that reduced “routine Government requirements” in the CHEJVA to mere administrative niceties
418. In the Counter-Memorial, the Respondent explained in clear and irrefutable terms that the CHEJVA can only be read as granting a right to apply for a Mining
444 See Section V.B.3.a.iii below. 445 Alex Genin et al. v. Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001, §348, RLA-93; Generation Ukraine v Ukraine, ICSID Case No. ARB/00/9, Award, 16 September 2003, §20.37, RLA-105.; MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, RLA-131; Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award, 11 September 2007, §§335–336, RLA-180; EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, §219, CA-136. 446 See Section V.B.3.a.iii below.
132 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 134 of 212
Licence, subject to fulfilment of “routine Government requirements” and other contractual pre-conditions. It certainly did not guarantee a “right to mine”.447 In reply, the Claimant’s pleadings are peppered with disingenuous attempts to reduce “routine Government requirements” to, effectively, an administrative rubber stamp. This attempt on the part of the Claimant cannot succeed. This is so for four reasons.
419. First, apart from the clarity of the text of the CHEJVA,448 the Claimant’s own conduct illustrates that it well knew that any mining lease application would need to comply with the BMR.
a. The Claimant sought to negotiate a Mineral Agreement in an unlawful attempt to obtain a guaranteed right to mine. It would not have attempted this manoeuvre if it already had such a right under the CHEJVA or if an application to obtain a Mining Lease under the BMR were a mere formality.449
b. The Claimant communicated to the Governments its desire for the BMR to be amended so that it would not override any stability provisions in its proposed Mineral Agreement, including avoiding any “discretionary actions” under the BMR. 450 It clearly sought such amendments because it realised that there were discretionary and subjective elements in the BMR that could be used to reject a mining lease application.451
447 See Section III. B above. Counter-Memorial, § 139. 448 Clause 11.8.2 of the CHEJVA provided that “subject only to compliance with routine Government requirements, it shall be entitled to convert the relevant Licence(s) held by it into Mining [Leases] so as to give secure title over the requirement Mining Area”: Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Clause 11.8.2, CE-01. 449 See Section II.A.1 above. 450 Minutes of Operating Committee Meeting held on 26 October 2007, p.2, CE-64. 451 Indeed, the Claimant continues to describe the prescriptions in the BMR as the “routine requirements”: Reply, §341.
133 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 135 of 212
c. The Claimant gave an undertaking to abide by the BMR “as approved/amended from time to time”.452 Given that the key obstacle to its acquiring a Mining Lease was compliance with Government requirements, the Claimant’s giving of this undertaking confirms that it regarded the BMR as one such Government requirements, and not a mere formality or rubber stamp.
d. If the CHEJVA gave the Claimant a guaranteed “right to mine”, the Claimant would have stated as much in the Mining Lease Application.
420. Second, under the BMR it is clear that no such guaranteed right to mine could exist. In particular, BMR 48(3) is explicit that significant, mandatory and in some instances subjective Government requirements had to be satisfied before a mining lease can be granted.
“(a) … a mining lease shall not be granted unless …
(i) the feasibility studies show that the mine can be profitably developed; (ii) the proposed plan for development and operation of the mine and the programme of the mining operations of the application will ensure the efficient, beneficial and timely use of mineral resources; (iii) the applicant in question has or can obtain the technical and financial resources and experience to carry out mining operations effectively; (iv) the applicant is a fit and proper person to hold the lease; (v) the proposals submitted with the application are satisfactory; and (vi) it is in the interests of the development of the mineral resources of Balochistan to grant the lease; (vii) a concrete proposal for value addition for the Ore to be produced/exploited from the applicant’s mining ease within the country is submitted, or if the facility is not available in the province, the Ore could be taken out of the province with the prior approval of the Provincial Government;
(b) If at the time of the application the applicant in question is in default”.453
452 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 453 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3), Ex RE-1.
134 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 136 of 212
421. On their face, these Government requirements for the grant of a Mining Lease are not mere formalities or administrative niceties. The Claimant shies away from this reality. It disingenuously suggests that relaxations made to the Balochistan Mining Concession Rules 1970, prior to its undertaking to abide by the new BMR as amended from time to time, 454 mean that a guaranteed “right to mine” existed.455 This is so even though it is obvious that the power to relax the BMR, which existed under Rule 98 of the Balochistan Mining Concession Rules 1970, was intentionally excluded from the BMR.456
422. The Claimant’s assertion is also directly at odds with the fact that, fully aware of the existence of the BMR and its strictures on the grant of a Mining Lease, the Claimant undertook to abide by them and submitted a Mining Lease Application and Feasibility Study pursuant to the BMR (without making reference to such relaxations).
423. Moreover, as the Respondent explained in its Counter-Memorial, it is widely known that the BMR confer upon the Licensing Authority a broad discretion in deciding whether to grant or refuse mining leases. 457 The World Bank, for example, has explicitly recognised that the transfer from an exploration licence to a mining lease in Pakistan is far from guaranteed. In its report on Pakistan’s policy on the development of its mineral sector, the World Bank concluded that “provincial rules”, such as the BMR:
“include as a criteria [sic] for the grant of a mining lease that it must be ‘in the best interest of the development of the mineral resources of [the province] to grant the lease.’ This criterion introduces a discretionary element into the procedure for granting mining rights to an investor who has completed a successful exploration program. … [I]t may be impossible for an applicant to effectively respond to a determination that the development of a particular
454 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 455 Reply, Section II.B. The Claimant doubly relies on this theory when it also maintains that the Respondent and Balochistan allegedly affirmed that it had a right to mine – a position which is wrong for the reasons discussed in Section V.B.3.a below. 456 First Statement of Mr Khokhar, §§13-14. 457 Counter-Memorial, §190.
135 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 137 of 212
mine is not in the best interests of the province. That determination is essentially a political one.”458 (emphasis added)
424. The BMR is a reflection of the political and socio-economic conditions prevailing in Pakistan and, specifically, Balochistan.459 BMR 48(3) was clearly drafted with a view to enhance the “development of the mineral resources of Balochistan” and to ensure “the efficient, beneficial and timely use of mineral resources”.460 This is a clear manifestation of Balochistan’s power to regulate its economic life in the public interest.461 This is also entirely consistent with the preambular paragraphs of the BIT, which specifically include:
“RECOGNISING the importance of promoting the flow of capital for economic activity and development and aware of its role in expanding economic relations and technical co-operation between them, particularly with respect to investment by investors of one Party in the territory of the other Party” (emphasis added)
425. This is supported by the explanation given by Mr Khokhar of the reason for existence of the subjective requirements in BMR 48:
“The Licensing Authority’s discretion under the BM Rules 2002 is broader than that provided for under the Punjab Mining Rules. We were conscious of the need to ensure that mineral development takes place while keeping in view of unique socio-economic scenario of Balochistan. A quick comparison of Article 48 in each of the Punjab and Balochistan Rules makes it plain that the latter was crafted to
458 World Bank Report, Republic of Pakistan, Mineral Sector Development Policy Note, 20 November 2003, p.22, Ex RE-65. See also “Legal and Fiscal Framework to Attract Investment”, presentation given by Mr van der Veen, Mining Policy Division, The World Bank Group, 15-16 December 2003, p.12, Ex RE-154: “[The] Rights Granting System [for] Transfer from expl[oration] to mining … [is] … conditions to [the] best interest of the province … [rather than] automatic.” See also First Statement of Mr Khokhar, §28. 459 See Section V.B.2 above. See Duke Energy Electroquil & Electroquil Partners S.A.v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award, 18 August 2008, §. 340, CA-49; UNCTAD Series on Issues in International Investment Agreements II, Fair and Equitable Treatment (United Nations 2012), p.68, RLA-85: the Claimant’s expectations must take into account “political, socioeconomic, cultural and historical conditions prevailing in the host State.” 460 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3), Ex RE-1. 461 EDF (Services) Limited v Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009, §219, CA-136 “[l]egitimate expectations cannot be solely the subjective expectations of the investor. They must be examined as the expectations at the time the investment is made, as they may be deduced from all the circumstances of the case, due regard being paid to the host State’s power to regulate its economic life in the public interest”.
136 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 138 of 212
maintain greater regulatory discretion for the Balochistan Licensing Authority.”462
426. Third, the Claimant’s preferred construction is directly inconsistent with its understanding that the CHEJVA was merely a joint venture for exploration activities. The Claimant has previously conceded that it had merely a right to apply for a Mining Lease. For example, in its Reply, the Claimant states that it has:
“never claimed an automatic right to mine a specific, pre-determined area, but rather the right to receive a mining lease upon the submission of an application that met all applicable requirements.”463
427. Similarly, the Claimant explicitly recognises – in its Feasibility Study and elsewhere – that “TCCP has the right to apply for the granting of a Mining Lease”464 and that “A M[ining] L[ease] will not be granted unless the [applicable] conditions are met”:465
“GOB has not sold the Reko Diq project to any foreign company including TCC … The CHEJVA is an example of a common form of agreement with respect to exploration for minerals … The Parties to the CHEJVA have the right to apply for a Mining Lease in conformity with the provisions of the BMR 2002 and consistent with the terms of the CHEJVA.”466
428. For the foregoing reasons, it is obvious that the Claimant did not have a guaranteed “right to mine” pursuant to the CHEJVA. It only had a right to apply to a mining lease under the CHEJVA (if valid), which application would be routinely decided in light of the Government requirements in the BMR, as amended from time to time.
462 First Statement of Mr Khokhar, §19. 463 Reply, §362. 464 Feasibility Study, dated August 2010, Ch. 1.8.5, p.22, CE-97; and Ch. 3, Ex RE-60. 465 Feasibility Study, dated August 2010, Ch. 3.2.1, Ex RE-60. 466 TCC’s Para-wise Comments to the Special Report Published in ‘The News’ dated 3 November 2010, pp. 3, 7, Ex RE-155: “GOB has not sold the Reko Diq project to any foreign company including TCC … The CHEJVA is an example of a common form of agreement with respect to exploration for minerals. … The Parties to the CHEJVA have the right to apply for a Mining Lease in conformity with the provisions of the BMR 2002 and consistent with the terms of the CHEJVA.”
137 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 139 of 212
iii. No purported “assurance” could have legitimately been construed as trumping the BMR, as the Respondent made clear any attempt to do so would have been legally impossible
429. Both in its Memorial and Reply,467 the Claimant has pointed to a number of so- called assurances or affirmations, upon which it seeks to found its entitlement to an absolute right a mining lease. This argument, in the context of an alleged breach of the fair and equitable treatment obligation, seeks to allow the Claimant’s alleged expectations in respect of mining in the Reko Diq area to trump the routine (i.e., usual) application of the Government requirements in the BMR. In truth, however, nothing the Respondent did could have given rise to a legitimate expectation that the Claimant had a guaranteed “right to mine”. This is obvious for two reasons.
430. First, the Claimant knew 468 that the BMR contained the routine Government requirements that would be applied, by dint of their mandatory legislative status, to any Mining Lease Application. BMR 9 made plain that even a Mineral Agreement dispensing with these requirements would be ineffective. As a result, the Claimant cannot possibly have legitimately relied on putative assurances and affirmations to the effect that the mandatory Government requirements in the BMR could somehow be waived in relation to its project.
431. The Claimant was – or should have been – well aware of the existence of the BMR requirements. They were obvious on the face of the BMR. They were also publicised in a Joint Policy Note from the World Bank and MPNR in 2003:
“all of [the provincial rules] include as a criteria for the grant of a mining lease that it must be “in the best interest of the development of the mineral resources of [the province] to grant the lease.” This criterion introduces a discretionary element into the procedure for granting mining rights to an investor who has completed a successful exploration program.”
467 Memorial, §§424-425; Reply, §§348-354. 468 Or should have known, as discussed in MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, RLA-131.
138 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 140 of 212
Although this provision may simply reflect the political reality that exists in all legal regimes for mining – whether or not it is expressed – the effect of such a provision on investors is to increase the perception of political risk associated with developing a commercial mineral deposit in Pakistan. That perception will deter some investors altogether from considering Pakistan as an acceptable investment environment, and will increase the cost of capital to those investors who proceed with minerals exploration and mining in Pakistan.”469
432. Put simply, in light of the clear terms of BMR 48 and the Policy Note co-authored by the MPNR, the Claimant cannot reasonably have held a legitimate expectation that satisfying these requirements would be a given. Put another way, it is hard to understand how the Claimant could hold any such expectation in the presence of contrary representation from the MPNR in the above Joint Policy Note.
433. Nevertheless, in a presentation to the Supreme Court of 25 January 2011, the CEO of the Claimant stated that:
“We came in and did this massive exploration and feasibility work due to a certain sense of security. Security that at the end of the day, if were successful (as we did), we would have the certainty to be awarded the right to shape a mining-processing business and carry this business out during the life of the mine. Under that sense of security and stability, we spent $220 million in exploration and feasibility work. We came in because of the investor friendly Balochistan Mineral Rules.”470
434. Mr Borries’ expectation that “if we were successful [in our exploration work], we would have the certainty to be awarded the right to shape a mining-processing business and carry out this business during the life of the mine” (emphasis added) is totally unrealistic in view of the clear terms of the BMR and the Policy Note. Likewise, it was disingenuous of Mr Borries to suggest that the Claimant entered Balochistan because the BMR were “investor friendly”471 whilst simultaneously seeking to negotiate a Mineral Agreement that sought to trump and/or amend the BMR.
469 World Bank Report, Republic of Pakistan, Mineral Sector Development Policy Note, 20 November 2003, p.22, Ex RE-65. 470 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, pp. 58-59, Ex RE-58(ix)(b). 471 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, pp. 58-59, Ex RE-58(ix)(b).
139 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 141 of 212
435. Incidentally, Mr Borries’ position is at odds with the Claimant’s clearly stated objective during the Mineral Agreement negotiations, which openly recognised the possibility of discretionary action by the authorities in Balochistan:
“a meaningful Mineral Agreement requires giving the foreign investors and international lenders the confidence that the principles of legal stability, financial predictability, and avoidance of damaging discretionary actions are embodied in the agreement …”472 (emphasis added)
436. Put simply, either the Claimant failed to notice the obvious subjective requirements in the BMR (lack of due diligence) or it knew full well the potential impact of those requirements (knowledge that the alleged expectation was unreasonable).
437. Second, as a matter of substance, the Claimant’s arguments in relation to the alleged “assurances” and “affirmations” on which it seeks to rely are weak.
a. At paragraph 349 of its Reply, the Claimant provides a further “example” of an affirmation of its “right to mine” Reko Diq. That example is a sentence in the 1995 National Mineral Policy, stating that “[w]here the Licensing Authority considers that the applicant has satisfied the specified criteria for assessment and grant of an ML, the ML will be granted”. 473 This statement does not advance the Claimant’s case on legitimate expectation. It simply reiterates the point that the Respondent has emphasised throughout this arbitration namely, that there was no guaranteed “right to mine” because a mining lease can only be granted after the Licensing Authority has determined whether the criteria of BMR 48(3) have been satisfied. Nothing in this “example” can seriously be taken as the source of an expectation, legitimate or otherwise, that the Claimant had a right to mine Reko Diq.
b. At paragraph 350 of its Reply, the Claimant seeks to rely on the fact that Balochistan took some regulatory steps prior to the decision on the
472 Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64. See also Reply, §133. 473 Reply, §349.
140 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 142 of 212
Mining Lease Application, such as renewing EL-5. Again, the Claimant cannot seriously maintain that this created an expectation that it would be awarded an entirely different, and much longer-lasting mineral title (i.e. a Mining Lease). Rather, the difference that the Claimant’s argument highlights between regulatory actions leading up to the Mining Lease Application, and the decision on the Mining Lease Application itself, only illustrates that the Claimant never had a right to mine and, at best, only had a right to apply for a mining lease under the CHEJVA.
c. At paragraph 351 of its Reply, the Claimant alleges that it relied on “extended negotiations” with the Respondent and Balochistan over the terms of a Project/Shareholders Agreement and the Mineral Agreement. Ultimately, however, these negotiations failed, as the proposed parties to them were unable to reach agreement on crucial issues, such as the lack of value addition in the form of an in-country smelter/refinery. If anything, the failure of these negotiations, in a context where the Claimant was pursuing them in order to circumvent the need to submit a mining lease application confirms that the Claimant never had a right to mine.474
d. At paragraph 352 of the Claimant’s Reply, the Claimant quotes the three “affirmations” made in legal proceedings in Pakistan. Not one represents, let alone waives, either the qualification contained in the CHEJVA, namely that the grant of a right to mine is subject to the regular application procedure (“routine Government requirements”), or the conditions imposed by the BMR. The Claimant therefore cannot possibly have relied upon them. In the Memorial, the Claimant asserts that it relied on a 23 January 2009 Working Paper. It selectively emphasises from its own quote, italicising the words “[the licence holder is] legally entitled [to the] conversion of prospecting license into mining lease” yet failing to italicise the two qualifiers within the very same sentence, namely “once the area is proved” and especially
474 See Section II.A above.
141 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 143 of 212
only after “certain laid down requirements under the rules are fulfilled by the licence”.475
e. At paragraph 353 of its Reply, the Claimant lists a number of “assurances” by various officials. The Claimant again blatantly distorts the evidence. First, it is clear that the Federal Government’s officials had no power to give assurances in relation to mineral titles as the competence vests with the Provincial Governments. For the reasons explained above, the Claimant must have been aware of this. Consequently, no such reliance can have arisen out of the statements of those officials.476 Even if the relevant officials had power to intervene and opine on the grant of mineral titles, none of the statements cited by the Claimant contain a representation that it had the right to mine. It is natural that the President and Prime Minister would make general statements encouraging the Claimant to pursue investment in Pakistan and enter into appropriate projects. Similarly, the President’s statement that a mining project in the Reko Diq area would have protection could and did not confer on the Claimant an extra- contractual and illegal right to one of the largest untapped copper deposits in the world. These general statements cannot engender an expectation that the Claimant had a guaranteed right to mine.
438. The disjunction between the Claimant’s desire to justify an expectation which it could not seriously have had and the evidence in this case reflects a broader problem in the Claimant’s arguments, namely, the lack of specificity of any purported assurance given by the Respondent. The Claimant has been unable, anywhere in its submissions, to define the scope and contours of its purported guaranteed “right to mine”. 477 The Claimant certainly points to no specific assurance or affirmation that the subjective requirements in BMR 48(3) would not apply.
475 Meeting Notice: Second Meeting of Steering Committee on Reko Diq Copper Gold Project, Balochistan, with attachments, dated 13 January 2009, CE-69; as quoted by the Claimant at Memorial, §424. 476 Reply, §353. 477 Nor, for the sake of completeness, how it is capable of constituting an investment.
142 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 144 of 212
439. The alleged “assurances” and “affirmations” on which it seeks to rely are general and non-committal. It is inconceivable that one of the largest mining conglomerates in the world would rely on such non-committal and unspecific statements as the core of its much-touted “right to mine”. That the Claimant does so in this arbitration is no more than a litigation strategy, designed to obtain ex post facto insurance from the Respondent against its own bad business judgement and its inability to satisfy (or even come close to satisfying) basic Government requirements necessary for the grant of a Mining Lease.478
440. It appears that the Claimant misread the BMR and concluded that they contained only “objective criteria”. 479 It cannot legitimately shelter behind alleged assurances and affirmations to conceal its own crass failure to understand the clear legal framework into which its alleged investment was made.
