• CASE No. ARB(AF)/97/2


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    • Abstract: CASE No. ARB(AF)/97/2INTERNATIONAL CENTRE FORSETTLEMENT OF INVESTMENT DISPUTES(ADDITIONAL FACILITY)B E T W E E N:ROBERT AZINIAN, KENNETH DAVITIAN, & ELLEN BACAClaimantsandTHE UNITED MEXICAN STATESRespondent

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CASE No. ARB(AF)/97/2
INTERNATIONAL CENTRE FOR
SETTLEMENT OF INVESTMENT DISPUTES
(ADDITIONAL FACILITY)
B E T W E E N:
ROBERT AZINIAN, KENNETH DAVITIAN, & ELLEN BACA
Claimants
and
THE UNITED MEXICAN STATES
Respondent
AWARD
Before the Arbitral Tribunal
constituted under Chapter Eleven of
the North American Free Trade
Agreement, and comprised of:
Mr Benjamin R. Civiletti
Mr Claus von Wobeser
Mr Jan Paulsson (President)
Date of dispatch to the parties:
November 1, 1999
TABLE OF CONTENTS
I. The Parties 1
II. Essential Chronology 2
III. Overview of the Dispute 5
IV. The Procedure 9
V. Relief Sought 20
VI. Validity of the Claim under NAFTA 22
VII. Costs 35
VIII. Decision 35
I. THE PARTIES
A. The Claimants
1. The Claimants, Mr Robert Azinian of Los Angeles, California,
Mr Kenneth Davitian of Burbank, California, and Ms Ellen Baca of Sher-
man Oaks, California, have initiated these proceedings as United States
(hereinafter “U.S.”) citizens and shareholders of a Mexican corporate
entity named Desechos Solidos de Naucalpan S.A. de C.V. (hereinafter
“DESONA”). DESONA was the holder of a concession contract entered
into on 15 November 1993 (hereinafter “the Concession Contract”)
relating to waste collection and disposal in the city of Naucalpan de
Juarez.
2. In these proceedings, the Claimants are represented by:
David J. St. Louis, Esq.
Law Offices of David J. St. Louis, Inc.
575 East Alluvial
Suite 102
Fresno, California 93720
USA
B. The Respondent
3. In these proceedings the Respondent, the Government of the
United Mexican States, is represented by:
Lic. Hugo Perezcano Díaz
Consultor Jurídico
Subsecretaría de Negociaciones Comerciales Internacionales
Dirección General de Consultoría Jurídica de Negociaciones
Secretaría de Comercio y Fomento Industrial
Alfonso Reyes No.30, Piso 17
Colonia Condesa
México, Distrito Federal, C.P.06149
México
1
2 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
II. ESSENTIAL CHRONOLOGY
4. In early 1992, the Mayor of Naucalpan and other members of its
Ayuntamiento (City Council) visited Los Angeles at the invitation of the
Claimants to observe the operations of Global Waste Industries, Inc., a
company said by the latter to be controlled by them.
5. On 7 October 1992, Mr Azinian, writing under the letterhead of
Global Waste Industries Inc. (hereinafter “Global Waste”) as its “Presi-
dent,” sent a letter to the Mayor of Naucalpan containing a summary of
the way “we expect to implement … the integral solution proposed for
the solid waste problem” of the city. The following representations were
made:
(1) “The company will replace all the current collection equip-
ment for advanced technology in the area of solid wastes” –
specifically including watertight vehicles and metal bins.
(2) “The necessary investment to implement an efficient and
hygienic solid waste collection, transportation and processing
system is approximately US$ 20,000,000,” of which 50%
“will be directed to the acquisition of collection equipment.”
(3) “GLOBAL WASTE INDUSTRIES, INC. is a company spe-
cialized in the collection and reduction of solid wastes. With
more than 40 years of experience, GLOBAL WASTE pro-
vides collection services to residences, businesses and indus-
try in the Los Angeles area.”
