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International Centre for Settlement of Investment Disputes ______ INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES ______________________________________________________________________________ ICSID CASE NO. ARB/16/42 OMEGA ENGINEERING LLC and OSCAR RIVERA Claimants v. REPUBLIC OF PANAMA Respondent ________________________________________________________ I. REPLY IN SUPPORT OF THE REPUBLIC OF PANAMA’S OBJECTIONS TO THE TRIBUNAL’S JURISDICTION II. THE REPUBLIC OF PANAMA’S REJOINDER ON THE MERITS ________________________________________________________ 18 November 2019 SHEARMAN & STERLING LLP 599 Lexington Avenue New York, New York 10022-6069 401 9th Street, NW Washington, DC 20004-2128 Counsel for the Republic of Panama TABLE OF CONTENTS I. INTRODUCTION ...............................................................................................................2 II. THE ARBITRAL TRIBUNAL LACKS JURISDICTION TO DECIDE THE CLAIMS SUBMITTED BY THE CLAIMANTS ...............................................................6 A. The Claimants are Corrupt, Precluding Treaty Relief .............................................6 1. The Claimants Bribed Panamanian Justice Moncada Luna .........................7 2. The Claimants’ Reply to Proof of Their Corruption Is Unconvincing ......16 3. Having Proven the Claimants’ Corruption, Dismissal of this Case Is Required .....................................................................................................32 B. The Claimants Have Asserted Commercial Claims That Are Not Protected under the BIT or the TPA ......................................................................................41 1. The Claimants’ Submissions Confirm the Commercial Nature of Their Claims...............................................................................................41 2. The Claimants’ Efforts to Ascribe Sovereign Intent or Action to the Commercial Problems Afflicting Their Contracts Fails ............................59 3. The Claimants’ Umbrella Clause Arguments Do Not Justify the Exercise of Jurisdiction in this Arbitration ................................................63 C. The BIT Claims Must Be Resolved Under Previously Agreed Dispute Resolution Mechanisms .........................................................................................68 1. The Claimants’ Position Confirms that this Dispute Falls Within the Scope of Article VII(2) ..............................................................................69 2. The Claimants Cannot Avoid the Requirements of Article VII(2) Simply Because of Who Signed the Relevant Agreements .......................70 3. Application of Article VII(2) Would Not Undermine the Object and Intent of the BIT.........................................................................................78 4. The Unity of Investment Concept Does Not Apply in this Case ...............78 D. The Tribunal Lacks Jurisdiction Over Claims Relating to Panama’s Criminal Investigation, Which do Not Arise Directly out of an Investment ........................82 i III. PANAMA’S CONDUCT COMPLIES WITH ITS OBLIGATIONS UNDER THE BIT AND TPA ...................................................................................................................85 A. Panama Did Not Engage in a “Campaign of Harassment Against Claimants and Their Investment”............................................................................................85 1. President Varela Denies the Claimants’ Allegations .................................85 2. The Claimants Have Presented No Evidence Supporting Their Allegations .................................................................................................86 B. The Claimants’ Allegations Regarding each of the Projects Lack Merit ..............89 1. The Municipality of Panama Public Market Projects ................................89 2. The MINSA CAPSI Health Facility Projects ..........................................101 3. The La Chorrera Courthouse Project .......................................................127 4. The Ciudad de las Artes Project ...............................................................138 5. The Ministry of the Presidency—Colón Public Market ..........................170 6. The Municipality of Colón Project ..........................................................177 C. Panama Did Not Expropriate the Claimants’ Investments ..................................184 1. The Claimants Have Not Proven a Taking ..............................................184 2. There Has Not Been a Creeping Expropriation .......................................189 D. Panama Treated the Claimants’ Investments Fairly and Equitably .....................190 1. The Claimants Apply an Incorrect Standard for the Fair and Equitable Treatment