441. To quote from Noble Ventures Inc v Romania,480 if the Claimant believed that the BMR requirements were a mere formality, then its assumption is “fundamentally flawed”.481 The tribunal in that case held that on this basis the claimant could not make out a claim that Romania had breached the fair and equitable treatment standard (or the expropriation provision) under the US-Romania BIT. It found that on the evidence, it was clear that without the satisfaction of key requirements (in that case, a restructuring), the collapse of the relevant project was “all too readily foreseeable”.482 In the present case, the Claimant knew all too well that the BMR requirements were not a mere formality. However, even on the unlikely premise that it so thought, its assumption was fundamentally flawed and cannot be relied upon to found a breach of the fair and equitable treatment standard.
478 See Section II.C above. 479 Second statement of Ms Cassie Boggs, §3: “Through our review of the Rules and our discussions with the Governments, we understood that as a holder of an exploration license, TCC was entitled to the grant of a mining lease on submission of an application fulfilling certain objective criteria set forth in the BM Rules …”. 480 Noble Ventures Inc. v Romania, ICSID Case No ARB/01/11, Award, 12 October 2005, RLA-75. 481 Noble Ventures Inc. v Romania, ICSID Case No ARB/01/11, Award, 12 October 2005, §152, RLA-75. 482 Noble Ventures Inc. v Romania, ICSID Case No ARB/01/11, Award, 12 October 2005, §152, RLA-75.
143 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 145 of 212
b) In any event the impugned conduct of the Respondent did not breach the fair and equitable treatment obligation
442. Even if a legitimate expectation were capable of arising from the Respondent’s so-called “assurances” invoked by the Claimant in this case, the impugned conduct of the Respondent did not breach the fair and equitable treatment obligation.
443. Contrary to the Claimant’s assertions, there were legitimate reasons for the Licensing Authority to reject the Mining Lease Application (see Section V.B.(3).(b).(i) below). There was no plan on the part of the Respondent or Balochistan to “oust TCCA” from Reko Diq to implement Balochistan’s own project (see Section V.B.(3).(b).(ii) below). The Claimant was not denied due process rights (see Section V.B.(3).(b).(iii) below). Further, the Respondent’s and Balochistan’s conduct in the Supreme Court proceedings and the Supreme Court’s Judgment did not breach the fair and equitable treatment obligation (see Section V.B.(3).(b).(iv) below). Finally, the Claimant’s own conduct precludes a finding of breach of the fair and equitable treatment obligation (see Section V.B.(3).(b).(v) below).
i. There were legitimate reasons for the Licensing Authority to reject the Mining Lease Application
444. The Claimant argues that the Licensing Authority arbitrarily rejected the Mining Lease Application. 483 The ordinary meaning of “arbitrary”, according to the Oxford Dictionary is “capricious”, “unrestrained”, “despotic”. 484 It has been described in the arbitral context as “founded on prejudice or preference rather than on reason or fact”.485
445. In the ELSI case, the International Court of Justice made clear that where some rational relationship to the alleged objective of a measure can be established, this
483 Memorial, §§448-488; Reply §§405-431. 484 The Compact Oxford English Dictionary (2nd ed, 1994, Clarendon Press, Oxford), vol. XVIII, p. 602, RLA-184. 485 Lauder v. Czech Republic, UNCITRAL, Award, 3 September 2001, § 221, CA-62.
144 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 146 of 212
should be sufficient for a measure to be considered non-arbitrary, even if it is unwise, inefficient, or not the best course of action in the circumstances.486 This was also emphasised by the tribunal in Enron v. Argentina, 487 which, when analysing Argentina’s measures taken in the context of the 2000-2002 financial crisis, held that:
“The measures adopted might have been good or bad … but they were not arbitrary in that they were what the Government believed and understood was the best response to the unfolding crisis. Irrespective of the question of intention, a finding of arbitrariness requires that some important measure of impropriety is manifest, and this is not found in a process which although far from desirable is nonetheless not entirely surprising in the context it took place.”488
446. There can be no doubt that the Licensing Authority’s rejection of the Mining Lease Application was far from “capricious”, “unrestrained”, “despotic”. 489 Rather, to use the International Court of Justice phrasing, the rejection was a rational means by which to achieve the objective of ensuring that a Mining Lease was granted only upon fulfilment of the mandatory conditions in the BMR.
447. As discussed above, 490 BMR 48(3) mandatorily prohibited (“shall not”) the Licensing Authority from granting a mining lease unless various subjective and objective conditions set out therein were met. The Claimant was – or should have been – well aware of these requirements both at the time of making its purported investment and the Mining Lease Application. The Feasibility Study submitted by TCCP as part of the Mining Lease Application was manifestly deficient, and clearly did not satisfy the conditions for a grant of a Mining Lease. Four deficiencies merit particular attention.
486 Elettronica Sicula S.p.A (ELSI) v. Italy, ICJ (United States of America v. Italy), Award, 20 July 1989, RLA-99. 487 Enron Corporation and Ponderosa Assets v. Argentine Republic, ICSID Case No. ARB/01/3, Award, 22 May 2007, §§264–266, CA-46. 488 Ibid, §281, CA-46. LG&E. Argentina, ICSID Case No. ARB/02/1, Award, 25 July 2007, which is quoted by the Claimant in support of it’s the proposition that arbitrariness forms part of the FET standard (Memorial, §411), the tribunal reiterated this view (at §162) RLA-181. In both these cases, the tribunals found that the host State’s conduct was not arbitrary. 489 The Compact Oxford English Dictionary, 1994, Second Edition, Clarendon Press, Oxford, vol. XVIII, p. 602, RLA-184. 490 See Section I.C above.
145 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 147 of 212
448. First, the Claimant was fully aware that the Feasibility Study supporting the Mining Lease Application had to cover not merely H14 and H15, but rather the entirety of the discovered deposits within the area of EL-5 and the Mining Lease Application.
“With EL-5 to expire in February, 2008 the Applicant will be able to commence activities for drawing up the Feasibility Study in the first renewal period but will not be able to complete the same given the time that will be needed to carry out the Feasibility Study to tie the development of all the deposits, which are spread over a large area of EL-5 … together into one mining project … the Applicant considers that it requires a renewal for the full three year period over 90% of the existing EL-5 area to be in a position to fully develop the discoveries.”491 (emphasis added)
449. This awareness reflected the BMR requirement that: “An application for the renewal of a licence shall … not be made … in the case of a second renewal, unless the applicant can satisfy the authority that such a renewal is necessary for the completion of a full feasibility study of the discovered deposits …” (emphasis added).492
450. The Claimant also acknowledged in the Feasibility Study that “[t]he objectives of the study are … to develop a business case for mining the ore deposits identified during the exploration stage.”493 (emphasis added)
451. Despite this awareness and the clarity of the BMR, and its undertaking to comply with the BMR, the Claimant submitted the same incomplete Feasibility Study in support of the Mining Lease Application.
452. The Claimant’s continuing failure to comply with its obligation and undertaking to produce a full feasibility study in the context of its second licence renewal application meant that the Licensing Authority was debarred from granting a Mining Lease by BMR 48(3)(b):
491 Application for Second Renewal of EL-5, dated 2 November 2007, pp.317-318 (original numbering), Ex RE-15; Minutes of Operating Committee Meeting held on 26 October 2007, CE- 64. 492 Balochistan Mineral Rules 2002, dated 9 March 2002, rules 29(2)(c)(iii) and 47(2)(f), discussed above at II.B.2. Ex RE-1. 493 Feasibility Study, dated August 2010, Ch 1.2, CE-97.
146 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 148 of 212
“… a mining lease shall not be granted … if at the time of the application the applicant in question is in default.”494
453. Second, the grant of a Mining Lease was contingent on the Mining Lease Application showing “value addition”, which in this instance was notably the need for smelting/refining capacities in-country. This issue was repeatedly emphasised to the Claimant during the negotiations of the Mineral Agreement.495 The Mining Lease Application and Feasibility Study contained no such smelting/refining proposal, and instead proposed that all slurry be pumped by pipeline for smelting/refining outside Pakistan. 496 The failure to propose value addition through in-country smelting, and to provide a technological report on mining possibilities related to it, breached BMR 47(2)(e)(i) and 47(2)(n), 497 with the consequence that the Licensing Authority was obliged by BMR 48(3)(n) to reject the Mining Lease Application.
454. Third, as the Claimant knew, the Mining Lease Application would only procure a Mining Lease if it “show[ed] that the mine can be profitably developed and operated”.498 Despite this mandatory requirement for the grant of a Mining Lease, the Feasibility Study failed to demonstrate that the proposed project was financially viable. 499 The Feasibility Study highlighted that the Claimant’s proposed project: created a very low internal rate of return;500 would be unlikely
494 Balochistan Mineral Rules 2002, dated 9 March 2002, Ex RE-1 (discussed at Section II.C above). 495 See Section II.A above. 496 Enclosure (ix) of the Mining Lease Application, “Statement Giving Particulars of Expected Infrastructure Requirements”, dated 15 February 2011, §1.2, Ex RE-139. 497 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(a)(i) discussed above at II.C.3. Ex RE-1. The ‘value addition’ requirement was incorporated into the BMR via an amendment dated 1 October 2010. The Claimant cannot legitimately invoke the late introduction of this express ‘value addition’ requirement to justify its failure to comply with this requirement in circumstances where (a) this requirement was introduced over four months prior to the filing of the Mining Lease Application, and (b) the Claimant had given an express undertaking to comply with the BMR “as amended from time to time”: Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 498 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(a)(i) discussed above at II.C.3, Ex RE-1. 499 This was despite its blatant misrepresentation in the Feasibility Study that “the economic viability of the business opportunity … has been adequately demonstrated”: Feasibility Study, dated August 2010, Ch 31.2.1, Ex RE-135. 500 Feasibility Study, dated August 2010, Ch 1.7, CE-97. See also Barrick Gold Corporation Annual Report 2008, appended to the Mining Lease Application, (Enclosure (xii)), pp. 142-147, Ex RE- 140.
147 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 149 of 212
to attract financing; 501 was merely an “indicated” rather than a “proven” resource;502 and failed to cost the security risks posed by the project, especially the 682 kilometre slurry pipeline.503
455. Fourth, the Claimant’s attempt to effect a ‘land grab’ over areas beyond H14 and H15 was contrary to BMR 48(3)(a)(ii):
“… a mining lease shall not be granted unless … the proposed plans for development and operation of the mine and the programme of the mining operations of the applicant will ensure the efficient, beneficial and timely use of the mineral resources.”504
456. It is self-evident that the granting of a Mining Lease over areas in which the Claimant had no present intention of mining, and in respect of which it had submitted no feasibility study, would not “ensure the efficient, beneficial and timely use of the mineral resources” in those areas.505
457. The Licensing Authority held as such in the Notice of Intent to Reject:
“7(ii) The proposed development, operation and scheme of the mines in programme of the mining operation for the 11 other potential resources is missing/omitted to be considered in feasibility report.”506
501 Feasibility Study, dated August 2010, Ch 1.8.4, CE-97; Feasibility Study, Dated August 2010, Ch 29.2, Ex RE-163, Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64. 502 Feasibility Study, dated August 2010, Ch 2.8, CE-98 503 Feasibility Study, dated August 2010, Ch. 24.04, Appendix, SMEC Water Resource Assessment Study Final Report, December 2009, Ex RE-137. Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §2.3.1.2, Ex RE-129. See Section II.B.5 above. The disingenuous nature of the Claimant’s invocation of professed “security advantages” is further revealed by the statement of the Claimant’s CEO to the Supreme Court on 25 January 2011: “The concentrate pipeline to Gwadar is only a means of transport. If constructing a railway or a road for 300 trucks had shown to be more cost effective it would have been decided to proceed with any of the alternative solutions”: Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 64, Ex RE-58(ix)(b). In short, the pipeline was proposed by the Claimant purely and simply as a cost-cutting exercise in light of the “skinny” economics of its proposed project. 504 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(a)(ii), Ex RE-1. 505 Cf First Statement of Mr Khokhar, §23: “The core concern [in BMR 48(3)(a)(i)] was to address hoarding of mineral rich land without actually mining the deposits.” 506 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, CE-07.
148 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 150 of 212
458. These reasons fall squarely within the Licensing Authority’s mandate under Article 48. They are a clear reflection of the legitimate need to ensure that investment promotes economic development.507
459. The Claimant, unsurprisingly, has chosen to ignore these blatant shortcomings in the Feasibility Study and Mining Lease Application.
460. The Claimant focuses instead on alleged assurances by the Respondent that the project was “in the interest of the development of the mineral resources of Balochistan”, and that the Licensing Authority’s rejection of the Mining Lease Application was thus arbitrary.508 These do not form any basis for an argument that the Licensing Authority acted in an improper manner:
a. Of the six statements the Claimant uses in support of this proposition, four were made in 2006-2007, 509 more than four years before it submitted the Mining Lease Application (or the Feasibility Study). Any representation of such age cannot be regarded as rendering, by outdated context, the decision by the Licensing Authority arbitrary.
b. Further, none of the statements cited by the Claimant were made by the Licensing Authority. The statements of entities or officials other than the Licensing Authority can hardly provide a relevant basis on which the Claimant can form an expectation that the Licensing Authority will find that its Mining Lease Application was “in the interest of the development of the mineral resources of Balochistan”.
c. Most importantly, all of the statements cited by the Claimant are couched in the most general of terms. The statements were not made upon a review, even fleeting, of the Mining Lease Application (or the Feasibility Study). They did not represent that value addition was an optional or disposable requirement of the project. Indeed, the statements cited by the Claimant do nothing more than stipulate that a possible mining project could be in the interest of the development of
507 See Section II.C above. 508 Reply, §382. 509 As reported in CE-318; CE-326: CE-327; CE-212.
149 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 151 of 212
Balochistan, including its mineral resources. However, the decision that the Licensing Authority had to make was whether the Mining Licence Application submitted by the Claimant and the proposed project contained therein was in the interests of the development of Balochistan. As noted above,510 the Licensing Authority found that it was not.
461. There is also no legitimate complaint that can be raised about the succinct style of the Licensing Authority’s rejection letters. The reasoning behind the Licensing Authority’s decision is sufficiently clear, but the succinct style of the letters reflects simply: (a) the obvious weaknesses in the Mining Lease Application; and (b) the ‘house style’ in Balochistan. Notably, CS Lehri warned the Claimant in March 2010 about the tendency/preference in Balochistan for short documents.511 Despite this warning, the Claimant responded to the Notice of Intent to Reject with a 22-page North American-style aggressive legal submission with 18 appendices.512 In short, any complaint raised by the Claimant regarding the form of the rejection letters simply underlines the Claimant’s lack of awareness of the administrative environment into which it made its alleged investment, and inability to communicate effectively.513
ii. There was no plan on the part of the Respondent or Balochistan to “oust TCCA” from Reko Diq to implement Balochistan’s own project
462. Ignoring the reasons advanced by the Licensing Authority, the Claimant’s invents the story that the “real reason” for the rejection of the Claimant’s Mining Lease Application was “because it was implementing the Government’s decision to oust TCCA from Reko Diq” and was “solicit[ing] and entertain[ing] competing
510 See Section II.C. 511 Notes of Tethyan Copper Company’s Meeting with the Chief Secretary of Balochistan held on 4 March 2010, CE-84: “Why did TCC table thick contracts that no one in the Government could/would read and no one would understand … [CS Lehri] acknowledged the tribal nature of the important people and their lack of sophistication; convincing them with a scientific document is not the way …”. 512 Tethyan Copper Company Pakistan (Private) Limited’s Interim Response to 21 September 2011 Licensing Authority’s Notice, dated 19 October 2011, CE-08. 513 Statement of CS Lehri, §17.
150 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 152 of 212
offers”.514 This aspersion is baseless. There is also an obvious inconsistency between the Claimant’s allegation that “Pakistan and Balochistan sought and encouraged other offers for Reko Diq”515 and the suggestion that there was a pan- Government “ouster” plan designed to allow the Respondent to mine Reko Diq.
463. In reality, no aspect of the Claimant’s “ouster” theory withstands scrutiny. As discussed in detail in Section II.D above:
a. first, the Mineral Agreement continued in good faith into 2010 and 2011;
b. second, Balochistan’s Reko Diq project was an independent refining project that would have had no impact on the Claimant’s rights and, in any event, was never implemented;
c. third, MCC’s purported overtures to mine in the Reko Diq area, over two years before the determination of the Mining Lease Application, were rejected;
d. fourth, the MMDD took over the BDA’s, not the Claimant’s, operations; and
e. fifth, the Cabinet Decision of 24 December 2012 was provisional in nature and never in fact implemented by the Chief Minister.
iii. The Claimant was not denied due process rights
464. In a submission covering little more than a page, the Claimant has argued that it was denied due process.516 The essence of the Claimant’s complaints under this head is twofold: first, that the Licensing Authority did not give an adequately reasoned decision; second, that the Secretary MMDD denied TCCP sufficient time to present its case in respect of the appeal of the Licensing Authority’s decision.
514 Reply, §§383 and 389. 515 Reply, title at pp.107 and 108. 516 Memorial, §§432-437.
151 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 153 of 212
465. In relation to the first complaint, although the Licensing Authority’s decision may have been succinctly styled, it was adequately reasoned.517 The Notice of Intent to Reject Letter cited with sufficient clarity the reasons the Licensing Authority had for rejecting the Mining Lease Application under the BMR.518 That the decision referred to these reasons should have come as no surprise to the Claimant, given it had been on notice that these reasons were major obstacles to the pursuit of any project at Reko Diq since at least the time they were raised in the context of the Mineral Agreement negotiations.519 Succinct communications were house style in the Balochistan Government, which did not rely on discursive communications when issuing decisions.520 The Claimant was well aware of this style and made no objection when communications styled in this manner were in its favour (such as the renewal of the exploration licences).
466. In this context, the Notice of Intent to Reject Letter met the requirements under the BMR and achieved all that was required to fulfil the duty of due process under the fair and equitable treatment obligation. Legitimate expectations must be considered in light of the capacity of the host State of its administrative environment. In other words, the Licensing Authority can only be held to a standard that takes into account the applicable business and governmental environment in Balochistan.
467. In relation to the Claimant’s second complaint regarding due process, the allegation that TCCP was denied sufficient time to present its case and reply to Balochistan’s submissions during the appeal from the Licensing Authority’s
517 See Section II.C. 518 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, especially at §§7-8, CE-7. 519 See Draft Mineral Agreement among Government of Pakistan, Government of Balochistan, and Tethyan Copper Company Pakistan (Private) Limited, circulated 11 July 2007, Clauses 14.2 and 5.5 CE-216. The record shows that these concerns were raised numerous times, including December 2007, (Ministry of Petroleum & Natural Resources Note dated 18 December 2007, p.3, Ex RE-75); February 2008, (Presentation by the Government of Pakistan Consultants on the Draft Mineral Agreement for Reko Diq Copper-Gold Project on 23 February 2008 – Minutes of Meeting, p.4, Ex RE-76); October 2008 (Record Note on Reko Diq Project Negotiations on 15-7 and 22-23 October 2008, p.7, Ex RE-77); March 2009, (Letter from Government of Pakistan, Ministry of Petroleum and Natural Resources re: Draft Mineral Agreement Regarding Reko Diq Copper Gold Project, Balochistan, CE-71); June 2009 (Letter from MPNR to TCC, 9 June 2009, Ex RE-147) and September 2009 (Minutes of Board of Investment Meeting held on 2 September 2009, CE-78). See Section II.A above. 520 See Section II.C above.