6. In the course of a session of the Ayuntamiento on 4 November
1992, the “Integrated Solution Project” was presented. It was described as
involving a consortium including Sunlaw Energy Inc., a U.S. corporation
experienced in the conversion of bio-mass to energy, and an investment
of US$ 20 million.
7. However attractive it found this proposal, the Ayuntamiento was
not in a position to grant the envisaged 15-year Concession Contract due
to its own limited mandate; Mexican law requires, in such a context,
approval from the relevant State legislature. Accordingly the project was
presented in late July 1993 to a legislative committee. In support of the
CASES 3
project, Mr Ariel Goldenstein, a close business associate of the Claim-
ants, and the future general manager of DESONA, said that “our com-
pany has been working in the U.S. for more than 40 years.” Naucalpan’s
Director of Economic Development said “that’s why we chose Global
Waste.” Naucalpan’s Mayor referred to the Claimants’ “more than 40
years experience in this area, in the city of Los Angeles, in a county that
as you know has more than 21 million inhabitants.” (Respondent’s trans-
lation of the United Legislature Committee Meeting, 22 July 1993,
Annex One, Respondent’s Rejoinder, pp. 1, 4 and 10.)
8. On 15 August, legislative approval of the proposed Concession
Contract was published in the official gazette, triggering a 90-day limit
for its signature.
9. On 15 November, the Concession Contract was signed. Two days
later DESONA commenced its commercial and industrial waste collec-
tion, using two reconditioned front-load vehicles.
10. On 13 December, DESONA commenced residential waste collec-
tion for the Satélite section of Naucalpan but did not supply the five rear-
load vehicles as provided for by the schedule of operations under the
Concession Contract. Until the termination of the Concession Contract,
the two initial front-loaders remained the only units of the 70 “state-of-
the-art” vehicles called for under the Concession Contract to be put into
service by DESONA.
11. On 1 January 1994, a new administration took over the Nau-
calpan Ayuntamiento. (It represented the same political party.)
12. In January and February, there were a number of meetings
between the personnel of DESONA and the Ayuntamiento concerning
implementation of the Concession Contract. The Ayuntamiento was par-
ticularly concerned by the absence of new vehicles, which DESONA
explained was due to difficulties in obtaining import permits for which it
could not be faulted.
13. In mid-February, the Ayuntamiento sought independent legal
advice about the Concession Contract. It was advised that there were 27
“irregularities” in connection with the conclusion and performance of the
Concession Contract.
4 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
14. On 7 March, the Ayuntamiento decided to disclose the perceived
irregularities to DESONA and to give it an opportunity to respond.
15. On 10 March, in the presence of Mr Davitian and local counsel to
DESONA, the charges were read out and DESONA was directed to
respond to them by 17 March.
16. On 15 March, DESONA initiated proceedings before the State
Administrative Tribunal seeking nullification of the Ayuntamiento’s deci-
sion (of 7 March) to question the Concession Contract.
17. On 21 March, despite a protest from DESONA on 16 March, the
Ayuntamiento decided to annul the Concession Contract. The Claimants
were notified of this decision two days later.
18. On 11 April, DESONA amended its claim before the State
Administrative Tribunal to include nullification of the Ayuntamiento’s
decision of 21 March.
19. On 1 June, DESONA was given an opportunity to present its case
to an extraordinary session of the Ayuntamiento. Mr Goldenstein
appeared on behalf of DESONA.
20. On 14 June, the Administrative Tribunal heard DESONA’s
claims, and dismissed it by a judgment of 4 July.
21. On 13 July, DESONA appealed to the Superior Chamber of the
Administrative Tribunal, which upheld the Ayuntamiento’s annulment of
the Concession Contract by a judgment dated 17 November. The Supe-
rior Chamber held that of the 27 alleged irregularities, nine had been
demonstrated. Of these, seven related to various perceived misrepresenta-
tions by the Claimants in connection with the conclusion of the Conces-
sion Contract.
22. On 10 December, DESONA lodged a further appeal, in the form
of a so-called amparo petition, to the Federal Circuit Court.
