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IN THE MATTER OF AN ARBITRATION UNDER THE DOMINICAN REPUBLIC - CENTRAL AMERICA – UNITED STATES FREE TRADE AGREEMENT AND THE 2010 UNCITRAL RULES OF ARBITRATION BETWEEN: DAVID R. AVEN, SAMUEL D. AVEN, CAROLYN J. PARK, ERIC A. PARK, JEFFREY S. SHIOLENO, DAVID A. JANNEY AND ROGER RAGUSO Claimants - and - THE REPUBLIC OF COSTA RICA Respondent COUNTER MEMORIAL Submitted on behalf of the Respondent by: MINISTERIO DE COMERCIO EXTERIOR DE COSTA RICA Autopista Prospero Fernández, Centro Comercial Plaza Tempo, Costado Oeste del Hospital Cima, tercer piso, Escazú San José, 10201, Costa Rica HERBERT SMITH FREEHILLS NEW YORK LLP 450 Lexington Avenue, 14th Floor New York, NY 10017 USA April 8, 2016 1 TABLE OF CONTENTS I. EXECUTIVE SUMMARY ................................................................................................ 1 II. INTRODUCTION ............................................................................................................ 8 III. STATEMENT OF FACTS ............................................................................................. 10 A. The environmental protection framework under which Claimants decided to develop their Project ..................................................................................................... 11 1. Key principles of environmental protection in Costs Rica ............................. 12 2. The implementation framework and key players identified in the context of the Claims ................................................................................................. 16 a. Framework of specialized agencies: SETENA and SINAC ................ 17 i. SINAC ....................................................................................... 17 ii. SETENA ................................................................................... 18 b. Costa Rica’s robust judicial and administrative system ...................... 20 i. The TAA .................................................................................... 20 ii. The FAA .................................................................................... 21 c. The Municipality and the Defensoría .................................................. 22 i. The Municipality ........................................................................ 22 ii. Defensoría ................................................................................ 23 B. Claimants' interests and project in Esterillos Oeste ..................................................... 24 1. Esterillos Oeste and the Project Site ............................................................ 24 2. Claimants' interests in the Las Olas Project.................................................. 27 3. Claimants' fragmentation of the Las Olas Project ......................................... 32 4. Claimants' permit applications ...................................................................... 35 a. EV Application for the First Concession site ....................................... 40 b. SETENA's EV for the First Condominium site .................................... 40 c. SETENA's EV for the Concession ...................................................... 41 d. SETENA's EV for the Condominium ................................................... 42 e. Municipality permits for the initiation of works .................................... 45 5. Claimants' misconduct and complaints and concerns of the neighbors ....... 48 a. Investigation proceedings conducted by the Municipality ................... 49 b. Investigation proceedings conducted by SINAC ................................ 52 c. Complaints regarding Claimants' use of a Forged Document to obtain the environmental permits and illegal impact on the Las Olas Ecosystem .................................................................................. 54 d. Investigation proceedings conducted by the Defensoría .................... 57 2 e. Investigation proceedings conducted by the TAA .............................. 59 f. The criminal investigation by the Environmental Prosecutor .............. 60 6. In view of the risks of negative impacts on the Las Olas Ecosystem, Claimants were enjoined to suspend works on the Project Site ................... 64 IV. CLAIMANTS CANNOT AVAIL THEMSELVES OF THE PROTECTIONS OF DR- CAFTA .......................................................................................................................... 65 A. Due to David Aven's Italian effective and dominant citizenship, all claims arising out of alleged wrongful treatment of David Aven under the Treaty are barred ............ 66 B. Claimants’ development at Las Olas was illegal and all Claims arising out of the Project's impact of the Las Olas Ecosystem must be barred ....................................... 69 1. Claimants' EV application deliberately misled the Costa Rican authorities as to the likely negative impact of their development plan on the Las Olas Ecosystem ............................................................................... 70 a. Claimants duty of transparency and good faith during the EV application process ............................................................................. 70 b. Claimants' wrongful omissions as to the conditions on the Project Site misled SETENA into issuing an EV that Claimants were not entitled to obtain .................................................................................. 73 c. Claimants' fragmentation of their EV application misled SETENA as to the natural conditions on the Project Site and their likely impact by Claimants' Project ............................................................... 77 2. Claimants' work was conducted illegally, damaging the Las Olas Ecosystem ..................................................................................................... 79 a. Claimants failed to comply with the rules that apply to the Concession in breach of Costa Rican law .......................................... 79 b. Claimants started the development of the Easements and related lots site without an EV from SETENA ................................................. 81 c. Claimants breached Costa Rican law by starting construction on the Condominium site despite the EV having lapsed ......................... 83 d. Claimants started works without holding the necessary construction permits from the Municipality for the Condominium ...... 83 e. Claimants obtained the Municipality permits irregularly ..................... 84 f. Claimants continued working in violation of the injunctions that sought to suspend works .................................................................... 86 g. Claimants’ works on the Project Site illegally damaged the Las Olas Ecosystem .................................................................................. 91 3 i. There are and have always been wetlands and forests in the Las Olas Ecosystem which were severely impacted by Claimants' illegal works ............................................................ 91 ii. Claimants knew about the existence of wetlands and forest, they concealed the information from the authorities and continue working even after injunctions ordering the suspension of works ............................................................... 102 iii. Claimants illegally actions caused severe environmental damages ................................................................................. 104 3. Claimants' illegal conduct bars them from claiming under the Treaty ........ 106 V. RESPONDENT’S CONDUCT COMPLIES WITH ITS OBLIGATIONS UNDER THE TREATY ............................................................................................................. 107 A. Applicable law ............................................................................................................. 108 1. International norms of environmental protection are binding ...................... 108 2. Neither the Treaty, nor customary international law exonerate Claimants from complying with Costa Rica's framework for the protection of its environment................................................................................................. 112 B. Claimants were treated fairly and equitably ............................................................... 115 3. Claimants could not have legitimately expected Costa Rica not to enforce its environmental Law .................................................................... 116 4. Costa Rica has accorded Due Process to Claimants ................................. 123 a. Public officials never accepted facts of the complaints as true during the investigations ................................................................... 126 b. Costa Rican authorities did not hide information from Claimants ..... 127 c. The alleged fabrication of the Forged Document as an "evil plan" to frame Mr Aven .............................................................................. 132 d. The "allies" did not know each other ................................................. 134 e. The alleged intention to prejudice Mr Aven and Claimants' investment ......................................................................................... 135 5. Costa Rican judiciary did not engage on any arbitrariness in the conduct of the criminal proceedings against Mr Aven .............................................. 138 a. Under international law the standard of arbitrariness of the judiciary is of gross denial of justice ................................................