152 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 154 of 212
decision has been addressed at length in the Counter-Memorial. 521 As the Claimant has added nothing by way of application of law to facts in relation to this aspect of its case, the Respondent will not repeat its previous submissions.
iv. The Respondent’s and Balochistan’s conduct in the Supreme Court proceedings and the Supreme Court’s Judgment did not breach the fair and equitable treatment obligation
468. The Claimant’s case that the Respondent’s and Balochistan’s conduct in the Supreme Court’s proceedings and the Supreme Court’s judgment breached the fair and equitable treatment obligation is completely opaque. Indeed, nowhere in its pleadings does the Claimant tie the Supreme Court’s decision to a particular investment. Nor does it explain how the Supreme Court’s decision affects any purported investment. The Claimant has not pleaded that there has been any denial of justice, and the question of whether or not the statements in the proceedings can even give rise to legitimate expectations has already been addressed in this Rejoinder.522 However, the following further points are made for the sake of completeness.
469. First, Balochistan’s counsel’s change of position on the validity of CHEJVA before the Supreme Court was due – as the Claimant is well aware – to new evidence coming to light, as a consequence of the Supreme Court ordering disclosure of documents.523 This was reflected in the Supreme Court’s decision itself:
“Learned counsel for GOB rightly argued that there is no question of retraction of pleadings on the part of GOB inasmuch as the law permits parties to modify [their] position if there are developments subsequent to the filing of the case or new facts come to light ... The objection raised by the learned counsel for TCC is, therefore, not tenable ...”.524
521 Counter-Memorial, §§547-556. 522 See Section V.B above. 523 Supreme Court Order, 8 February 2011, §§2-3, Ex RE-7. 524 Supreme Court Judgment, 10 May 2013, §116, Ex RE-18.
153 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 155 of 212
470. Second, the Claimant’s attacks on the Supreme Court’s judgment are unfounded. The Supreme Court’s judgment was correct under well-established tenets of Pakistani law, as explained above.525 The Claimant has not – and indeed cannot – set out a plea of breach of due process. The Claimant has not explained how it has suffered any unfairness or denial of due process in the Supreme Court proceedings. The Claimant put forward a team of leading lawyers in Pakistan. Not once did these lawyers, in the entire seven year period of proceedings, state that there was any issue related to due process or that they did not receive an adequate opportunity to present their case before the Court.
471. Third, the Claimant’s complaints regarding the discussion, in the Supreme Court’s decision, of ICSID jurisprudence are absolutely irrelevant to the question of whether or not the Supreme Court’s decision constitutes conduct violating the fair and equitable treatment standard. First, the ICC and ICSID proceedings were being litigated in parallel to the Pakistani domestic proceedings. It could come as no surprise to it that the Supreme Court would refer to them. Second, although the Claimant attempts to cloak the discussion in a veil of impropriety, it is nothing more than the ordinary deliberations of the highest court in the country. It is unsurprising that the Supreme Court should consider the way that international tribunals have treated investor’s conduct, in light of the Claimant’s own conduct in the proceedings before it. Third, the Claimant has failed to explain how this discussion had any bearing on the question of whether or not the fair and equitable treatment standard had been breached. The Claimant’s allegations that the Supreme Court “rushed to issue” its decision and “took up Balochistan’s invitation” is belied by the Supreme Court record, and is nothing more than an unsubstantiated slur.526
v. The Claimant’s own conduct precludes a finding of breach of the fair and equitable treatment standard
472. It is now trite law that the Claimant cannot rely on treaty provisions to cure defects in its own conduct. Muchlinski has thus explained that the an investor is under three major duties: “a duty to refrain from unconscionable conduct, a duty
525 See Section II.E above. 526 Reply, §§444, 224.
154 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 156 of 212
to engage in the investment in light of an adequate knowledge of its risks, and a duty to conduct its investment in a reasonable manner”.527 Each of these duties was breached by the Claimant in this case.
473. The first duty the Claimant breached was the duty to refrain from unconscionable conduct. It would undoubtedly be unconscionable for an investor to seek illegal exemptions from mandatory local legislative requirements. The Claimant unconscionably sought to further its designs on mining Reko Diq, first, through obtaining exemptions from the BMR that were legally impossible and, when that failed, through manufacturing international arbitration claims (seeking specific performance) by filing of a mining lease application that it must have known was doomed to fail.528
474. The second duty the Claimant breached was the duty to engage in the investment in light of an adequate knowledge of its risks. The Claimant failed to conduct a proper risk assessment at the outset of its activities in Pakistan.529 As explained above, the Claimant was or should have been fully aware that Balochistan was an underdeveloped region with limited experience in large-scale mining. It failed to conduct a proper due diligence into BHP’s activities prior to acquiring its interest and the requirements of the BMR.530 In addition, as expressly recognised by the Claimant in its Feasibility Study, it failed to address the critical need to maintain a ‘social licence to operate’ in Balochistan.
475. The third duty the Claimant breached was, following from the reasoning in MTD Equity v Chile,531 the duty to conduct the investment in a reasonable manner. Thus, “where it can be shown that the loss incurred by the investor has been caused by its own bad management of the investment, rather than by any
527 P. Muchlinski, ‘Caveat Investor?’ The Relevance of the Conduct of the Investor Under the Fair and Equitable Treatment Standard, (2006) 55 ICLQ 527, p.530, RLA-183. 528 This was apparently done in consultation with leading international arbitration counsel, long before the refusal of the Mining Lease Application. See the Claimant’s Privilege Log, 3 May 2014, p.20, item 165, which refers to advice provided on 16 November 2010 by Audley Sheppard of Clifford Chance LLP “concerning mining licence”, Ex RE-152. 529 See, for example, Waste Management Inc v Mexico ICSID Case No ARB (AF)/00/3, Award, 30 April 2004, §57, RLA-83. 530 See Sections II.B, II.C and II.D above. 531 MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, RLA-131.
155 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 157 of 212
regulatory action on the part of the host State, a claim for breach of the fair and equitable treatment obligation cannot be sustained”. 532 The Claimant tried to mislead the Governments (and investors) as to the economic viability of the project. It did so by: describing the risk of inability to negotiate the Mineral Agreement as only 20%-55% likely to occur;533 stating that the economic viability of the project had been adequately demonstrated;534 assuming the application of an EPZ tax rate in the ‘Base Case’ economic model,535 despite conceding during the Mineral Agreement negotiations 18 months earlier that “the EPZ regime is no longer politically viable”536 and stating, before the Supreme Court that it was “still confident that the international financing community will be willing and happy to finance this project”.537 As explained above,538 these statements and affirmations were all misleading.
476. Realising that the Governments were not prepared to bow to its unacceptable terms,539 the Claimant continued its unreasonable conduct when seeking to force through its Mining Lease Application. That Application was nothing more than an attempted ‘land grab’. Contrary to the CHEJVA and the BMR, the Claimant’s Mining Lease Application covered an area many times the size of the area covered in the accompanying Feasibility Study. As the Claimant was well-aware, the boundaries of the Mining Area are determined by the Feasibility Study.540 This was limited to H14 and H15. This, along with the numerous other shortcomings
532 P. Muchlinski, ‘Caveat Investor?’ The Relevance of the Conduct of the Investor Under the Fair and Equitable Treatment Standard, (2006) 55 ICLQ 527, at p.527, RLA-183. 533 Feasibility Study, dated August 2010, Ch 30, Tables 30.4, 30.5 and 30.7, Ex RE-134. 534 Feasibility Study, dated August 2010, Ch 31.2.1, Ex RE-135. Note the inconsistency of this statement with Feasibility Study, dated August 2010, Ch 28.4.2, Ex RE-133. 535 Feasibility Study, dated August 2010, Ch 28-16, Ex RE-133. 536 Letter from Ms Boggs to Mr Khokhar, dated 29 January 2009, pp.2-3, Ex RE-145. 537 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p.61, Ex RE-58(ix)(b). 538 See Section II.B above. 539 See Section II.A above. 540 See the definition of “Feasibility Study” in CHEJVA. Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Article 1, CE-01.
156 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 158 of 212
in the Feasibility Study highlighted the unreasonable manner in which the Claimant consistently pursued its project.541
vi. Conclusion
477. In sum, the Respondent has demonstrated that the Claimant’s interpretation of the fair and equitable treatment standard in the BIT is misconceived. No legitimate expectation of having a right to mine may have arisen from CHEJVA (if valid), the BMR, and the conduct or statements of any officials. Consequently, the Respondent’s actions – whether taken individually or collectively – did not constitute a breach of the fair and equitable treatment standard.
C. THE CLAIMANT HAS NO CASE ON EXPROPRIATION
478. The real – and, in truth, only – question in these proceedings is whether or not there has been a breach of the fair and equitable treatment obligation. The Respondent has provided ample evidence that there is not. Predictably, the Claimant has pushed forward an allegation of expropriation that does not really exist. Indeed, as the Respondent noted in its Counter-Memorial, the Claimant’s allegation of an unlawful expropriation is nothing more than a “random sprinkling” of legal assertions in its pleadings. 542 In this context, it is not surprising that the Claimant’s case on expropriation is misconceived.
479. An expropriation claim is inapposite in this case because the Licensing Authority did nothing more than duly exercise its regulatory powers over mineral resources. The Respondent has addressed this point in its Counter-Memorial, citing numerous authorities to the effect that the implementation of a bona fide regulatory measure is outside the scope of the expropriation provisions found in investment treaties.543 The Claimant seeks to distinguish the authorities on the basis that they deal with regulatory measures, whereas the Licensing Authority’s denial of a license to mine was something different. This distinction is meaningless. It is obvious that the same principles apply.544 As explained above,
541 See Sections II.B and II.C above. 542 Counter-Memorial, §582. 543 Counter-Memorial, §§607-615. 544 See, for example, Metalclad Corporation v. United Mexican States, ICSID Case No.
157 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 159 of 212
the Licensing Authority has done nothing more than properly exercise its regulatory power to grant or refuse a mining lease application in accordance with the requirements of the BMR. In such context, the Claimant’s claim for expropriation simply has nothing on which to bite.
480. The Claimant’s expropriation claim must be rejected because it has failed to satisfy the fundamental pre-conditions under Article 7 of the BIT. That provision provides that the host State shall not expropriate “investments”. The main difficulty for the Claimant is its failure to define the purported particular “investment” that it alleges has been expropriated.545
481. A review of its pleadings reveals that, at various times, the Claimant has claimed that the following have been expropriated: a “right to mine”, 546 a “claim to performance of CHEJVA”,547 “intellectual and industrial property rights in the Feasibility Study and other works (scoping study, pre-feasibility study, expansion study)”,548 and unspecified “property rights”.549 The confusion is increased by the Claimant’s latest and vaguest definition of its investment as “the mining Business [TCCA] developed in Pakistan” in its Reply.550 Nonetheless, the Respondent will address each of these purported “investments” in turn.
482. As demonstrated in the Counter-Memorial, and in this Rejoinder, the Claimant did not have a guaranteed “right to mine”.551 Even if the CHEJVA did purport to provide for a guaranteed right to a mining lease (which is denied and contrary to the Claimant’s concessions), that contractual right could not be invoked against
ARB(AF)/97/1, Award, 30 August 2000, CA-54; MTD Equity Sdn. Bhd. and MTD Chile S.A. v Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, RLA-131; Joseph Charles Lemire v Ukraine, ICSID Case No. ARB/06/18, Award, 28 March 2011, RLA-185. 545 See section III.B.1 above. 546 The Claimant fails to clearly identify what the source of this right is. Occasionally, the Claimant appears to consider that CHEJVA is the source of this right: Memorial, §§507, 509, 537. Elsewhere however, the Claimant alleges that this right stems from BMR 48: Memorial, §§418- 423, 509, 537 547 Reply, §255. It is entirely unclear whether this is a separate right. 548 Memorial, §§523-534; Reply, §255. This appears to be narrower than the “the comprehensive plan to mine Reko Diq that its skill, money and labor produced”, mentioned in Memorial, §537, but in relation to which no expropriation plea has been made. 549 Memorial, §515. 550 Reply, §§457. 551 Counter-Memorial §§25, 584-606; see also Section III.B.1 above.
158 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 160 of 212
the Government of Balochistan or the Respondent. As explained above, neither the Provincial nor Federal Governments are parties to the CHEJVA agreements. Moreover, as noted above, it is clear that the BDA does not have the power to grant mining leases. Any attempt to do so gives rise to nothing more than an expectation writ in water. The Claimant’s case, therefore, reduces to an assertion that the Respondent deprived it of a non-existent right.
483. Consequently, the Claimant cannot claim that any such guaranteed “right to mine” has been expropriated. The Claimant must be aware of this weakness in its case, as it offers no particulars as to: what the precise scope of its alleged guaranteed right to mine is; when precisely that right was taken; and whether it was taken other than for a public purpose, discriminatorily, and without due process. Indeed, the Claimant has fulfilled none of the requirements for proving an unlawful expropriation of its so-called alleged guaranteed “right to mine” under the BIT.
484. The Claimant cannot pursue its “claim to performance of CHEJVA” before the present tribunal. It is unclear, in any event, how the Claimant asserts this supposed right has been expropriated. It has failed to articulate: what the claim to performance of the CHEJVA entails; when precisely that right was taken; and whether it was taken other than for a public purpose, discriminatorily, and without due process.
485. The Claimant has failed to demonstrate that there has been an expropriation of “the mining Business [it purportedly] developed in Pakistan”. First, it has entirely failed to define what is meant by this phrase. To the extent that it is identical to the specific alleged rights identified in the preceding and subsequent paragraphs, the Respondent has demonstrated that such claims are unsustainable. Second, the Claimant has failed to link this purported investment to an expropriatory act. As is symptomatic from its pleadings, the Claimant has limited itself to making a sweeping statement without setting out its case.
486. Similarly, the Claimant refers to undefined “property rights” without any specification as to (a) the nature, scope or source of such rights and (b) the wrongful conduct alleged to have amounted to an expropriations. This is simply
159 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 161 of 212
because the Claimant has no case on expropriation and its claims must therefore be rejected.
487. Finally, the Respondent did not expropriate “intellectual and industrial property rights in the Feasibility Study and other works (scoping study, pre-feasibility study, expansion study)”. There are three key flaws in the Claimant’s arguments on this point.
488. First, by virtue of Rule 71 of the BMR, the Government has complete rights over all data produced during the exploration.552 Despite the terms of the BMR, the Claimant seeks to argue that Rule 71 “does not exist, and cannot be read, in a vacuum”, making its clear prescriptions contingent upon the satisfaction of the fundamental requirements of Pakistani law.553 The difficulty for the Claimant here is twofold. The first is that Rule 71 does not contain any qualifier. On any reading of it, however, it grants the Government with “the exclusive right to all data … in respect of exploration or mining operations”.554 The second difficulty is that the Claimant cannot point to any unlawful action taken by the Respondent. As explained above, the Licensing Authority’s actions were entirely consistent with its mandate under the BMR, and nothing it has done in the usage or otherwise of the data connected with the project has been in breach of any applicable law.
489. Second, the data and information arising from the exploration of the area covered by Exploration Licence EL-5 belongs to the CHEJVA Joint Venture.555 The CHEJVA makes it clear that this information is the property of the Joint
552 Counter-Memorial, §617. This is consistent with the preliminary report of Andy Wells, at page 10: “In the event that the exploration license is relinquished for whatever reason then it is standard practice for the Minerals Department to require that all exploration data and core samples (or part cores) are to be made available to them. The principle involved here is to ensure that the data remains available for the next explorer who may have a different interpretation to put on that data”. (Not exhibited pursuant to Procedural Order dated 21 June 2014). 553 Citing the irrelevant case of Maple Leaf Cement Factory v. Federation of Pakistan, 2001 MLD 500, CA-159, which does no more here than state the obvious: an unlawful act may be struck down. 554 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 71, Ex RE-1. 555 See Counter-Memorial, §§616-621.
160 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 162 of 212
Venture.556 The Claimant seeks to refute this in its Reply by pointing to the fact that “[w]hile the CHEJVA classifies the relevant information and data as “Joint Venture Property”, it does not grant Balochistan free licence to use that information to TCCA’s exclusion”. 557 In support of this proposition, the Claimant, somewhat surprisingly, cites Clause 18 of CHEJVA, which states that all “Mining Information” was to remain “strictly confidential”.558 It is unclear how the Claimant wishes to tease out an exclusivity requirement from a confidentiality requirement. 559 On the contrary, the absence of any such exclusivity requirement is testament to the fact, supported by the very definition of Joint Venture Property, that the Claimant was not the sole owner of the data and information.
490. The Claimant’s assertion that “Balochistan forfeited any right under the CHEJVA” by failing to elect to undertake its own project after paying a fair value for TCCA’s interest in the Joint Venture is plainly wrong. In support of this bizarre proposition, the Claimant points to clause 11.6.1 of CHEJVA. Clause 11.6.1 of CHEJVA provides that:560
“In reaching a decision as to fair value to be paid pursuant to Clause 11.5, each Party engaged in such decision shall have regard only to the amount of exploration expense (and interest thereon calculated at a just and equitable rate) contributed by the Non-participating Party to work programmes and budgets (including those relating to any relevant Feasibility Study) and a reasonable proportion of overhead pertaining to Joint Venture Activities during the period in which the proposed Mining Area was under investigation.”
556 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, clause 1.1, CE- 01. 557 Reply, §417. 558 Agreement for Chagai Hills Exploration Joint Venture between the Bal ochi stan Devel opment Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, clause 18, CE-01. 559 The Claimant also seeks to rely on the confidentiality requirement of clause 5.3.3. As with clause 18, no exclusivity requirement may be teased out of clause 5.3.3. Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, clause 5.3.3, CE-01. 560 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, clause 11.6.1, CE-01.
161 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 163 of 212
491. Nothing in that statement supports the Claimant’s assertion. Balochistan could have transferred its right to CHEJVA property had the Claimant paid fair market value for its interest. The Claimant did not do so. Consequently, the Balochistan’s rights in the Joint Venture’s relevant data and information remained.
492. Third, the Claimant argues that the Respondent has “used” its data, pointing to similarities between data in the Feasibility Study and data in Balochistan’s Reko Diq project. Even if the Claimant were right that this data did not already belong to the Respondent, the fact remains that there has been no “usage” of the data. The Reko Diq Copper & Gold project has not progressed, and any data relevant to the Feasibility Study thus by definition cannot be “used” for that purpose.
493. As the foregoing illustrates, whichever of the Claimant’s various and vague definitions of its purported investment one takes, it is not an investment which has been subjected to conduct that can be characterised as an expropriatory taking. This is because the property either does not exist (as in the case of a purported guaranteed “right to mine”), because the property was already owned by the Respondent (as in the case of “data and information”) or because the property is so vaguely described that it is impossible to know what it is, let alone whether it was taken (as in the case of a “claim to performance of CHEJVA”, “property rights” and “the mining Business [TCCA] developed in Pakistan”). For these reasons, the Claimant’s allegations concerning expropriation must be rejected.