23. On 18 May 1995, the Federal Circuit Court ruled in favour of the
Naucalpan Ayuntamiento, specifically upholding the Superior Chamber’s
judgment as to the legality of the nine bases accepted for the annulment.
CASES 5
24. On 17 March 1997, the Claimant shareholders of DESONA initi-
ated the present arbitral proceedings against the Government of Mexico
under Chapter Eleven of the North American Free Trade Agreement
(hereinafter “NAFTA”), by submitting a claim to arbitration pursuant to
Article 1137(1)(b) thereof.
III. OVERVIEW OF THE DISPUTE
25. Naucalpan is an important and heavily industrialised suburb of
Mexico City. In 1993, when the Concession Contract was signed, it had a
population of nearly two million, and 21,800 commercial or industrial
establishments. Residential and business waste management was, and
remains, an important function of the municipal authorities. Somewhat
more than 900 tonnes per day of residential waste were collected, and
somewhat less than 900 tonnes per day of commercial and industrial
waste. (The latter generates higher revenues for the provider of collection
and disposal services.) When DESONA entered the scene, collection,
treatment, and disposal left much to be desired. The municipality’s
equipment was inadequate and obsolete.
26. As conceived, the Claimants’ project in fact aimed at a far greater
prize than earnings from local waste disposal services. Their ambition was
that this would be a pilot project which would ultimately spawn major
industries, beginning with the modernisation of waste disposal through-
out Mexico and extending to important profitable sidelines:
• the manufacture in Mexico of modern specialised vehicles, not
only for the Mexican market but also Central and South
America,
• the recycling of waste, notably to produce cardboard, and
• the erection of power generation plants to convert landfill bio-
gases into electricity; revenues from these plants would be used
in part to finance the improvement of the waste disposal infra-
structure.
27. Once armed with a long-term contract with one important Mexi-
can city, the Claimants hoped to interest third parties having greater
financial resources and expertise to join forces with them, thus allowing
6 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
the Claimants to leverage their modest means into a profitable position
within a grand scheme. In some correspondence, this was referred to as a
“Newco” to which DESONA would somehow assign its operations in
Naucalpan. During the hearings before the Arbitral Tribunal, the plan to
use the initial concession to entice new participants was referred to on a
number of occasions as “taking the show on the road.” In his oral testi-
mony, Mr Goldenstein explained that the Claimants’ anticipated
US$ 20 million investment should have been understood as funded by
Sunlaw Energy (English Transcript 21.6.99, p. 296, l. 8 and p. 298, l. 9-10).
He did not explain how US$ 20 million could suffice to build a 200
megawatt power generating plant. More importantly, he could not point
to any evidence that any Mexican authority had been appraised prior to
signature of the Concession Contract that Sunlaw had lost interest in the
project, with the result that it would no longer provide a source of fund-
ing. To the contrary, the Concession Contract retained the provision
about the generating plant, which appears in Article 11 of the signed
document.
28. Today, as a result of the cancellation by the City of Naucalpan of
DESONA’s Concession Contract, the Claimants, as shareholders in
DESONA, are seeking recovery of the loss of the “value of the concession
as an on-going enterprise.” The highest of their alternative methods of
evaluation (see Section V) results in a figure of some US$ 19.2 million.
The Claimants allege that the actions of the Ayuntamiento of Naucalpan
resulted in a violation of NAFTA, attributable to the Government of
Mexico.