Analysis ..................................................................................191 2. The Claimants’ Legitimate Expectations Have Not Been Undermined ..192 3. The Claimants Were Not Targeted or Harassed ......................................196 4. The Claimants Were Not Treated Arbitrarily, Unreasonably, Inconsistently, Non-Transparently or ‘Not in Good Faith’ .....................198 E. Panama Has Not Breached Its Obligation to Provide Full Protection and Security ................................................................................................................201 F. Panama Did Not Breach the Umbrella Clause .....................................................204 ii IV. THE CLAIMANTS HAVE NOT ESTABLISHED THEIR ENTITLEMENT TO ANY COMPENSATION.................................................................................................205 A. The Compensation Claimed by the Claimants Is Grossly Overstated .................206 1. The Compensation Claimed for Potential New Contracts Is Unsupported .............................................................................................206 2. The Amounts Claimed to Be Owed for Works Allegedly Performed on the Projects Are Overstated and Unsupported ....................................219 B. The Claimants’ Demands for “Moral Damages” Are Unsupported and Unjustified............................................................................................................220 1. The Tribunal Lacks Jurisdiction to Consider Moral Damages ................221 2. The Claimants Have Not Shown the Exceptional Circumstances Warranted to Consider Moral Damages ..................................................224 3. The Claimants Have Not Proven the Alleged Losses Supporting their Moral Damages Claim .............................................................................227 C. The Claimants’ Proposed Interest Rate and Request for Compound Interest is Unreasonable and Incorrect .................................................................................235 1. Interest Should Not Exceed the Yield on the Six-Month US Treasury Bill............................................................................................................235 2. Compound Interest Should Not Be Awarded ..........................................238 V. COSTS .............................................................................................................................240 VI. CONCLUSION AND REQUEST FOR RELIEF ............................................................240 iii 1. The Republic of Panama (“Panama” or “Respondent”) submits this Reply in support of its Objections to the Tribunal’s Jurisdiction and its Rejoinder on the Merits.1 This submission is filed in response to the Reply on the Merits and Counter-Memorial on Preliminary Objections (“Reply”) filed on May 30, 2019 by the Claimants Omega Engineering LLC and Oscar Rivera (“Mr. Rivera” and, collectively, the “Claimants”). 2. This submission is accompanied by the following reply witness statements: o Second Witness Statement of Jorge Villalba: addressing the Justice Moncada Luna corruption case. o Second Witness Statement of Vielsa Rios: addressing the La Chorrera Project. o Second Witness Statement of Nessim Barsallo Abrego: addressing the Ministry of Health Projects. o Second Witness Statement of Eric Díaz: addressing the Municipality of Panama Public Market Project. In addition, Panama is presenting the following additional fact witnesses: o First Witness Statement of Juan Carlos Varela: Mr. Varela was the President of the Republic of Panama from July 1, 2014 to June 30, 2019. o First Witness Statement of Fernando Duque: Mr. Duque was the Secretary of the Cold Chain within the Ministry of the Presidency. (The Cold Chain was Panama’s countrywide commercial food refrigeration project.) He oversaw both Panama’s broader Cold Chain Project and the public Market Project in Colón undertaken by the Omega Consortium. Mr. Duque currently is the Markets Director for the Municipality of Panama. 1 Terms defined in Panama’s (I) Objections to the Tribunal’s Jurisdiction and (II) Counter-Memorial on the Merits maintain their defined meaning. Panama defines a number of new terms to refer to the “Omega” entities—i.e., Omega Engineering LLC (“Omega US”), Omega Engineering Inc. (“Omega Panama”), and the consortium formed by those corporate entities (the “Omega Consortium” or “Omega”). 1 o First Witness Statement of Ivan Zarak: Mr. Zarak was Vice Minister of Economy for the Republic of Panama from July 1, 2014 to December 31, 2017. He was directly involved in Panama’s budget process. o First Witness Statement of Yadisel Buendía: Ms. Buendía was the Project Supervisor of the Ciudad de las Artes Project from November 2013 to December 2014.
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