D. THE CLAIMANT HAS NO CASE ON NON-IMPAIRMENT
494. The Claimant relies on Saluka v Czech Republic to advance its case that the term “impairment” means “any negative impact or effect caused by measures taken by” the host State.561 The Claimant conveniently omits to mention that, in the very next paragraph, the standard is qualified by a requirement of “reasonableness”:
“The standard of “reasonableness” has no different meaning in this context than in the context of the “fair and equitable treatment” standard with which it is associated; and the same is true with regard to the standard of “non-discrimination”. The standard of “reasonableness” therefore requires, in this context as well, a showing
561 Memorial, §539.
162 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 164 of 212
that the State’s conduct bears a reasonable relationship to some rational policy, whereas the standard of “non-discrimination” requires a rational justification of any differential treatment of a foreign investor.”562
495. After a discussion on the meaning of the standard, the Tribunal concludes that:
“Insofar as the standard of conduct is concerned, a violation of the non-impairment requirement does not therefore differ substantially from a violation of the “fair and equitable treatment” standard. The non-impairment requirement merely identifies more specific effects of any such violation, namely with regard to the operation, management, maintenance, use, enjoyment or disposal of the investment by the investor.”563
496. This sits uncomfortably with the Claimant’s assertion that “such measures need not be arbitrary, unreasonable, or discriminatory to give rise to a right to compensation under the BIT”.564 There is no support for such a proposition under international law.
497. Leaving aside the factual elements in dispute in relation to the alleged breach of the non-impairment obligation, which the Respondent does not propose to repeat here,565 the actual non-impairment obligation in the BIT is clearly qualified by and subject to the applicable law of the host State. The Claimant’s strained attempt at marginalising this qualification, and limiting it to the duty to provide protection and security, flies in the face of the ordinary meaning of Article 3(3) of the BIT. The Claimant’s interpretation may have been arguable if Article 3(3) of the BIT read as follows:
Each Party shall not impair the management, maintenance, use, enjoyment or disposal of investments and shall, subject to its laws, accord within its territory protection and security to investments.
498. It does not. Article 3(3) reads as follows:
562 Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, §460, CA-44 563 Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award, 17 March 2006, §461, CA-44 564 Reply, §478. For the sake of clarity, the Claimant’s interpretation of the standard of non- impairment is disputed. 565 These are extensively discussed in Section V.B above. It is the Respondent’s position that, as with the fair and equitable treatment obligation, the facts of this case do not support a finding of breach of the non-impairment obligation.
163 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 165 of 212
Each Party shall, subject to its laws, accord within its territory protection and security to investments and shall not impair the management, maintenance, use, enjoyment or disposal of investments.
499. No doubt recognising this, the Claimant instead avers that ICSID tribunals construing similar clauses have concluded that such references do “not mean that national laws ‘trump’ international laws, or that the content of national law affects the interpretation to be given to obligations freely given by the State’ in a treaty”.566
500. The Claimant’s stance is disingenuous. First, the “ICSID Tribunals” which the Claimant points to is in fact only one decision, namely, White Industries v. India.567 Second, that single decision was concerned with a most-favoured nation clause, and the use of that clause to incorporate another clause requiring the maintenance of a favourable environment for investments and an effective means of asserting claims and enforcing rights.568 The character of the claims advanced in that case could not be more distinct from those to which the Claimant tries to apply its dictum in the present case. Third, the clause in question in that case was not qualified by the phrase “subject to its laws”.569 As a result, White Industries v. India provides no assistance in elucidating the issue of statutory interpretation in the present case, and certainly does not support a contrary interpretation of Article 3(3) than that submitted by the Respondent in the Counter-Memorial.570
501. In sum, neither the legal basis on which the Claimant seeks to invoke the non- impairment obligation, nor the factual basis upon which it argues that the standard
566 Reply, §482, relying on White Industries v. Republic of India, UNCITRAL, Final Award, 30 November 2011, §11.2.6, CA-160. 567 Reply, §482, relying on White Industries v. Republic of India, UNCITRAL, Final Award, 30 November 2011, §11.2.6, CA-160. 568 See Reply, §482: White Industries v. Republic of India, UNCITRAL, Final Award, 30 November 2011, §11.1.4, CA-160. Article 4(5) of the India-Kuwait BIT provides, “in pertinent part”: “Each Contracting State shall maintain a favourable environment for investments in its territory by investors of the other Contracting State. Each Contracting State shall, in accordance with its applicable laws and regulations, provide effective means of asserting claims and enforcing rights with respect to investments ...” 569 See White Industries v. Republic of India, UNCITRAL, Final Award, 30 November 2011, §11.1.4, CA-160. The discussion of the relevance of domestic law in that case had stemmed from the Respondent’s argument that the “strong emphasis” on domestic law in other parts of the BIT precluded the incorporation of Article 4(5) of the India-Kuwait BIT. Clearly, such a discussion has no bearing on the present case. 570 Counter-Memorial, §§570-579.
164 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 166 of 212
has been breached, are established in the present case. Its claim for breach of Article 3(3) of the BIT must therefore be rejected.
165 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 167 of 212
VI. NO DUTY OF REPARATION ARISES FOR THE RESPONDENT BECAUSE THE CLAIMANT HAS NOT SATISIFED, AND CANNOT SATISFY, EITHER LIMB OF CAUSATION IN PUBLIC INTERNATIONAL LAW
A. INTRODUCTION AND PURPOSE OF THIS SECTION
502. In addition to the difficulties on jurisdiction and merits that the Claimant’s arguments in this arbitration encounter, those arguments also suffer from a further defect. That defect is that no duty of reparation arises for the Respondent in this case because the Claimant has not satisfied either limb of causation in public international law – namely, factual causality or legal causality. The effect of this failure is fatal to the Claimant’s case, which must fail in limine.
503. That the Claimant’s case fails in limine on the issue of reparation and causation means that the Tribunal can dismiss it at this stage of the arbitration, without waiting for a stage involving the quantification of damages payable upon proof of a breach of the BIT (which stage the Respondent maintains it will not reach). The reason for this is that, because the Claimant is unable to prove any factual causality or legal causality in this case, it is thus unable to prove that any damage has resulted from the Respondent’s conduct. The absence of causation, and the corollary absence of a duty of reparation, therefore exists without the need for the Tribunal to consider whether specific damages alleged by the Claimant were caused by a proven breach of the BIT. As such, the Respondent maintains at this stage only that the standard for the existence of causation has not, and cannot, be satisfied by the Claimant in this case as a matter of public international law. The Respondent of course reserves all its rights to make further pleadings on causation in relation to specific damages alleged by the Claimant in any future “quantum stage” of this arbitration.571
504. That no duty of reparation arises in this case due to the Claimant’s inability to prove that any damage has resulted from the Respondent’s conduct is evident by reference to basic principles of public international law. For a State to be under a
571 The Respondent also reserves all its rights in relation to: (a) the right to adduce expert evidence on these issues in any future phase of this arbitration; and (b) the Tribunal’s decision to deny the Respondent’s right to adduce expert evidence with this pleading.
166 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 168 of 212
duty to make reparation, a claimant must establish several points. It must show that there has been a breach of an obligation incumbent upon the State, and that the conduct which comprised that breach is attributable to the State (as discussed in Section IV above). In addition to this, the claimant asserting the duty of the State to make reparation must prove that the wrongful act that breached the State’s obligation caused the complained of damage. It is important to stress the relevant causal link that is required. It is not enough to show that the damage was somehow related to the State’s impugned act; rather, it must be the result of a proven internationally wrongful act of that State. In other words, “the subject matter of reparation is, globally, the injury resulting from and ascribable to the wrongful act, rather than any and all consequences flowing from an internationally wrongful act.”572
505. This principle is enshrined in Article 31 of the ILC State Responsibility Articles. The first clause of that provision confirms that a State that has engaged in an internationally wrongful act is “under an obligation to make full reparation for the injury caused” by that act. Article 31(2) then stipulates that “[i]njury includes any damage, whether material or moral, caused by the internationally wrongful act of a State”.573 Accordingly, if a causal link between the act which breaches the State’s obligation and the injury pleaded by a claimant does not exist, then the State bears no obligation of reparation, and the claimant’s claim must be dismissed for want of that causal link.
506. The final Special Rapporteur of the ILC State Responsibility Articles, Professor James Crawford, explained in commentary on Article 31 what a claimant must establish if it is to prove causation and thus demonstrate that a respondent State bears a duty of reparation.
“The allocation of injury or loss to a wrongful act is, in principle, a legal and not only a historical or causal process. Various terms are used to describe the link which must exist between the wrongful act and the injury in order for the obligation of reparation to arise. … [C]ausality of fact is a necessary but not sufficient condition for
572 J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204 RLA-186. 573 J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186.
167 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 169 of 212
reparation. There is a further element, associated with the exclusion of injury that is too ‘remote’ or ‘consequential’ to be the subject of reparation.”574
507. The two limbs to the proof of causation in public international law to which Professor Crawford refers may be summarised as factual causality and legal causality. A claimant must therefore establish that the impugned State conduct was the factual event which led to the occasioning of the damage (factual causality) and that the alleged damage was not too “indirect, remote, and uncertain to be appraised”575 as the legal result of that conduct (legal causality). This is often referred to in composite as the need to establish “proximate causation”.576
508. The Claimant in this arbitration is silent on the entire issue of reparation and causation in its Memorial and Reply. It remains mute even though the Respondent noted in its Counter-Memorial that, in the circumstances of this case (and in particular the inadequacies of the Mining Lease Application), “the Claimant will be unable to prove that the refusal of TCCP’s Mining Lease Application caused any loss”.577 Still less has the Claimant shown that it has suffered damage to any particular investment as a result of a particular breach of the BIT by the Respondent. To use Professor Crawford’s words, it is not enough for the Claimant merely to establish a breach of the BIT (which it has not done), and then move to the quantification of damages payable without showing that the damage strictly “result[s] from and [is] ascribable to the wrongful act.”578 The
574 J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186. See also a similar distinction drawn in Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (1953, Cambridge University Press), at p. 253, fn 25, RLA-187. 575 Trail Smelter Arbitration, Award, 16 April 1938 and 11 March 1941, UNRIAA vol III, p 1905 at p. 1931, RLA-188; as cited in J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-187. 576 See: J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186; Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, §785, CA-43; BG Group Plc. v. Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, §§427-428, CA-53; P. Muchlinski, ‘Caveat Investor?’ The Relevance of the Conduct of the Investor Under the Fair and Equitable Treatment Standard, (2006) 55 ICLQ 527, at p.527, RLA-183. 577 Counter-Memorial, §27. 578 J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186.
168 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 170 of 212
Claimant’s failure to establish the necessary interlinking chain between an act of the Respondent and any damage it might have suffered in this case – that is, (i) the Respondent’s conduct, which is (ii) a breach of the BIT, in relation to (iii) a specific investment, which therefore (iv) suffered damage – means that it has not satisfied the burden of establishing the elements necessary under public international law to give rise to a duty for the Respondent to make reparation to the Claimant, whether by way of compensation or otherwise.579
509. The reason for the Claimant’s silence on this issue is obvious. A fundamental weakness in its case is that it is unable to establish either factual causality (as discussed in Section VI.B below) or legal causality (Section VI.C below) between the Respondent’s conduct and the loss it claims to have suffered. The effect of this failure is fatal to the Claimant’s case, which must fail in limine (Section VI.D below).
B. AS THE FOREGOING HAS SHOWN, THE CLAIMANT HAS NOT ESTABLISHED, AND CANNOT ESTABLISH, FACTUAL CAUSALITY IN THIS CASE
510. To satisfy the first limb of “proximate causation” under public international law, the Claimant must show that factual causality between the conduct of the Respondent it impugns and any damage it claims to have suffered exists. The Claimant has provided no such demonstration in this arbitration. Nor could it do so. As the foregoing sections of this Rejoinder establish, the absence of factual causality – that is, the Claimant’s inability even to show that the Respondent’s conduct was the factual event which led to the occasioning any damage that might be alleged by the Claimant – is apparent in this case.
511. The factual event leading to any damage the Claimant allegedly suffered was not the rejection by the Licensing Authority of the Mining Lease Application, but rather the Claimant’s production of a woefully inadequate Feasibility Study, on the basis of which TCCP filed a Mining Lease Application which could never have been approved. This is because the Licensing Authority, as the Claimant and
579 On the need to establish such a chain, see Tokios Tokeles v Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004, §121, RLA-160.
169 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 171 of 212
TCCP were fully aware, was obliged mandatorily to reject the Mining Lease Application if it exhibited certain deficiencies – which it did. That the Claimant and TCCP were aware that these deficiencies would be terminal to TCCP’s Mining Lease Application is evidenced not only by the plain terms of the BMR, but also by their failure to resolve largely the same issues during their negotiations with the Respondent regarding a Mineral Agreement.
512. Four such deficiencies constituting mandatory bases for rejection of the Mining Lease Application are of particular note.
513. First, as discussed above,580 the Claimant and TCCP were fully aware that the Feasibility Study had to cover not merely H14 and H15, but rather the entirety of the discovered deposits within the area of EL-5 and the Mining Lease Application. 581 This awareness reflected the BMR requirements that the Feasibility Study cover the full area of the discovered deposits.582 The Claimant had previously given undertakings to comply with the BMR 583 and, more specifically, to provide a full feasibility study covering all discovered deposits.584
514. Incomprehensibly, despite these undertakings and awareness of the clear terms of the BMR, TCCP submitted a Mining Lease Application and Feasibility Study that manifestly failed to comply with this requirement for the grant of a mining lease. The result was that, by virtue of clear and mandatory language in BMR 48(3)(b), the Licensing Authority was obliged to reject the Mining Lease.585 This is what it proceeded to do, duly citing this deficiency in the Claimant’s Mining Lease Application in its Notice of Intent to Reject Letter.586
580 See Sections II.A, II.B and II.C above. 581 Minutes of Operating Committee Meeting held on 26 October 2007, CE-64; Application for Second Renewal of EL-5, dated 2 November 2007, pp.317-318 (annotated numbering), Ex RE-15. 582 Balochistan Mineral Rules 2002, dated 9 March 2002, rules 29(2)(c)(iii) and 47(2)(f), discussed above at Section II.B.2. Ex RE-1. 583 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 584 Minutes of Operating Committee Meeting held on 26 October 2007, CE-64; Application for Second Renewal of EL-5, dated 2 November 2007, pp.317-318 (annotated numbering), Ex RE-15. 585 See Section II.C above. 586 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, (see especially §§7-8), CE-07.
170 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 172 of 212
515. Second, as discussed above,587 the Claimant and TCCP attempted to effect a ‘land grab’ by applying for a Mining Lease over an area extending many times beyond H14 and H15. The Claimant and TCCP knew, or should have known, that the Licensing Authority was obliged, under BMR 48(3)(a)(ii), to reject a Mining Lease Application over areas in which the Claimant had no present intention of mining, and in respect of which it had submitted no feasibility study, because such a mining lease would not “ensure the efficient, beneficial and timely use of the mineral resources” in those areas. The Licensing Authority duly rejected the Mining Lease Application on this basis.
516. Third, and as also discussed above,588 the Claimant and TCCP were fully aware that the grant of a Mining Lease was contingent on the Mining Lease Application showing “value addition”, which in this instance was the need for smelting/refining capacities in-country. This issue was repeatedly emphasised to the Claimant and TCCP in the negotiations of the Mineral Agreement.589 The need for “value addition” was formally introduced into the BMR as a requirement for the grant of a Mining Lease prior to TCCP’s submission of the Mining Lease Application, and after assurances by the Claimant and TCCP that they would abide by the BMR, as amended, 590 including on the need for in-country smelting/refining.
517. Again incomprehensibly, TCCP’s Mining Lease Application and Feasibility Study contained no such smelting/refining proposal, and instead proposed that all slurry be pumped by pipeline for smelting outside Pakistan. 591 The failure even to propose value addition through in-country smelting/refining, and to provide a technological report on mining possibilities related to it, breached BMR 47(2)(e)(i) and 47(2)(n).592 The Licensing Authority was obliged by the clear and
587 See Section II.C.2 above 588 See Sections II.C.3 and II.B.6 above. 589 See Section II.A above. 590 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. See also Sections II.B.6 and II.C.3 above. 591 Enclosure (ix) of the Mining Lease Application, “Statement Giving Particulars of Expected Infrastructure Requirements”, dated 15 February 2011, §1.2, Ex RE-139. 592 See Sections II.B.4 and II.C above.
171 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 173 of 212
mandatory language in BMR 48(3)(n) to reject the Mining Lease Application for this deficiency, and recorded its decision to do so on this basis in its Notice of Intent to Reject Letter.593
518. Fourth, and again as discussed above,594 the Claimant and TCCP were fully aware that the Mining Lease Application would only procure a Mining Lease if it “show[ed] that the mine can be profitably developed and operated”.595 That this was a mandatory aspect of any project that sought to benefit from a Mining Lease was emphasised by BHP, 596 expressly discussed by TCCP with the Chief Secretary of Balochistan,597 and stressed by Behre Dolbear in its Risk Assessment study of the Claimant’s proposed Reko Diq project of October 2007.598
519. Despite the importance of this mandatory requirement for the grant of a Mining Lease, the Feasibility Study failed to demonstrate that its proposed project was financially viable.599 As detailed below, the Feasibility Study highlighted that the project: created a very low internal rate of return;600 would be unlikely to attract financing; 601 demonstrated merely an “indicated” rather than a “proven” resource;602 suffered from residual risks, such as an attack on the project by an “in-country … hostile force”;603 and lacked a proven water source.604 These were
593 Director General, Mines and Minerals Balochistan, Notice of Intent to Reject Mining Lease Application, dated 21 September 2011, (see especially §9), CE-07. 594 See Sections II.B.3 and II.C.5 above. 595 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 48(3)(a)(i), Ex RE-1. 596 Letter from Bernard M Joyce, solicitor for BHP to Mr Farooqi, GM Planning of the BDA, dated 31 October 1991, regarding “BHPM-BDA Joint Venture Agreement”, point 5, Ex RE-34. 597 See Sections II.B.3 and II.C.5 above; Statement of CS Lehri, §§73-74. 598 Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §2.1, Ex RE-130. 599 This was despite its blatant misrepresentation in the Feasibility Study that “the economic viability of the business opportunity … has been adequately demonstrated”: Feasibility Study, dated August 2010, Ch 31.2.1, Ex RE-135. 600 Feasibility Study, dated August 2010, Ch 1.7, CE-97. See also Barrick Gold Corporation Annual Report 2008, appended to the Mining Lease Application, (Enclosure (xii)), pp. 142-147, Ex RE- 140. 601 Feasibility Study, dated August 2010, Ch 1.8.4, CE-97; Feasibility Study, dated August 2010, Ch 29.2, CE-169, Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64. 602 Feasibility Study, dated August 2010, Ch 2.8, CE-98. 603 Feasibility Study, dated August 2010, Ch 2.5.3, CE-98; and Feasibility Study, dated August 2010, Ch 1.7, CE-97.
172 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 174 of 212
glaring shortcomings in the Feasibility Study. The Feasibility Review Committee and the Summary for the Chief Minister noted several of them in 2011, emphasising in particular the low internal rate of return, the degree of financial exposure in the project and the non-bankability of the project.605 By making a Mining Lease Application that so obviously failed to show that the relevant mining project could be profitably developed and operated was a clear breach of BMR 48(3(a)(i). The Licensing Authority was obliged by the mandatory language of that provision not to grant the Mining Lease in light of this deficiency.
520. In this context, the Licensing Authority’s rejection of the Mining Lease Application cannot seriously be regarded as the factual event which led to the occasioning of any damage asserted by the Claimant. The Licensing Authority was obliged mandatorily to reject the Mining Lease Application on grounds of which the Claimant and TCCP were fully aware (but nevertheless drastically failed to address in the Mining Lease Application). Accordingly, the factual event which truly occasioned any damage suffered by the Claimant was the submission by TCCP of a Mining Lease Application and Feasibility Study which could never have been approved, in a context where it had already been unable to conclude a Mineral Agreement due to its failure to resolve largely the same issues leading to the refusal of the Mining Lease. This submission of such a manifestly inadequate Mining Lease Application and Feasibility Study was a matter entirely in the hands of the Claimant and TCCP.