29. There are some immediately apparent difficulties with the claim.
It must be said that this was not an inherently plausible group of inves-
tors. They had presented themselves as principals in Global Waste, with
approximately 40 years’ experience in the industry. In fact Global Waste
had been incorporated in Los Angeles in March 1991, but put into bank-
ruptcy in May 1992 – 14 months later. Global Waste owned no vehicles,
and in the year preceding its bankruptcy had had revenues of only
US$ 30,000. The only Claimant who could be said to have experience in
the industry was Mr Davitian, whose family had been in the business of
waste disposal in the Los Angeles area. In reality, Mr Davitian was the
only Claimant to hold shares (15%) in Global Waste. (Mr Goldenstein
testified that there was an understanding that he, Mr Davitian, and
Mr Azinian were each to be treated as one-third beneficial owners of
CASES 7
Global Waste, but this was not reflected in formal ownership because it
was a so-called Subchapter S corporation and for U.S. tax purposes could
not include foreign shareholders; English Transcript, 21.6.99, p. 294, l. 2.)
Even in the case of Mr Davitian personally, since he was precisely 40
years old in 1993, a claim of 40 years’ experience was preposterous.
30. As for the other Claimants: Mr Azinian had no relevant experi-
ence, had a long record of unsuccessful commercial litigation, and had
been declared personally bankrupt in 1991. Mr Goldenstein had a back-
ground in a family property business in Argentina and in restaurant man-
agement in the U.S., and claims expertise in the financing of major
motion picture projects as a result of his studies in Los Angeles.
Mr Goldenstein was never a shareholder in Global Waste but addressed
Mexican authorities on its behalf. He was described by the Claimants’
counsel as “the person that is most knowledgeable from Claimants’ point
of view as to all of the transactions that are involved here.” (English Tran-
script, 21.6.99, p. 21, l. 12)1
31. None of this background was disclosed to the Naucalpan authori-
ties. The Naucalpan authorities thus entrusted a public service to foreign
individuals whom they were falsely led to believe were part of an experi-
enced concern possessed of financial and technological resources ade-
quate for the job.
32. Nor were there, as of the date the Concession Contract was con-
cluded, firm commitments from the various third parties whose involve-
ment was necessary if the venture was to evolve from a pilot project to
achieve grandiose further objectives – or even if the basic engineering ser-
vices and equipment under the Concession Contract were to be provided.
The landfill gas conversion scheme appears to have been a fantasy, for a
number of elementary practical reasons including the fact that landfill
gases could not supply more than a fraction of the required raw materials.
(As much as 95% of the natural gas would have to be purchased from
PEMEX, whose attitude toward the prospect of this new source of electric
energy may have been hostile.) The capacity of the power plant contem-
1
Mr Goldenstein is not one of the Claimants because as an Argentine national he has no
standing under NAFTA. Ms Baca, on the other hand, is a Claimant as a result of a property set-
tlement in her divorce from Mr Davitian, and appears to have had no substantive role in the
project.
8 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
plated under the Concession Contract was astonishing. To generate 200
megawatts would likely have required investments far in excess of
US$ 100 million. Such a plant would have been four times the size of the
largest landfill-connected power plant in the U.S. In fact Sunlaw Energy,
the U.S. corporation which was to finance the acquisition of a new waste
collection fleet through the power generation project, backed away from
the project shortly before the Concession Contract was signed, thus
apparently leaving the Claimants with few sources of funds other than the
anticipated revenues from the rate-payers of Naucalpan. Given that the
city budget had no provision for the acquisition of new equipment, this
can hardly be viewed as a healthy situation.
33. During the brief period of putative performance of the Conces-
sion Contract, the Claimants gave every impression of living hand to
mouth, barely able to finance the acquisition of merely two vehicles (and
reconditioned at that, not new), or even meeting a payroll. And yet, on
the very day when the Concession Contract was presented to the Nau-
calpan City Council for approval, Mr Goldenstein had reaffirmed that
the project investment would be approximately US$ 20 million. The
evidence compels the conclusion that the Claimants entered into the
Concession Contract on false pretences, and lacked the capacity to per-
form it.