521. The Claimant is therefore unable to establish that the Respondent’s conduct of which it complains was the factual event which led to the occasioning any damage of which it might complain in this arbitration. As a result, the Claimant has not established, and cannot establish, factual causality in this case.
604 Excerpt from Expansion Pre-Feasibility Study, dated August 2010, Ch. 24.04, Appendix, SMEC Water Resource Assessment Study Final Report, December 2009, Ex RE-137. Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §§2.2.2 and 2.3.1.2, Ex RE-130. See Section II.B.5 above. 605 See Letter from Mines & Mineral Development Department (Technical Section) to Director General, Mines and Minerals, re: Reko-Diq Gold Project Acquisition of Non-Participating Party’s Percentage Interest, dated 8 September 2011, CE-354. See Section II.B.6.
173 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 175 of 212
C. FURTHER, THE CLAIMANT HAS NOT ESTABLISHED, AND CANNOT ESTABLISH, LEGAL CAUSALITY IN THIS CASE
522. Even if the Claimant is able to demonstrate that the Respondent’s conduct it impugns was the factual event which led to the occasioning of any damage it might allege, it must also satisfy the second limb of causation under public international law: it must show that legal causality between the Respondent’s conduct and its purported damage exists. Again, the Claimant’s pleadings in this arbitration are silent on this issue. The reason for this is obvious. No such legal causality exists. This is because any damage that the Claimant may cite as flowing from the Respondent’s conduct is too “indirect, remote, and uncertain to be appraised”606 as the legal result of that conduct.607
523. As has been explained in detail above, the project envisaged by the Feasibility Study was substantively flawed in several respects, and failed to conceive of and propose plans for a viable project. 608 Thus the Feasibility Study and related documents in fact acknowledged that the proposed project:
a. generated a very low internal rate of return of 12.3% (which does not appear even to include any country risk premium609), such that Behre Dolbear in their Risk Assessment of October 2007 expressly concludes that such a “modest IRR decrees that the Reko Diq project will be vulnerable to potential economic failure”;610
b. would be unlikely to attract financing in light of (a) the low IRR, (b) the absence of the legal and financial stability that would have been
606 Trail Smelter Arbitration, Award, 16 April 1938 and 11 March 1941, UNRIAA vol III, p 1905 at p. 1931, RLA-188; as cited in J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186. 607 See: Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 24 July 2008, §785, CA-43; BG Group Plc. v. Republic of Argentina, UNCITRAL, Final Award, 24 December 2007, §§427-428, CA-53. 608 See Section II.B above. 609 Feasibility Study, dated August 2010, Ch 1.7, CE-97. 610 Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §2.1, p.598, Ex RE-130.
174 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 176 of 212
provided by a Mineral Agreement,611 (c) the failure to identify or cost the security risks of the proposed project (most notably, the 682km slurry pipeline),612 and (d) the Claimant’s proposal of a 682km slurry pipeline in the Feasibility Study without addressing the need to obtain (let alone actually obtaining) various prior approvals from the relevant authorities in Pakistan (relating, for example, to rights of way and usage of port facilities, without which the pipeline proposal could never have been implemented);
c. was not even regarded as mining a “proven reserve” in the Feasibility Study (or the Financial Report of the Claimant’s shareholder613), and was nothing more than “indicated resources”;614
d. was proceeding on the basis that residual risks, such as an attack on the project by an “in-country … hostile force”, had not been factored into the Feasibility Study 615 (or the Pipeline Bankability Feasibility Study 616 ) even though the Feasibility Study expressly noted that security was one of the highest residual risks;617 and
e. was at risk due to the lack of a proven water source which,618 despite the Feasibility Study’s attempt to downplay the issue, was a potential “kill point” for the project.619
611 Feasibility Study, dated August 2010, Ch 1.8.4, CE-97; Feasibility Study, Dated August 2010, Ch 29.2, CE-169, Tethyan Copper Company Pty Limited to Additional Chief Secretary, Balochistan, dated 27 October 2008, p.2, Ex RE-64. 612 See Section II.B.4 above. 613 Feasibility Study, dated August 2010, Ch 1.7, CE-97. See also Barrick Gold Corporation Annual Report 2008, appended to the Mining Lease Application, (Enclosure (xii)), pp. 142-147, Ex RE- 140. 614 Feasibility Study, dated August 2010, Ch 2.8, CE-98. 615 Feasibility Study, dated August 2010, Ch 28.4.2, Ex RE-133. 616 Feasibility Study, dated August 2010, Appendix 6.01, Ch 16.1.2, Ex RE-119. 617 Feasibility Study, dated August 2010, Ch 2.5.3, CE-98; and Feasibility Study, dated August 2010, Ch 1.7, CE-97. 618 Excerpt from Expansion Pre-Feasibility Study, dated August 2010, Ch. 24.04, Appendix, SMEC Water Resource Assessment Study Final Report, December 2009, Ex RE-137. 619 Excerpt from “The Risk Evaluation of the Reko Diq Project”, Behre Dolbear scoping study, October 2007, §§2.2.2 and 2.3.1.2, Ex RE-130.
175 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 177 of 212
524. Unsurprisingly, and as noted above, 620 the concerns about the fundamentally untenable nature of the project proposed in the Mining Lease Application and Feasibility Study were also reiterated on several occasions by the Respondent.
525. The ultimate conclusion that derives from the foregoing observations is that the project envisaged by the Feasibility Study was at real risk of suffering numerous significant problems, each or a combination of which could render the project non-viable. Thus, for instance: the absence of debt financing may mean the project would never raise capital to commence; changes in the fiscal regulatory environment may, especially in the absence of a stabilising Mineral Agreement, mean that the already narrow projected internal rate of return would disappear once the project started; an attack on the pipeline, similar to the 203 attacks on gas pipelines in Balochistan that occurred between 2005 and 2013,621 could delay or halt the project and render it unprofitable; or insufficient water could be a “kill point” for the project altogether. None of these issues had been resolved by the Claimant at the time of the Mining Lease Application. The project, therefore, was characterised by massive uncertainty. Not even the Feasibility Study was clear as to whether the project could commence, could continue if commenced, or could generate any profits if it did achieve an operative life beyond commencement. In other words, even if the Mining Lease Application had been granted, this uncertainty would still have existed.
526. The effect of this uncertainty on the present causation analysis is significant. If it is uncertain whether the Claimant’s project could even start operating, let alone generate any profits, then the very existence of any type of damage that the Claimant may allege as a result of not being able to pursue that project due to an internationally wrongful act of the Respondent is equally uncertain. This, no doubt, is why the Claimant is utterly unable in its Reply to explain, even in broad terms as a matter of principle, what the damage accruing from the Respondent’s allegedly wrongful conduct is.622 Because it cannot seriously say what the project
620 See Section II.B above. 621 Number of attacks on Gas pipelines in Balochistan: 2005-2013, Ex RE-33. 622 The closest the Claimant comes is in its prayer for relief, when it seeks to gloss over these fundamental problems of causation in its case by saying that “all damages and losses” should be recoverable. To the extent the Claimant is arguing that all damages should be properly quantified once it has been established that a duty of reparation has arisen, this is a truism. To the extent that
176 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 178 of 212
would have been if TCCP was granted a Mining Lease (if any project would have been viable at all), the Claimant is necessarily unable to plead that it has or would have suffered any damage at all.
527. This failure is more than an unfortunate pleading omission. It goes to the heart of the Claimant’s inability to prove legal causality – that is, to demonstrate that, even if the Licensing Authority’s rejection of TCCP’s Mining Lease Application constituted an internationally wrongful act, that conduct was the cause of any damage whatsoever. The reality is that any damage that the Claimant alleges it suffered vis-à-vis the flawed and inexact project envisaged in its Feasibility Study is too “indirect, remote, and uncertain to be appraised”623 as the legal result of the rejection of the Mining Lease Application (or any other alleged breach of the BIT). In other words: because the very existence of the project is so uncertain, the existence of any damage accruing from the rejection of the Mining Lease Application is uncertain; and because the existence of any such damage is so uncertain, a legally causative link between that damage and the rejection of the Mining Lease Application cannot exist.
528. The Claimant is therefore unable to establish that any damage that it might allege in this arbitration was not too indirect, remote, and uncertain to be appraised as the legal result of that conduct. As a result, the Claimant has not established, and cannot establish, legal causality in this case.
D. CONCLUSION: THE EFFECT OF THE CLAIMANT’S FAILURE TO ESTABLISH CAUSATION IS THAT ITS CLAIM MUST FAIL IN LIMINE
529. For the above reasons, it is clear that the Claimant has not established, and cannot establish, either factual causality or legal causality in this case. As a matter of basic public international law, even if the Respondent has engaged in an
Claimant presumes that its proof of a breach of the BIT immediately entitles it to receive a financial “amount” (to quote its prayer for relief), this is an elementary misunderstanding of the principles of reparation in public international law, and cannot be the analysis applied by this Tribunal. 623 Trail Smelter Arbitration, Award, 16 April 1938 and 11 March 1941, UNRIAA vol III, p 1905 at p. 1931, RLA-188; as cited in J. Crawford, The International Law Commission’s Articles on State Responsibility, Article 31, p.204, RLA-186.
177 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 179 of 212
internationally wrongful act in the context of the rejection of TCCP’s Mining Lease Application or otherwise, no duty of reparation can arise for the Respondent because its conduct has not, and could not have, caused damage of which the Claimant might complain vis-à-vis the project envisaged by the Feasibility Study.
530. The effect of this failure is absolute for the Claimant’s claims. As it cannot establish causation in this case, its claims must be rejected. Those claims therefore fail, as a matter of public international legal principle, in limine, and without any need for the Tribunal to consider how any damage suffered by the Claimant (but not caused by the Respondent) might be quantified. Accordingly, upon the finding that the Respondent has not, and could not have, caused damage of which the Claimant might complain, the Tribunal is obliged to dismiss the Claimant’s claim immediately and completely.
178 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 180 of 212
VII. COUNTERCLAIMS
A. THE TRIBUNAL HAS JURISDICTION TO HEAR AND DECIDE THE RESPONDENT’S COUNTERCLAIMS
531. In its Counter-Memorial, the Respondent explained that its “counter-claims are raised without prejudice to the Respondent’s objections to jurisdiction and admissibility”. The Respondent made clear that its counterclaims are advanced in the alternative to its primary case that the Tribunal does not have jurisdiction over the Claimant’s claims in this arbitration.624
532. It is undeniable that if the Claimant has jurisdiction to bring its claims under the BIT, then so too does the Respondent. The Respondent is entitled to bring counterclaims in this case because the Claimant has consented to this when it accepted the terms of Respondent’s consent to arbitrate in Article 13 of the BIT (see Section VII.A below). In addition, and in any event, by bringing these proceedings, the Claimant has consented to have the Respondent’s counterclaims arbitrated in accordance with Article 46 of the ICSID Convention (see Section VII.B). It is self-evident that, if the Claimant’s claim falls within the jurisdiction of the Tribunal, the Respondent’s counterclaims have a sufficient nexus with that claim also to fall within the jurisdiction of the Tribunal (see Section VII.C).
533. The Claimant’s Reply exposes two flaws in its case. First, the Claimant’s jurisdictional objections are substantially similar to, and reinforce, the fact that the Tribunal lacks (or should not exercise) jurisdiction over the Claimant’s claims. Second, despite the Respondent’s clear proviso set out above, the Claimant attempts to rely on the fact that:
“[T]he Treaty has no umbrella clause and the tribunal has no other possible source of jurisdiction over contractual disputes. Pakistan itself has repeatedly acknowledged as much in arguing that the
624 Counter-Memorial, §623: “For clarity’s sake, these counter-claims will only be pursued if and to the extent that the Tribunal finds that the Claimant made a qualifying “investment” and upholds the relevant premises of jurisdiction for the purposes of the BIT.” In particular, the Respondent’s counterclaim that the Claimant breached the terms of the CHEJVA arises if, which is denied, the Respondent may be held responsible for contractual obligations arising under that Agreement. See Section IV.(B).(1) above.
179 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 181 of 212
Tribunal lacks jurisdiction over TCCA’s contractual claims arising from the CHEJVA”.625
534. This reveals the paucity of its objections. The Respondent is doing nothing more than asserting that, the Tribunal only has jurisdiction to hear the Respondent’s counterclaims if it has jurisdiction to hear the Claimant’s claim.
(1) The Claimant has consented to counterclaims being arbitrable under Article 13 of the BIT
535. There is nothing novel about the precept that an appropriately worded investment treaty permits a respondent State to submit a counterclaim. The Roussalis v Romania tribunal – upon whose decision the Claimant heavily, but wrongly, relies – held that whether a claimant has consented to arbitrate counterclaims:
“[M]ust be determined in the first place by reference to the dispute resolution clause contained in the BIT”626 (emphasis added).
536. Whereas some bilateral investment treaties – such as the treaty in Roussalis v. Romania – limit the class of claimants to investors only, Article 13 of the BIT provides that either the State or the investor may refer a dispute to arbitration. In other words, Article 13 of the BIT expressly recognises the Respondent’s ability to bring counterclaims:
“1. In the event of a dispute between a Party and an investor of the other Party relating to an investment, the parties to the dispute shall initially seek to resolve the dispute by consultations and negotiations. 2. If the dispute in question cannot be resolved through consultations and negotiations, either party to the dispute may: (a) in accordance with the law of the Party which admitted the investment, initiate proceedings before that Party's competent judicial or administrative bodies; (b) if both Parties are at that time party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States ("the Convention"), refer the dispute to the International Centre for Settlement of Investment Disputes ("the Centre") for conciliation or arbitration pursuant to Articles 28 or 36 of the Convention;
625 Reply, §498. See also, Reply, §497. The Respondent has addressed this point in Section III.B above. 626 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §866, CA- 162.
180 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 182 of 212
(c) if both Parties are not at that time party to the Convention, refer the dispute to an Arbitral Tribunal constituted in accordance with Annex B of this Agreement, or by agreement, to any other arbitral authority. … 5. In any proceeding involving a dispute relating to an investment, a Party shall not assert, as a defence, counter-claim, right of set-off or otherwise, that the investor concerned has received or will receive, pursuant to an insurance or guarantee contract, indemnification or other compensation for all or part of any alleged loss.” (emphasis added)
537. On its plain meaning, Article 13(2) permits “either party to the dispute” to “refer the dispute [to ICSID]”, and Article 13(5) expressly contemplates counterclaims.
538. The Claimant’s case that the explicit reference to counterclaims in Article 13(5) is limited to domestic proceedings is strained, wrong and must be rejected. The Claimant’s preferred construction is contrary to the ordinary meaning of, and renders entirely meaningless, the phrase “any proceeding”.627
539. This is the end of the matter. For the sake of completeness, the Respondent notes that the Claimant’s reliance on Roussalis v. Romania is designed to obfuscate the issue and to mislead the Tribunal. That tribunal was considering a very differently worded dispute settlement provision, which clearly only permitted investors to submit disputes to arbitration. Additionally, the clause was limited to disputes concerning the respondent State’s obligations and contained no reference to counterclaims. Article 9 of the Greece-Romania BIT, which was at issue in Roussalis v. Romania states:
“Disputes between an investor of a Contracting Party and the other Contracting Party concerning an obligation of the latter under this Agreement, in relation to investment of former, shall, if possible, be settled by the disputing parties in an amicable way…
627 Even if Article 13 were unclear on its face (which it is not), it would have to be interpreted in light of the ICSID Convention. Urbaser S.A. and others v Argentine Republic, ICSID Case No. ARB/07/26, Decision on Jurisdiction, 19 December 2012, §53, RLA-173: “The interpretation of the BIT in light of its objective and purpose must be further contextualized with the “mother” treaty to which most BITs (including that in the instant case) relate, i.e. the ICSID Convention. … [The Convention’s] goal [of investment promotion] is embedded in a policy that seeks to foster a reasonable and tempered balance between the interests of the investors and those of the Host States. …While this proposition is true for the ICSID Convention, it must also be true for the BITs that have been developed based on this treaty.”
181 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 183 of 212
If such disputes cannot be settled within six months from the date either party requested amicable settlement, the investor concerned may submit the dispute either to the competent courts of the Contracting Party in the territory of which the investment has been made or to international arbitration”.628 (emphasis added)
540. Confronted by this unambiguous language, the tribunal in Roussalis v. Romania found that the contracting States had intended “undoubtedly [to] limit jurisdiction to claims brought by investors about obligations of the host State.”629
541. This Tribunal, however, is faced by an entirely different clause. As the Respondent has already demonstrated, Article 13 of the BIT is deliberately formulated to give either party – the investor or the respondent State – the right to refer disputes that arise between them to international arbitration. It does not limit the arbitration provision to disputes relating to the respondent State’s obligations and expressly contemplates the introduction of counterclaims in these proceedings.
(2) By bringing these proceedings, the Claimant has consented to have the Respondent’s counterclaims arbitrated in accordance with Article 46 of the ICSID Convention
542. In any event, according to both recent tribunal decisions and doctrinal orthodoxy, the Claimant must be deemed to have consented to the Respondent’s counterclaims being arbitrated in accordance with Article 46 of the ICSID Convention by bringing these proceedings.
543. Article 46 of the ICSID Convention states:
“Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counterclaims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.”630
628 Article 9, Greece-Romania BIT, quoted in Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §869, CA-162. 629 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §869, CA- 162. 630 See also Rule 40, ICSID Arbitration Rules:
182 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 184 of 212
544. Pursuant to Article 31(1) of the Vienna Convention on the Law of Treaties, an interpretation of Article 46 must give its terms their ordinary meaning in their context and in light of the object and purpose of the ICSID Convention.
545. Article 46 explicitly envisages that respondent States may bring “counterclaims”, provided certain conditions are met. This construction is confirmed by reading Article 46 in the context of its surrounding provisions and the ICSID Convention as a whole. For example, Article 36(1) refers to the institution of arbitral proceedings by either a national of a Contracting State or a Contracting State itself:631
“Any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall address a request to that effect in writing to the Secretary-General, who shall send a copy of the request to the other party.” (emphasis added)
546. Stepping back from its detailed provisions, the title of the ICSID Convention refers to disputes “between States and Nationals of Other States”. The drafters’ use of the word “between” indicates that disputes flow in both directions, rather than the Convention being simply a tool to be used by investors against host States.632 Indeed, it is clear from the Report of the Executive Directors on the ICSID Convention that it was intended to protect the interests of host states as well as foreign investors.633 Similarly, Kendra observes in relation to the travaux preparatoires of the ICSID Convention:
“Except as the parties otherwise agree, a party may present an incidental or additional claim or counter-claim arising directly out of the subject-matter of the dispute, provided that such ancillary claim is within the scope of the consent of the parties and is otherwise within the jurisdiction of the Centre.” 631 On which, see, T. Kendra, State Counterclaims in Investment Arbitration A New Lease of Life, (2013) 29(4) Arbitration International 575, RLA-189. 632 See T. Kendra, State Counterclaims in Investment Arbitration A New Lease of Life, (2013) 29(4) Arbitration International 575, at p. 576, RLA-189. 633 Report of the Executive Directors, §23: “While the broad objective of the Convention is to encourage a larger flow of private international investment, the provisions of the Convention maintain a careful balance between the interests of investors and those of host States.” See also Amco v Indonesia, ICSID Case No. ARB/81/1, Decision on Jurisdiction, 25 September 1983, reprinted in 23 I.L.M. 351, §23, RLA-172:
183 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 185 of 212
“It was therefore the expressed intention of the authors of the Convention that ICSID arbitration should not be a one-way street and that claims and therefore counterclaims could be brought by host states.”634
547. Schreuer explains that Article 46 is underpinned by the important principles of judicial economy and finality of proceedings:
“The basic idea of Art. 46 is to deal with closely related claims in one set of proceedings. Parallel or consecutive proceedings relating to different aspects of the same dispute are not only costly and inefficient but are also liable to lead to conflicting outcomes. The principles of economy and of finality militate in favour of hearing and deciding all aspects of a dispute in one set of proceedings.”635 (emphasis added)
548. The Claimant refrains from asserting that Article 46 of the ICSID Convention does not support the Respondent’s case on jurisdiction. It is correct to do so, as such a suggestion would be untenable. In Roussalis v Romania, Professor Reisman explained that:
“[W]hen the State Parties to a BIT contingently consent, inter alia, to ICSID jurisdiction, the consent component of Article 46 of the Washington Convention is ipso facto imported into any ICSID arbitration which an investor then elects to pursue … Article 46 works to the benefit of both respondent state and investor”.636
549. As explained in the Respondent’s Counter-Memorial, Professor Reisman’s view now represents both recent tribunal practice and doctrinal orthodoxy. 637 For example, the tribunal in the recent case of Goetz v Burundi638 adopted this natural
“[The ICSID Convention] is aimed to protect, to the same extent and with the same vigour the investor and the host State, not forgetting that to protect investments is to protect the general interest of development and of developing countries.” 634 T. Kendra, State Counterclaims in Investment Arbitration A New Lease of Life, (2013) 29(4) Arbitration International 575, at p. 577, RLA-189. 635 C. Schreuer, The ICSID Convention: A Commentary, (2nd ed., 2009, Cambridge University Press), p.732, RLA-190. 636 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, RLA-110 (which the Claimant tellingly omitted to include with its exhibit of that decision at CA-162). 637 See, for example: M. Bravin and A. Kaplan, Arbitrating Closely Related Counterclaims at ICSID in the Wake of Spyridon Roussalis v. Romania, (2012) 9(4) TDM 1, RLA-191; T. Kendra, State Counterclaims in Investment Arbitration A New Lease of Life, (2013) 29(4) Arbitration International 575, RLA-189; A. Bjorklund, The Role of Counterclaims in Rebalancing Investment Law, (2013) 17(2) Lewis & Clark L R 461, RLA-192; Antoine Goetz and others v. Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21 June 2012, §279, RLA-193. 638 Antoine Goetz and others v. Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21 June 2012, RLA-193.
184 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 186 of 212
interpretation of Article 46. It found that the mere fact of consent to ICSID proceedings was sufficient to establish consent for the bringing of counterclaims:
“[B]y the very act of entering the BIT, Burundi has accepted that any disputes which go to arbitration under the ICSID framework will be governed by the terms of and according to the rules laid down under the Washington Convention. In particular, it accepted that incidental or additional claims or counterclaims brought during proceedings would be considered by the Tribunal under the conditions laid down by Article 46 of the Convention and Article 40 of the Arbitration Rules. By accepting the offer made in the BIT, the Goetz parties for their part accepted that this would be the case. This twofold consent gives the Tribunal jurisdiction to hear counterclaims.”639
550. The tribunal in that case went further, explaining that “as such, it is of no significance that the BIT contains no provision giving the Tribunal jurisdiction to hear counterclaims”.640
551. Consequently, provided the requirements of Article 46 are met, 641 the present Tribunal would have jurisdiction to hear the Respondent’s counterclaims. This would be so even if the BIT were silent on the question of counterclaims, which is not the case.
552. By initiating the present arbitration the Claimant accepted the Respondent’s offer of ICSID arbitration, contained in Article 13 of the BIT, in accordance with the ICSID Convention. The Claimant, therefore, agreed that the Respondent was entitled to bring a counterclaim pursuant to Article 46 of the ICSID Convention.
(3) The Respondent’s counterclaims have a sufficient nexus with the Claimant’s claim to fall within the jurisdiction of the Tribunal.
553. The Respondent’s counterclaims are self-evidently inextricably linked to the Claimant’s claim. The Respondent has already demonstrated that its
639 Antoine Goetz and others v. Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21 June 2012, §278, RLA-193. 640 Antoine Goetz and others v. Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21 June 2012, §279, RLA-193. 641 Which, as explained in the next Section, they are.
185 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 187 of 212
counterclaims (1) arise directly out of the subject-matter of the dispute,642 (2) are within the scope of the consent of the parties,643 and (3) are otherwise within the jurisdiction of the Centre.644 The Claimant has failed to show otherwise. It merely asserts that “Pakistan has not met this burden”, without more. 645 The only conclusion that may be drawn from such failures is that the Claimant implicitly accepts that, if the Tribunal has jurisdiction over the Claimant’s claims, then it necessarily has jurisdiction to hear and decide the Respondent’s counterclaims based on breaches of Article 1(1)(a) of the BIT, the CHEJVA, the BMR, and Pakistani law and investment policy.646 This is sufficient to decide the issue of the Tribunal’s jurisdiction to hear the counterclaims in the Respondent’s favour. Nonetheless, the Respondent addresses the three core contentions of the Respondent on this point.
554. First, the Claimant also argues that Article 1(1)(a) of the BIT, which requires that an investment be “admitted by the other Party subject to its law and investment policies”,647 can only result in a rejection of its claim for lack of jurisdiction, but cannot give rise to a claim by the State for a violation of the BIT.648 There is no such distinction in Article 1(1)(a) of the BIT. On its ordinary meaning, Article 1(1)(a) imposes an obligation for an investment to be admitted in accordance with the laws and investment policies of the host State. The Claimant has failed to do so. Consequently, Article 1(1)(a) can – and in this case does – give rise to a claim by the State for a violation of the BIT.
555. The Claimant derives no assistance, in this respect too, from Roussalis v Romania. That tribunal’s finding that the Greece-Romania BIT “imposes no obligations on investors” rested upon two particular features of that treaty which are not present
642 Counter-Memorial, §§631-632. 643 Counter-Memorial, §§633-637. 644 Counter-Memorial, §§638-645. 645 Reply, §488. 646 Providing the Claimant meets its jurisdictional hurdles to bring its claim. 647 Australia-Pakistan BIT, Article 1(1)(a), CE-04. 648 Reply, §492.
186 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 188 of 212
in this case.649 First, as explained above, the tribunal found that the arbitration agreement in Article 9 “does not provide for counterclaims to be introduced by the host state in relation to obligations of the investor.” Second, the treaty in that case only referred to the obligations of the host state and contained an applicable law clause which specified the BIT and international law.650 There was, therefore, no room for the invocation of obligations existing under municipal law or otherwise.651
556. Neither of these factors applies here. As shown above, Article 13 of the BIT explicitly contemplates counterclaims.
557. Second, the Claimant has argued that the Tribunal lacks jurisdiction to decide the Respondent’s counterclaims premised on the Claimant’s breaches of the CHEJVA, on the basis that the CHEJVA contains an exclusive arbitration clause. However, the only relevant jurisdictional question for this ICSID Tribunal is whether or not such counterclaims have a sufficient nexus with the Claimant’s claim under the BIT to meet the requirements of Article 46 of the ICSID Convention. The Claimant cannot have it both ways: it cannot, despite the exclusive jurisdiction clause in the CHEJVA, bring this ICSID arbitration on the basis of Article 13 of the BIT, but then also allege that the Respondent cannot do likewise on the basis of the same provision. If the Claimant succeeds jurisdictionally, so too must the Respondent.
558. Third, the Claimant’s claim that the Tribunal lacks jurisdiction over the Respondent’s arguments in relation to the BMR must also fail. It has limited its
649 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §871, CA- 162. 650 Article 9(4), Greece-Romania BIT: “The arbitral tribunal shall decide the dispute in accordance with the provisions of this Agreement [the BIT] and the applicable rules and principles of international law …”: Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §870, CA-162. 651 Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award, 7 December 2011, §871, CA- 162: “As mentioned above, the BIT imposes no obligation on investors, only on contracting States. Therefore, where the BIT does specify that the applicable law is the BIT itself, counterclaims fall outside the tribunal’s jurisdiction. Indeed, in order to extend the competence of a tribunal to a State counterclaim “the arbitration agreement should refer to disputes that can also be brought under domestic law for counterclaims to be within the tribunal’s jurisdiction (P. Lalive and L. Halonen, “On the availability of Counterclaims in Investment treaty Arbitration”, Czech yearbook of international law, 2011, p.141, no7.19).”
187 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 189 of 212
analysis to citing the decision in Paushok v. Mongolia652 and seeking to draw an analogy with the present case. However, Paushok v. Mongolia653 was concerned with Article 19 of the UNCITRAL rules, not Article 46 of the ICSID Convention. The UNCITRAL Rules specifically limit counterclaims to issues “arising out of the same contract”.654 Article 46 of the ICSID Convention does not.
559. In addition, the relevant treaty in Paushok v. Mongolia made no provision for counterclaims,655 unlike in the present case. The tribunal in Paushok v. Mongolia considered, in dismissing counterclaims made on the basis of national law, that these pertained exclusively to questions of non-compliance with local law, which were not sufficiently connected to the treaty as it did not direct the tribunal to apply the laws of the host state.656 In contrast, in the present case, as in Goetz v Burundi, the BIT gave the Tribunal jurisdiction over counterclaims based on breaches of domestic law. On the Claimant’s own interpretation, Article 13 refers to domestic law. 657 On the Respondent’s interpretation, Article 13 makes provision for claims under both domestic law and the BIT. Therefore, and by analogy to Goetz v Burundi, the Tribunal has jurisdiction to hear the Respondent’s counterclaims based on the BMR and the laws or investment policies of Pakistan.
B. THE CLAIMANT BREACHED ITS DUTIES TO THE RESPONDENT
560. The Respondent has demonstrated the following in its Counter-Memorial:
652 Reply, §501. Paushok v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, CA-164. 653 Paushok v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, CA-164. 654 Article 19(3) of the UNCITRAL Rules reads as follows: “3. In his statement of defence, or at a later stage in the arbitral proceedings if the arbitral tribunal decides that the delay was justified under the circumstances, the respondent may make a counter-claim arising out of the same contract or rely on a claim arising out of the same contract for the purpose of a set-off”. RLA-194. 655 Paushok v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, §687, CA-164. 656 Paushok v. Mongolia, UNCITRAL, Award on Jurisdiction and Liability, 28 April 2011, §694, CA-164. 657 Reply, §494.
188 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 190 of 212
a. that the Claimant’s alleged investment was admitted in violation of Pakistani law and investment policies;658
b. that the Claimant had breached the terms of the CHEJVA (assuming, arguendo, that agreement to be valid and that the Tribunal has jurisdiction over contractual issues);659
c. that the Claimant breached its undertakings; and
d. that the Claimant breached the BMR.660
561. The Respondent does not propose to repeat the various breaches that the Claimant has committed – not least because the Claimant has made no substantive submissions on their content.661
562. First, as discussed in Section III above and the in Part A of the Annex attached, the Claimant sought entered into the CHEJVA agreements which the Supreme Court found unequivocally were illegal. The Claimant thereby violated Pakistani law and investment policies.
563. Second, the Claimant has breached its obligations under the CHEJVA (assuming, arguendo, that agreement to be valid). The Claimant has failed to abide by the procedures established by Article 11 of the CHEJVA.
a. Article 11 obliged the Claimant, as BHP’s successor, to offer the BDA the opportunity to become a Participating Party in respect of all “Mining deposits” covered by any application for a mining lease.662 The Feasibility Study presented to the BDA did not cover all the “Mineral deposits” in the Mining Area. The Claimant thereby failed to provide its joint venture partner with an opportunity to participate in the development of the mineral deposits which were covered by the
658 See Counter-Memorial, §§647-651. 659 See Counter-Memorial, §§652-656. 660 See Counter-Memorial, §§657-665. 661 See Reply, §504. 662 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Article 11.3, CE- 01.
189 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 191 of 212
Mining Lease Application but not the Feasibility Study. 663 This constituted a clear violation of Article 11.3 of the CHEJVA.
b. The Claimant failed to acquire the interest of the party to the Joint Venture established by the CHEJVA, contrary to Article 11.4,664 which required the Claimant through TCCP to acquire an interest in all relevant Joint Venture Property if it were to undertake a sole risk mining development. Further, the Claimant also breached Article 11.6, which imposed a procedure by which, for the purpose of such an acquisition, the parties should negotiate a fair compensation or refer the matter to expert determination. The Claimant submitted its Mining Lease Application in February 2011, yet only discussed the possibility of acquiring the BDA’s interest in the Joint Venture Property several weeks later, in March 2011.665
c. The Claimant breached Article 15 of the CHEJVA,666 by submitting its dispute to arbitration without exhausting the period of negotiations set out in the CHEJVA.
d. The Claimant breached the obligation of “continuing co-operation and good faith” in Article 24.6 of the CHEJVA, and its duty to act in good faith pursuant to general principles of law. 667 In relation to the CHEJVA, Article 24.6.1 provides that the Parties shall not engage in any activity in the Exploration Area except as provided by the CHEJVA, and Article 24.6.2 provides that the Parties “shall be just and faithful to one another and will not do or omit to be done anything
663 See Sections II.B and II.C above. 664 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Article 11.4, CE- 01. 665 See Sections II.B and II.C above. 666 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Article 15, CE- 01. 667 On which, see Y. Kryvoi, ‘Counterclaims in Investor-State Arbitration’, (2012) 21(2) Minnesota Journal of International Law 216, RLA-195.
190 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 192 of 212
which prejudices the interests of the Joint Venture”.668 The Claimant breached these provisions when it submitted a Mining Lease Application over an area over in respect of which it had not acquired the BDA’s rights nor prepared and submitted a Feasibility Study of equal scope, and when it had prepared a secret Expansion Pre-Study which it recognised “has not been given to the government”. 669 Further, the Claimant breached the duty to act in good faith pursuant to general principles of law by these same actions, and also by attempting to: obtain and/or rely on unlawful derogations from the BMR; obtain unfair terms in the course of the Mineral Agreement negotiations;670 engage in a land grab through its Mining Lease application;671 impose the terms it could not obtain in the Mineral Agreement negotiations by submitting a Mining Lease Application that was incomplete and could never have been approved;672 and manufacture an arbitration claim for which there is no basis.
564. Third, the Claimant violated the terms of its undertaking dated 10 April 2006,673 which it gave in order to enter into the CHEJVA and EL-5. The Claimant gave the following guarantees in the undertaking:
a. that it would observe and abide by all the terms and conditions as contained in the Assignment later dated 8 April 2006, namely that it:674
1. shall furnish an undertaking that they will observe and abide by all the terms of the BMR, as approved / amended form time to time;
668 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Article 24.6.1, CE-01. 669 Transcript of Provisional Measures Hearing, 6 November 2012, pp.146, lines 10-14, Ex RE-69. 670 See Section II.A above. 671 See Section II.C.2 above. 672 See Sections II.C.1 and II.C.3-5 above. 673 Letter from Tethyan Copper Company Pty Limited to Director General, Mines and Minerals re: Acceptance and Undertaking EL(5), dated 10 April 2006, CE-206. 674 Letter of Director General to Chaigai Hill Joint Venture, dated 8 April 2006, Ex RE-25.
191 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 193 of 212
2. shall perform its obligations under the CHEJVA;
3. shall pay rent and royalty etc at the rate prescribed in the BMR and as amended from time to time; and
4. shall assume all the obligations and pay all outstanding dues in respect of this Exploration License ever since its grant if they become due at the later stage.
b. that it would also abide by all other applicable conditions of the National Mineral Policy read with the Balochistan Minerals Rules, 2002 as approved / amended from time to time
565. The Claimant also specifically undertook, at the time of seeking a second renewal of EL-5, that the Feasibility Study would be conducted in relation to “the development of all deposits, which are spread over a large area of EL-5”.675
566. In breach of these undertakings, the Claimant produced an incomplete Feasibility Study, 676 submitted a Mining Lease Application that could never have been approved and failed to meet its obligations under CHEJVA, the BMR, and Pakistani law and investment policy.
567. Fourth, the Claimant breached the BMR:
a. The Claimant breached BMR 29(2)(c)(iii) by procuring the renewal of an exploration licence on the premise that “such a renewal is necessary for the completion of a full feasibility study of the discovered deposits”, but then submitting an incomplete Feasibility Study in August 2010.677
675 See Application for Second Renewal of EL-5, dated 2 November 2007, Ex RE-15. 676 Which covered H14 and H15, less than six square kilometres, out of the 435 sq km area of EL-5. See Section II.B.2 above. See also Minutes of Operating Committee Meeting held on 26 October 2007, CE-64; Letter from Tethyan Copper Company Pty Limited to Secretary, Mines and Minerals Development Department, Government of Balochistan re: Feasibility Study for the Reko Diq Project, dated 26 August 2010, CE-22. 677 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 29(2)(c)(iii), Ex RE-1. See Section II.B.2 above.
192 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 194 of 212
b. The Claimant breached BMR 47(2)(f) when, at the expiry of the Exploration Licence EL-5 in February 2011, it submitted as part of its Mining Lease Application the same incomplete Feasibility Study covering only 2 of the 14 deposits in the sought Mining Area.678
C. CONCLUSION
568. It is undeniable that, if the Tribunal has jurisdiction to hear the Claimant’s claims, then the Tribunal also has jurisdiction to hear the Respondent’s counterclaims, as particularised above.
569. As a result of the Claimant’s breaches, the Respondent has suffered substantial loss. “[O]ne of the world’s largest copper-gold deposits” 679 has not been effectively and efficiently explored and mined, causing loss to Balochistan, the Respondent, and their citizens. Aside from losing profit that the Respondent would have earned had the site been exploited, the Respondent has also suffered loss due to, inter alia, the failure to provide employment and cash injection into the local economy, the loss of income from taxation that the project would have generated, the loss of the anticipated socio-economic benefits as a result of the failure to develop an infrastructure, and the loss arising from the failure to develop mining expertise.
570. The anticipated developmental benefits that have been lost as a result of the Claimant’s conduct would have improved the lives of the Balochi people. Given the current parlous state of Balochistan’s development, benefits from mineral exploitation could have been the cure for many of the ailments faced by the Balochi people, including poverty, malnutrition and terrorism. Mineral resources are the only hope for the Balochi people as Balochistan is an arid province with little water or agriculture.
571. The Claimant’s failure to develop the vast swathes of land in the Reko Diq area, to which it and its predecessor had exclusive exploration rights for nearly 20 years, has thwarted the development of the resources and people of Balochistan –
678 Balochistan Mineral Rules 2002, dated 9 March 2002, rule 47(2)(f), Ex RE-1. See Section II.C.1 above. 679 Memorial, §32.
193 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 195 of 212
contrary to the letter and spirit of the BMR, the National Mineral Policy, and the Preamble to the BIT.
572. The Respondent has also suffered moral damage as a result of the Claimant’s action.680
573. The Respondent will quantify its loss at a later stage in these proceedings, if any.
680 Benvenuti and Bonfant SRL v. People’s Republic of Congo, ICSID Case No. ARB/77/2, Award, 15 August 1980, §101, RLA-196.
194 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 196 of 212
VIII. REQUEST FOR RELIEF
574. For the reasons set out above, the Respondent respectfully requests the Tribunal to:
a. decline jurisdiction or declare the Claimant’s claims inadmissible;
b. alternatively, stay these proceedings pending resolution of the ICC arbitration;
c. alternatively, to the extent that the Tribunal proceeds to examine the merits of the case, declare that the Respondent has not breached the BIT and dismiss the Claimant’s claims in their entirety;
d. alternatively, to the extent that the Tribunal finds that the Respondent has breached the BIT, dismiss the Claimant’s claims for failure to establish causation;
e. alternatively, uphold the Respondent’s counterclaims and award damages in a sum to be determined at a later stage in these proceedings; and
f. order the Claimant to pay the totality of the Respondent’s costs and expenses relating to these arbitration proceedings
Respectfully submitted by:
Ahmer Bilal Soofi Cherie Booth QC Kayzad Kaikobad Mahnaz Malik Noor Ahmed Zeb Zannis Mavrogordato Marium Khalid Lucas Bastin Faizan M. Warraich Sean Aughey Matthieu Gregoire ABS & Co James Palmer 12 Embassy Road, c/o Omnia Strategy LLP Sector G-6/4 P.O. Box 60519 Islamabad, 44000, Pakistan London W2 7JU, United Kingdom
25 August 2014 Counsel for the Government of the Islamic Republic of Pakistan (Respondent)
195 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 197 of 212
IX. ANNEX
1. In this Annex, the Respondent summarises the findings and provides brief supporting analysis of the Supreme Court in relation to the invalidity and illegality of the CHEJVA agreements (Part A below) and in relation to Balochistan not being a party to the CHEJVA agreements (Part B below).
2. By way of introduction, however, the Respondent recalls that the CHEJVA agreements have been the subject of a 149-page judgment of Pakistan’s highest court, reached after six weeks of hearings and six years of proceedings, which started years before this arbitration was commenced.681 As the Claimant notes, the proceedings were constituted by way of appeal from the Balochistan High Court Judgment of 2006 and supplemented by additional petitions submitted directly to the Supreme Court.682
3. The Claimant is simply wrong to suggest that the Supreme Court “rendered its decision on a cold, incomplete record”.683 The Supreme Court ordered that the complete documentary record be produced for inspection.684 There followed a detailed examination and analysis of the record, culminating in a six-week hearing before “Bench No. 1” of the Supreme Court, including the then Chief Justice of Pakistan.
4. The Claimant, TCCP and BHP all actively participated in the proceedings before the Balochistan High Court and the Supreme Court, each instructing senior Pakistani counsel.685 Indeed, the bulk of the substantial six-week hearing was devoted to hearing submissions from counsel for the Claimant. 686 Its parent companies, Antofagasta and Barrick also appeared and adopted the Claimant’s submissions.
5. Finally, contrary to the Claimant’s assertion, the Supreme Court neither engaged in “limited fact-finding” nor lacked “evidentiary support” for its conclusions. It
681 Hearings were held on the following dates: 11 and 24 November 2010; 15 December 2010; 12, 13, 17, 25-28, 31 January 2011; 1-3, 8, 15, 22 February 2011; 5-6 April 2011; 23-25 May 2011, 7, 29 February 2012; 5-6, 12, 29 March 2012; 4, 10 April 2012; 8, 24 May 2012; 4 July 2012; 12-23, 13 November – 21 December 2012. 682 Memorial, §§296, 334, 374. See also Constitution of Pakistan 1973, Article 185(1), Ex RE-16: “Subject to this Article, Supreme Court shall have jurisdiction to hear and determine appeals from judgments, decrees, final orders or sentences of a High Court.” 683 Reply, §445. 684 See Supreme Court Order, 8 February 2011, §§2-3, Ex RE-7. 685 The counsel team acting for the Claimant and its associated companies included two of the leading lawyers of Pakistan, Mr Khalid Anwer and Mr Hafeez Pirzada both of whom are former Federal Ministers for Law, Justice and Human Rights. On the fact that the Claimant appeared before the Supreme Court see further Section III(C)(2) below. 686 Statement of Mr Kanrani, §47: “Out of the 6 weeks, almost four and a half weeks were taken up by TCC’s counsel and five days by BHP’s counsel.”
196 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 198 of 212
was open to the parties to file witness evidence but neither party applied to do so.687 However, Mr Borries of TCCA and TCCP provided a presentation to the Supreme Court which formed part of the court record.688
A. FINDINGS OF THE SUPREME COURT ON INVALIDITY AND ILLEGALITY OF THE CHEJVA AGREEMENTS
6. As noted in the pleading above,689 it is common ground that the Supreme Court of Pakistan has already determined that the CHEJVA and related agreements are illegal, void ab initio and non est. Relevant findings on this issues are discussed below.
7. The CHEJVA agreements were opposed to public policy contrary under section 23, Contract Act 1872. The crux of the Supreme Court’s Judgment is that the CHEJVA was unlawful and void ab initio under section 23 of the Pakistan Contract Act 1872, which states:
“What considerations and objects are lawful and what are not The consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”690
8. The Supreme Court held that the CHEJVA agreements were of “such a nature” that the Court regarded them to be “opposed to public policy”. The objective of the CHEJVA agreements was, therefore, held to be unlawful and void ab initio under section 23. The Supreme Court identified at least two independent grounds for this conclusion.
687 Article 187(1), Constitution of Pakistan 1973, Ex RE-16: “Subject to clause (2) of Article 175, the Supreme Court shall have power to issue such directions, orders or decrees as may be necessary for doing complete justice in any case or matter pending before it, including an order for the purpose of securing the attendance of any person of the discovery or production of any document.” 688 Presentation by Mr Borries to the Supreme Court of 25 January 2011, contained in the entire record pertaining to the Supreme Court Proceedings, p. 56, Ex RE-58(ix)(b). 689 See Section III.B.(2) above. 690 Contract Act 1872, Section 21, Ex RE-21.
197 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 199 of 212
9. First, the Court noted that the CHEJVA was a large-scale contract of huge public importance which had been concluded between a private investor and a statutory body. The non-transparent and non-competitive circumstances in which the Agreement was concluded (in particular the failure to hold an open tender process) caused injury to the public interest. The Court regarded such a contract to be of such a nature that was opposed to the public policy, hence its objects or consideration were said to be unlawful and therefore void under section 23, Contract Act 1872:
“We have scanned the record made available to the Court to find out whether at any stage prior to the award of CHEJVA, any tender was floated by the BDA, but unfortunately we have not come across any document showing any initiative taken by the BDA or any other department of GOB to publish advertisement in the press and invite tenders with a view to providing opportunity to other investors in the field of mining to come forward and compete with others. No doubt foreign investment in any modern economy is to be encouraged by all means, but all such activities are required to be carried out observing due process of law, which alone is a sure guarantee of the protection and promotion of the public interest.”691
10. After referring to well-settled Pakistani law on the need for open tendering, including Human Rights Case No. 4668 of 2006,692 the Supreme Court held:
“The processing of the matter by GOB in the above manner substantiates that public advertisements were not resorted to in the interest of transparency and to obtain the best competitive price for the disposal of public property, i.e., mineral resources in Reko Diq, and thereby denied participation to other investors of the field to the detriment of the general public, and especially the people of Balochistan. Such a handling of an issue of great public importance was against public policy as well because it certainly caused injury to the public good and, therefore, provides a basis for denying the legality of the transaction in question.”693 (emphasis added)
11. Second, various provisions of the CHEJVA were always in violation of the Balochistan Mining Concession Rules 1970 and therefore unlawful and void under section 23, Contract Act 1872.
691 Supreme Court Judgment, 10 May 2013, §44, Ex RE-18. 692 Human Rights Case No. 4668 of 2006 PLD 2010 SC 759, in which local companies were excluded from participating in a tender process for a lease awarded, in a non-transparent process, by the Capital Development Authority. The Supreme Court found, among other things, a violation of the freedom of trade under Article 18 of the Constitution of Pakistan. 693 Supreme Court Judgment, 10 May 2013, §44, Ex RE-18.
198 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 200 of 212
12. It is common ground that the date of its execution, certain provisions of the CHEJVA were in violation of a large number of rules in the Balochistan Mining Concession Rules 1970. For example:
a. Articles 5.2, 5.3 and 5.4, CHEJVA attempted to circumvent the limitation under Rule 30 of the Balochistan Mining Concession Rules 1970 on the maximum duration of two years for prospecting licences.694
b. Second, whereas Article 5.9, CHEJVA purported to confer upon BHP exclusive possession of the exploration area in relation to all minerals, rule 27 of the Balochistan Mining Concession Rules 1970 only entitled a licence holder to exclusive rights in relation to specific minerals.695
c. Third, whereas Article 6.5 CHEJVA purports to confer upon BHP an automatic right to a further PL in relation to “other minerals” which GOB does not wish to explore itself, rule 53 only confers a preferential right to a apply for a fresh prospecting licence.696
13. BHP was not only “aware of the restrictions imposed by the statute” 697 but expressly accepted before the Supreme Court that:
“[T]he very text of some of the conditional agreement was potentially at variance (without prejudice) with some of [the provisions of the] BMCR 1970 and therefore, it was inherently incumbent to seek relaxation thereof subject-wise to harmonize the two instruments.”698
14. Article 5.11 of the CHEJVA implicitly recognised that specified provisions of that Agreement were in violation of the Balochistan Mining Concession Rules 1970 and envisaged that “Notified Orders” would be granted to overcome this problem.699 The CHEJVA was conditional upon the parties obtaining from the
694 Supreme Court Judgment, 10 May 2013, §27, Ex RE-18. 695 Supreme Court Judgment, 10 May 2013, §29, Ex RE-18: “It is clear that the rule provides an exclusive right to mine for specified mineral, but does not envisage exclusive possession of the area for which PL is granted for all purposes of conducting activities of a JV being given to the holder of the licence.” 696 Supreme Court Judgment, 10 May 2013, §33, Ex RE-18. 697 Supreme Court Judgment, 10 May 2013, §21, Ex RE-18. 698 Supreme Court Judgment, 10 May 2013, §14, Ex RE-18. 699 CHEJVA, 29 July 1993, Clause 5.11, CE-01: “Pursuant to clause 2.2 and in so far as the Mining Rules have particular application to this Agreement, the Parties shall seek from the Provincial Government Notified order in respect of those matters identified in Clause 5.2, sub-clause 5.3.1, Clauses 5.6, 5.9 and 6.1.”
199 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 201 of 212
Government of Balochistan waivers exempting them from certain provisions of the Balochistan Mining Concession Rules 1970.700
15. The Supreme Court found that, as a matter of public policy, contracting parties may not exempt themselves by agreement from the Balochistan Mining Concession Rules 1970. There must be “across the board enforcement and application of the laws of the land”.701
16. The Court noted that the CHEJVA could have been, but was not, brought into conformity with the Balochistan Mining Concession Rules 1970 in one of two ways.
a. First, under rule 3 of the Balochistan Mining Concession Rules 1970, the parties could have sought from the Government of Balochistan “previous sanction” for the incompatible provisions of the CHEJVA.702 However, the parties failed to seek approval prior to executing the CHEJVA.703
b. Alternatively, pursuant to rule 98 of the Balochistan Mining Concession Rules 1970, BHP could have obtained valid relaxations of the relevant provisions of the Mineral Rules.704 However, the Supreme Court held that BHP never secured valid relaxations because it failed to meet the statutory test under rule 98.
17. In particular, BHP failed to put forward a case of “hardship and special circumstances”, as required by rule 98. Instead, as the Supreme Court observed, BHP admitted that it sought relaxations for merely to suit its own convenience:
“A bare perusal of the contents of BDA’s letter shows that neither BHP nor BDA in seeking relaxation of the rules fulfilled the requirements stated in rule 98 namely hardship and special circumstances, but contended by stating that ‘the required rules may be relaxed for this project to avoid any complications”.705
700 CHEJVA, 29 July 1993, Clause 2.1, CE-01. 701 Supreme Court Judgment, 10 May 2013, §§44, 59-60, Ex RE-18. 702 Rule 3(1), Balochistan Mining Concession Rules 1970, Ex RE-2: “Except with the previous sanction of the Government no licence to prospect for any mineral and no lease of mines and minerals shall be granted otherwise than in accordance with these Rules.” 703 Supreme Court Judgment, 10 May 2013, §33, Ex RE-18. 704 Rule 98, Balochistan Mining Concession Rules 1970, Ex RE-2: “The Government shall have the power to relax any and all the provisions of these Rules in cases of individual hardship and special circumstances to be recorded in writing and on terms and conditions to be fixed by it. 705 Supreme Court Judgment, 10 May 2013, §23, p.38, Ex RE-18.
200 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 202 of 212
18. After examining numerous cases considering the meaning of “hardship”, including decisions of the Indian Supreme Court,706 the Supreme Court recalled the test which had been firmly established by an earlier decision of the Supreme Court:
“Thus, while invoking the provision of relaxation, the party seeking it is required to make out a case of hardship and also show the special circumstances warranting exercise of such power, and in turn, the Authority granting such relaxation is required to record reasons for the exercise of such power. This is a common requirement found under the statutes that provide for relaxation of the rules in special cases of hardship. See Chief Secretary Punjab v. Abdul Raoof Dasti (2006 SCMR 1876).”707
19. The relaxations themselves were unlawful and ultra vires according to firmly established legal principles.
20. As a result, the CHEJVA was never brought into conformity with the Balochistan Mining Concession Rules 1970:
“In view of the matter, in absence of the requirements of rule 98 being fulfilled in the instant case, all relaxations were granted in excess of authority and were entirely beyond the scope of the provisions of the law and therefore ultra vires the powers granted under rule 98 of the BMCR of 1970 as read with section 5 of the Act of 1948 and thus void. Shorn of the relaxations so granted, [the] CHEJVA has no legal sanctity and consequently remains an agreement entered into against the provisions of law, hence not enforceable.”708
21. The Agreement was, therefore, opposed to public policy and its objects or consideration was held to be unlawful and void under section 23 of the Contract Act 1872:
“In the instant case, CHEJVA was entered into in violation of a large number of provisions of [the] BMCR 1970. It is therefore opposed to public policy which calls for across the board enforcement and application of the laws of the land. CHEJVA is hit by section 23 of the Contract Act, on this score.”709 (emphasis added)
706 Supreme Court Judgment, 10 May 2013, §22, Ex RE-18, citing Government of Andhra Pradesh v. Sri D. Janardhana Rao (1976) 4 SCC 276 (considering power of the Government to relax the service rules under rule 47, General Rules); J.C. Yadav v. State or Haryana (1990) AIR SC 857; M. Venkateshwarlu v. Government of A.P. (1996) 5 SCC 167; Sandeep Kumar Sharma v. State of Punjab (1997) 10 SCC 298; Ashok Kumar Uppal v. State of Jammu & Kashmir (1998) 4 SCC 179. 707 Supreme Court Judgment, 10 May 2013, §22, pp.37-38, Ex RE-18. 708 Supreme Court Judgment, 10 May 2013, §23, p.39, Ex RE-18. 709 Supreme Court Judgment, 10 May 2013, §44, pp.59-60, Ex RE-18.
201 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 203 of 212
22. The Addendum and Novation Agreement were void for fundamental mistake under section 20, Contract Act 1872, as well as for other reasons. The Supreme Court held also held that the Addendum and Novation Agreement were void for fundamental mistake under section 20 of the Contract Act 1872, which states:
“Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.”710
23. Both the BDA and BHP (and later the Claimant) were under a mistake, at the time of concluding the Addendum and Novation Agreement, that the Government of Balochistan was a party to the CHEJVA. Specifically, the contractual parties and joint venture partners mistakenly believed that the Chairman of the BDA had validly signed the CHEJVA on behalf of the Government of Balochistan.
24. The extent of this mistake is evident from the face of the CHEJVA agreements. The preamble to the CHEJVA states that it is an agreement between BHP and the “Governor of Balochistan, through the Chairman, Balochistan Development Authority.”711
25. The fact that this mistake persisted is demonstrated by the mere fact that the Chairman of the BDA continued to sign the Addendum and Novation Agreement in a similar manner. The Addendum, which was purportedly executed by the Chairman of the BDA on behalf of the Governor of Balochistan, recorded the parties’ intention that “GOB is the Party to the JVA”. 712 Similarly, the Chairman of the BDA purported to sign the Novation Agreement both on behalf of the BDA and the Government of Balochistan (through the Governor of Balochistan).713
26. The Supreme Court held that the Addendum and Novation Agreement were void for fundamental mistake under section 20, Contract Act 1872:
“All these clarifications and ratifications [in the Addendum] were based on a mistake of fact … [that] GOB was a party to [the] CHEJVA and [that the] BDA was agent of GOB. Such a mistake of fact on the part of BHP made the contract void and unenforceable.”714
“This confusion on the part of BDA as well as GOB hierarchy unfortunately led to a fundamental uncertainty and ambiguity in CHEJVA, which rendered the contact void ab initio on this score as well. … [T]he very premise of the Addendum as well as the Novation
710 Contract Act 1872, Section 20, Ex RE-21. 711 CHEJVA, 29 July 1993, p.1, CE-01. 712 Addendum No. 1 to Chagai Hills Exploration Joint Venture Agreement, 4 March 2000, CE-02. 713 Novation Agreement to Chagai Hills Exploration Joint Venture Agreement, 1 April 2006, CE-03. 714 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18.
202 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 204 of 212
Agreement that BDA was an agent of GOB constitutes a “mistake of fact” within the ambit of section 20 of the Contract Act.”715
27. The Supreme Court also held that the Novation Agreement and Exploration Licence EL-5 were unlawful and void ab initio for additional reasons.
28. First, the Novation Agreement stands and falls with the (un)lawfulness of the CHEJVA. Since the original contract i.e. the CHEJVA was unlawful and void, the same was true of the Novation Agreement:
“CHEJVA having been found and declared to be a void agreement in the earlier part of this judgment, there was no room left for BHP to build the superstructure on its basis, namely, Addendum No. 1, Option Agreement, Mincor Option, Alliance Agreement, Novation Agreement, or the subsequent share-purchase agreements.”716
29. As the Supreme Court explained, relying on Indian Supreme Court authority:
“A necessary element for the execution of a valid novation of contract is the validity of the original agreement that is to be substituted. Where an agreement is void, all subsequent alterations, variations or novations based upon such agreement will also be invalid. When a contract is unlawful or illegal as being prohibited by a specific provision of the statute, it could not be enforced, although the parties might have entered into a novation of the contract on the basis of such unlawful or illegal consideration.”717
30. Moreover, the Novation Agreement purported to carry forward the same illegality that the terms of the CHEJVA suffered from. As counsel for the Claimant accepted at the ICC hearing in June:
“To the extent that the novation likewise aims to achieve the same unlawful or illegal purpose, it’s unsurprising that a novation would not be any more valid than the original contract.”718
715 Supreme Court Judgment, 10 May 2013, §75, Ex RE-18. 716 Supreme Court Judgment, 10 May 2013, §36, Ex RE-18. 717 Supreme Court Judgment, 10 May 2013, §87, Ex RE-18 citing Haji Habib v Bhikamchand Jankilal Shop, AIR 1954 Nag 306 and Rantanlal v Mangilal AIR 1963 MP 323: “A court of law … should decline to enforce … any legal contract which has its basis in an earlier illegal or immoral contract, in spite of the fact that the parties may have entered into a novation … having in view the provisions of section 23 of the Contract Act as the contract would be illegal … where the very consideration would continue to be unlawful in spite of a novation.” Cf Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645 (QBD), 650, RLA-197. 718 Transcript of ICC Hearing on Preliminary Issues, 24 June 2014, Day 2, 174:18-21, Ex RE-159.
203 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 205 of 212
31. Second, the Supreme Court held that the Novation Agreement was itself opposed to public policy and therefore unlawful and void under section 23 of the Contract Act 1872.
32. The unlawfulness and voidness of the CHEJVA necessarily meant that the Joint Venture never existed and could not hold rights in Exploration Licence EL-5. Lastly, the Supreme Court held that the invalidity of the CHEJVA had even wider reaching consequences. The contractual Joint Venture depended for its existence on the CHEJVA. Since the CHEJVA was illegal and void ab initio, the Joint Venture never existed. It follows that the Joint Venture could never have been the holder of any rights under Exploration Licence EL-5.
“EL-5 was tantamount to exploration contrary to the rules and regulations as the claim of TCCP was based on CHEJVA, which document itself had been held to be non est. Therefore, before exploration it was incumbent upon it to have sought rectification of its legal status.”719
33. The Supreme Court’s finding as to the status of rights under EL-5 and its determination that the CHEJVA agreements are invalid, unlawful and void ab in initio constitutes a binding statement of Pakistani law as it applies to the facts found by the Supreme Court.720
B. FINDINGS OF THE SUPREME COURT THAT THE GOVERNMENT OF BALOCHISTAN IS NOT A PARTY TO THE CHEJVA AGREEMENTS
34. In addition to its findings on the validity and legality of the CHEJVA agreements, the Supreme Court has already determined, as a matter of fact, that the Government of Balochistan is not a party to the CHEJVA Agreements:
“It is clear that CHEJVA was made between BDA and BHP alone for all practical purposes, and not between GOB through BDA and BHP.”721
35. The Claimant’s counter-party to any of the (invalid) contracts is the BDA, not the Government of Balochistan. The Supreme Court’s conclusion is confirmed by the negotiation history and the Claimant’s subsequent conduct.
719 Supreme Court Judgment, 10 May 2013, §122, Ex RE-18; Supreme Court Order, 7 January 2013, §12, CE-289. 720 The factual basis of the claims as to invalidity before the Supreme Court and this Tribunal is (obviously) identical. 721 Supreme Court Judgment, 10 May 2013, p.84, Ex RE-18.
204 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 206 of 212
36. The Court reached this conclusion with the benefit of detailed written and oral argument and after having conducted its own careful examination of the documentary record, including the CHEJVA itself:
“Having examined this aspect of the matter in some detail, we find that the GOB was not a party to CHEJVA, therefore, GOB could not be said to have entered into an agreement with any company or a prospective licensee of the nature referred to in CHEJVA or the Addendum.”722 (emphasis added)
37. The Supreme Court’s conclusion rests on four findings.
38. First, the Supreme Court held that the Government of Balochistan was not empowered to authorise the Chairman of the BDA to sign the CHEJVA, Addendum or Novation Agreement on its behalf. The Chairman of the BDA purported to sign: (a) the CHEJVA on the BDA’s behalf; (b) the Addendum on behalf of the BDA and the Government of Balochistan; and (c) the Novation Agreement on behalf of the Governor of Balochistan through the BDA.
39. The Supreme Court of Pakistan held that, under Pakistani law, the Government of Balochistan does not have the power to make contracts through the BDA. Hence, the CHEJVA agreements were ultra vires. This is because, pursuant to the constitutional provisions contained in the Balochistan Rules of Business 1976, the Provincial Government may only permit either specified officials or “officers” of the Government of Balochistan to sign contracts on its behalf. Since the Chairman of is not an officer of the Government of Balochistan (or the Respondent) the Provincial Government did not have the power to appoint him as its agent for the purpose of signing the CHEJVA agreements.
40. The Supreme Court commenced by explaining that the BDA is not part of the Government of Balochistan. It is a “statutory corporation with a separate and distinct”723 identity to the Respondent, which “can sue or be sued” in its own name. The Supreme Court held:
a. “… BDA possesses its own legal personality, distinct and separate from GOB. BDA is not even listed as an attached department under any of the Departments of GOB in the GOB Rules of Business, 1976.”724
722 Supreme Court Judgment, 10 May 2013, §88, Ex RE-18. 723 Supreme Court Judgment, 10 May 2013, §88, Ex RE-18. 724 Supreme Court Judgment, 10 May 2013, §75, Ex RE-18. See Balochistan Development Act 1974, section 3(2), Ex RE-42: “The Authority shall be a body corporate having perpetual succession and a common seal with power…to acquire and hold property, both moveable and immoveable, and shall by the said name sue and be sued.”
205 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 207 of 212
b. The Chairman of the BDA “is an office holder in a statutory incorporated body … [rather than] an officer of GOB authorised to represent the Government.” 725
c. The BDA’s constituent Act, the BDA Act 1974, “does not authorise the BDA to act as an agent of the GOB” in relation to the conclusion of contracts.726
41. The Supreme Court then set out the relevant constitutional provisions. The conditions for the lawful exercise of the Provincial and Federal Governments’ power to make contracts are set out in Article 173 of the Constitution of Pakistan. As the Supreme Court summarised:
“[U]nder Article 173(3) of the Constitution, all contracts made on behalf of … a Province shall be expressed to be made in the name of…the Governor of the Province, and all such contracts…made in the exercise of that authority shall be executed on behalf of the…Governor by such persons and in such manner as he may direct or authorize”.727
42. This is not merely a question of having to follow internal processes within the Government of Balochistan machinery. If the Governor does not have the power to direct or authorise a particular person in a particular manner, the purported exercise of the power is ultra vires. It was therefore essential that the conditions were satisfied in relation to each of the three CHEJVA agreements.
43. Pursuant to Article 139 of the Constitution, the conduct of the Provincial Government’s business, including the making of contracts, is to be under rules. Again, as the Supreme Court observed:
“[U]nder Article 139(2), the Provincial Government shall, by rules, specify the manner in which orders and other instruments made and executed in the name of [the] Governor shall be authenticated.”
44. The Balochistan Rules of Business 1976, like all provincial rules, were enacted pursuant to Article 139 of the Constitution. Pakistani courts have repeatedly recognised the fundamental importance of the Rules of Business. Their legal status is equivalent to an Act of Parliament. 728 All Government of Balochistan
725 Supreme Court Judgment, 10 May 2013, §50, Ex RE-18. It is undisputed that Mr Jaffer signed the CHEJVA in his capacity as Chairman of the BDA, rather than as Additional Chief Secretary. 726 Supreme Court Judgment, 10 May 2013, §73, Ex RE-18. 727 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18. 728 Wattan Party v Federation of Pakistan, 2006 PLC 697 SC, §54, RLA-198: “…the procedural rules are not ordinary rules framed under an Act of Parliament but are the rules which have been framed under the Constitutional provision, therefore, their status would not be less than an Act of Parliament any manner…”
206 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 208 of 212
entities are required to follow the Rules of Business “strictly”.729 The Pakistani courts have explained that the Rules of Business are underpinned by the fundamental principles including democracy and governmental accountability.730
45. Rule 7 of the Balochistan Rules of Business states:
(1) As provided for in the Constitution, all executive action of Government shall be expressed in the name of the Governor.
(2) Save in cases where an officer has been specifically empowered to sign an order or instrument of Government, every such order shall be signed by the Secretary, the Additional Secretary, the Joint Secretary, the Deputy Secretary or the Section Officer to the Government in the department concerned and such signature shall be deemed to be the proper authentication of such order of instrument.
(3) Instructions for making of contracts on behalf of the Governor and the execution of such contracts and all assurances of property shall be issued by the Law Department.”731 (emphasis added)
46. It is a condition of the exercise of the power to make contracts, under Article 173 of the Constitution, that the requirements of rule 7 of the Balochistan Rules of Business must be followed. In particular, rule 7(2) names certain officers of the GOB that can make contracts on behalf of the Governor. Additionally, in certain cases, an officer who is not named may be specifically empowered to sign.
47. A contract purportedly entered into by the GOB through a person who is not an officer of the Government would result in an ultra vires act. This is because a non- officer of the GOB falls outside the category of “such persons” as the Governor may direct or authorise to sign contracts on his behalf under Article 173(3) of the Constitution.
48. The Supreme Court proceeded to find that Chairman of the BDA is not an “officer” of the Government of Balochistan. The Governor, therefore, had no
729 See the foreword to the Balochistan Rules of Business 1976 states, Ex RE-20: “These Rules…shall be followed by all concerned strictly in order to ensure smooth, correct and quicker disposal of the Government’s work.” 730 Sardar Muhammed v Federation of Pakistan, PLD 2013 Lahore 343, §43, RLA-199: “Rules of Business flow out of the Constitution, and are the sinews of a workable government. Besides providing a departmental organogram of a workable democracy, these Rules are a fine weave of democratic principles including: participatory engagement, written and reasoned dialogue, divergence of opinion, open and transparent deliberations, etc. These Rules of Business besides providing a procedural manual…also act as constraints on governmental power.” 731 Balochistan Rules of Business 1976, Rule 7(2), Ex RE-20. See also Supreme Court Judgment, 10 May 2013, §69, Ex RE-18. It is trite law that the definition of “instrument” under Pakistani law includes contracts: see e.g. Noor Alam Khan v Sohbat Khan, 1991 SCMR 661, 666, RLA-138.
207 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 209 of 212
power to authorise the BDA Chairman to sign a contract on Balochistan’s behalf:732
“[I]f [the] GOB had decided to enter into an agreement, the agreement would be executed through its concerned department and the same would be signed by the Secretary, Additional Secretary, etc., of the concerned department as per the mandate of rule 7 of the GOB Rules of Business, and not through [the] BDA, which is a statutory corporation with a separate and distinct entity under the relevant statute from a department of the Provincial Government. Accordingly, [the] GOB could not validly have appointed [the] BDA or its Chairman to act as [the] GOB’s agent either at the time of execution of [the] CHEJVA or at any time thereafter. It was, therefore, not permissible to rely on the so-called affirmation or ratification made in [the] Addendum”.733 (emphasis added)
49. The Chairman of the BDA’s signature to the Addendum and Novation Agreement could not bind the Government of Balochistan:
“Inclusion of GOB as a new party to the contract required an affirming signature under the hand of a duly authorised representative or agent of GOB in terms of Rule 7 of GOB Rules of Business, 1976. This not having been done, the signature of Chairman BDA on the Addendum…did not fulfil the requirement of rule 7”.734
“The Novation Agreement was purportedly made for the purpose of substituting CHEJVA, and the GOB was also made a party to the Joint Venture, which was not permissible under BMR 2002 as well as Rules of Business of the Government of Balochistan, particularly Rule 7 and other rules.”735
50. In summary, the CHEJVA, Addendum and Novation Agreement were all ultra vires rule 7(2) of the Balochistan Rules of Business. The Government of Balochistan had never become a party to any of the CHEJVA agreements.
51. Second, following a careful analysis, the Supreme Court held that it was “clear” from the face of the CHEJVA that the Government of Balochistan was not a party. 736 In particular, Article 1.1 defined “Parties” as “both BHPM and the BDA”. Similarly, numerous provisions referred to the Government of Balochistan
732 See Supreme Court Judgment, 10 May 2013, §68, Ex RE-18, where the Court noted Balochistan’s submission that “the contract purportedly signed on behalf of the Governor was not signed in accordance with [the] GOB Rules of Business, 1976 by an officer authorised to do so thereunder.” 733 Supreme Court Judgment, 10 May 2013, §88, Ex RE-18. 734 Supreme Court Judgment, 10 May 2013, §70, Ex RE-18. 735 Supreme Court Order, 7 January 2013, §8, CE-289. 736 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18.
208 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 210 of 212
as a third party. 737 Rejecting the Claimant’s argument, the Supreme Court held that “merely because Governor of Balochistan was mentioned in the title of CHEJVA would not mean that GOB had become a party to the agreement.” 738
52. Third, the Supreme Court observed that the BDA and BHP’s had received professional legal advice that the Government of Balochistan was not a party to the CHEJVA.739 In summary:
a. In November 1999, in advice shared with BHP, the BDA’s legal advisers (M/S Shakil Law Firm) stated:
“The province of Balochistan/Government of Balochistan (G)B) is not a party to the CHEJVA…[M]erely because erroneously Governor of Balochistan is mention [sic] in the JVA would not mean that GOB has become party by implication. … [A]ny addendum to the JVA can only be executed amongst the Parties, who are signatory to the JVA. As far as GOB is concerned, the same is not a party to JVA, therefore, they cannot be included in addendum.”740
b. BHP’s legal adviser’s (Kabraji & Talibuddin) shared this view and warned that the CHEJVA may be void for “fundamental uncertainty”:
“[I]t was abundantly clear on reading the agreement that it was in fact the BDA, and not the GOB who was the other party to it and entitled to the rights and subject to the obligations respectively conferred on or assumed by BDA under the agreement.”741
c. As the Claimant notes742, the regional adviser of the UN Department of Social and Economic Development had earlier provided expert commentary on the second draft CHEJVA. The Claimant fails to mention the advice, which was that: “The Government is not a party to this Agreement”. 743
737 Agreement for Chagai Hills Exploration Joint Venture between the Balochistan Development Authority and BHP Minerals International Exploration Inc., dated 29 July 1993, Articles 2.1, 5.2, 5.3.1, 5.4.2, 5.6, 5.7.2, 5.9, 5.11, 6.1, 6.3.1 and 24.1, CE-01. 738 Supreme Court Judgment, 10 May 2013, §69, Ex RE-18. 739 Supreme Court Judgment, 10 May 2013, §70, Ex RE-18. 740 Letter from Shakil Law Firm to BDA, 10 November 1999, pp.1-2, Ex RE-55 741 Supreme Court Judgment, 10 May 2013, §70, Ex RE-18. See also Legal Opinion of Kabraji and Talibuddin, 3 September 1999, Ex RE-56. 742 Reply, §48. 743 Letter from the United Nations, 18 December 1992, p.3, Ex RE-37.
209 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 211 of 212
53. Fourth, the Supreme Court held that the Governor of Balochistan’s purported authorisation for the Chairman of the BDA to sign the Addendum was “improper and untenable in the eyes of the law” for an additional reason. 744 The Court noted (among other things) that the Governor had failed to obtain and follow the advice of the Provincial Cabinet. The Supreme Court’s conclusion is obviously correct as a matter of Pakistani law. The Governor is prohibited from granting authorisation unilaterally.745
54. The Supreme Court’s conclusion that the Government of Balochistan is not a party to the CHEJVA agreements is confirmed by the negotiation history and the subsequent conduct of BHP, the BDA and the Claimant.
55. The negotiation history demonstrates that, for example:
a. BHP twice proposed, in its first and third drafts of the CHEJVA, a direct contract with Balochistan.746 BHP explained that the purpose of this direct relationship was to allow it to circumvent the Balochistan Mining Concession Rules 1970.747 Both times, a government contract was rejected. It is unsurprising, therefore, that the final executed CHEJVA bears little resemblance to those earlier iterations.
744 Supreme Court Judgment, 10 May 2013, §71, Ex RE-18: “There are serious question marks on the manner in which the then Governor of Balochistan granted authorization by executing an undated document…which is not printed on the Governor’s letterhead, carries no date, notification number, nor is it addressed to any office or authority or even stamped. Neither is there any supporting documentation, nor does the letter provide a reference to a decision of the Cabinet on the matter. The issue of approval of the Option Agreement and Alliance Agreement was brought to the Cabinet three times but it did not approve it. In the circumstances, the approval obtained from the Governor on an undated plain paper was improper and untenable in the eyes of the law.” 745 See Constitution of Pakistan, Article 105, Ex RE-16: “Subject to the Constitution, in the performance of his functions, the Governor shall act on and in accordance with the advice of the Cabinet or the Chief Minister”.745 See also Balochistan Rules of Business 1976, rules 49(1) and 20, Ex RE-20: “The Governor shall…in the performance of his functions act in accordance with the advice of the Cabinet, Chief Minister, or appropriate Minister.” “The Cabinet as a whole is responsible for the advice tendered to, or the executive orders issued in the name of, the Governor.” 746 See Letter from BHP to the BDA enclosing first draft of the CHEJVA, 8 May 1991, CE-298; Third draft of the CHEJVA prepared by BHP, undated but circulated on 22 September 1992, Ex RE-164. Having originally accepted that Ex RE-164 is a copy of the third draft, the Claimant now maintains otherwise. 747 Letter from Bernard M Joyce, solicitor for BHP to Mr Farooqi, GM Planning of the BDA, dated 31 October 1991, regarding “BHPM-BDA Joint Venture Agreement”, p.2, Ex RE-34: “It was our original intention that the Agreement be entered into with the Government of Balochistan. The purpose of such an arrangement was to ensure that the effect of those provisions of the Mining Concession Rules which cause BHP difficulty could be overridden. When we meet, perhaps we can discuss the means by which those concerns which we have in relation to certain aspects of the Mining Concession Rules might be addressed”
210 Case 1:19-cv-02424-TNM Document 36-3 Filed 12/21/20 Page 212 of 212
b. On 2 April 1992, BHP accepted: “The Agreement is a contract between the BDA and BHPM only. The Government of Balochistan is not a party to the Agreement.”748
c. On 13 December 1992, the BDA and BHP agreed to remove from the third draft CHEJVA any obligations to which only the Government of Balochistan would be empowered to commit.749
d. A few days before the CHEJVA’s conclusion, the BDA informed the Government of Balochistan that: “The present agreement is between BDA and BHP”.750
56. The record also shows that, in the years following the CHEJVA’s conclusion, the Claimant continued to view the BDA as its partner. This is clear, for example, from the minutes of the Operating Committee meeting held on 24 February 2007. The meeting was attended by the Chairman of the BDA and TCC, together with representatives of Antofagasta and Barrick. The “Acting Secretary Mines, Minerals” was present as an observer. During the meeting TCC delivered important project documentation to the BDA but, ignoring a direct request, refused to share this with the Government of Balochistan:
“Mr Hargreaves noted that GOB had expressed concern at the lack of submission of reports for the previous Tanjeel Feasibility Study. He stated that the full suite of engineering reports, all of which were in draft form at the point of suspension, had been delivered to BDA in early 2006. He added that it would be misleading to submit the draft reports to GOB because since these would effectively become public documents. It was resolved that the reports would remain in the custody of the BDA and not be formally released.”751
57. The Claimant does not appear to have considered that it might have had a contractual obligation to hand over the reports pursuant to clause 9.7(b) of the CHEJVA. Similarly, its concern that disclosure would release the documents into the public domain implies an understanding that the GOB was not bound by the confidentiality obligations in clause 18 of the CHEJVA.
748 Letter from BHP to BDA, 2 April 1993, Ex RE-36. 749 Letter from Chima & Ibrahim to Mr. Farooqui, General Manager of Mines, BDA, 13 December 1992, Ex RE-129: “It had been pointed out to BHP that some of the areas of the draft agreement were areas which only the Government of Balochistan, and not the BDA was empowered to commit on…BHP agreed to reword [the] present draft to bring it in line with what [the] BDA can commit to do in line with [the] BDA Act.” 750 Full summary for Chief Minister with manuscript, 13 July 1993, p.8, CE-186. 751 Minutes of Operating Committee Meeting on 24 February 2007, p.4, CE-60
211