34. The new city authorities who took over on 1 January 1994 exhib-
ited little inclination to work things out with DESONA or its principals,
but instead handed them a list of 27 putative grounds of termination. It
should be made clear that the Arbitral Tribunal makes no criticism of
Mr Francesco Piazzesi, who became Naucalpan’s Director of Economic
Development in January 1994. Mr Piazzesi appeared before the Arbitral
Tribunal and gave a credible account of his actions. Indeed, Mr Piazzesi
testified that his personal recommendation in March 1994 was that the
Concession Contract should not be annulled at that time (English Tran-
script, 23.6.99, p. 130, l. 5-6). The reason this recommendation was not
followed remains unexplained, understandably leading Mr St. Louis, for
the Claimants, to castigate the Respondent for having adopted an “empty
chair” policy in not producing other officials as witnesses. The list itself
ignores the 30-day cure period defined in the Concession Contract. The
Claimants insist that they were in a position to remedy the shortcomings
and to perform their obligations.
CASES 9
35. The summary above explains the background of the Claimants’
challenge to the validity of the purported termination of the Concession
Contract, as well as the opposing thesis of the Ayuntamiento of Nau-
calpan to the effect that the Concession Contract was either void for mis-
representations, or rescindable for failure of performance. Before going
any further, the Arbitral Tribunal must satisfy itself that this debate may
be subjected to a full substantive review before a NAFTA Tribunal. The
Arbitral Tribunal is not so satisfied, and that, in the circumstances more
fully described and for reasons stated in Section VI, suffices to resolve
this case.
IV. THE PROCEDURE
36. On 24 November 1996, the Claimants sent to the Respondent a
“Preliminary Notice of Intention to File a Claim and Consent of Inves-
tors” which recited that it was made “under Part 5, Chapter 11, Subchap-
ter B of NAFTA as a result of an expropriation of a business venture by
the City of Naucalpan de Juarez, Estado de Mexico and against the Fed-
eral Government of Mexico.” The Claimants thereby explicitly waived
their rights to “further court or administrative proceedings regarding this
claim pursuant to [NAFTA] Article 1121(1) and (2).”
37. A more detailed document from the Claimants entitled “Notice of
Intent to Submit a Claim to Arbitration” was received by the Respondent on
10 December 1996; on 16 December, it received a slightly modified version,
entitled “Amended Notice of Intent to Submit a Claim to Arbitration.”
38. By a Notice of Claim dated 10 March 1997, submitted as of
17 March, the Claimants requested the Secretary-General of the Interna-
tional Centre for Settlement of Investment Disputes (hereinafter
“ICSID”) to approve and register their application for access to the
ICSID Additional Facility, and submitted their claim to arbitration under
ICSID Additional Facility Rules.
39. On 24 March 1997, the Acting Secretary-General of ICSID
informed the Parties that the requirements of Article 4(2) of the ICSID
Additional Facility Rules had been fulfilled and that the Claimants’ appli-
cation for access to the Additional Facility was approved, and issued a
Certificate of Registration of the case.
10 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
40. Following appointments in due course, the Acting Secretary-Gen-
eral of ICSID informed the Parties that the Arbitral Tribunal was
“deemed to have been constituted and the proceedings to have begun” on
9 July 1997, and that Mr Alejandro A. Escobar, ICSID, would serve as
Secretary of the Arbitral Tribunal. All subsequent written communica-
tions between the Arbitral Tribunal and the parties were made through
the ICSID Secretariat. (All references to “ICSID” below are to the ICSID
Secretariat.)
41. The first session of the Arbitral Tribunal was held, with the Par-
ties’ agreement, in Washington D.C. on 26 September 1997. It resulted
in further agreement on a number of procedural matters reflected in writ-
ten minutes signed by the President and Secretary of the Tribunal. Tor-
onto was selected as the formal seat of arbitration by agreement among
the Parties and the Arbitral Tribunal.
42. During the course of the procedural hearing, the Respondent
questioned the standing of the Claimants. The Arbitral Tribunal indi-
cated that this matter should be resolved before the consideration of the
merits. It was agreed that the Respondent would submit by 6 October
1997 a written motion regarding the issue of the Claimants’ standing.
The Claimants would then submit a written answer, and the Respondent
would then be given an opportunity to present a final written reply
thereto.
43. ICSID received the Respondent’s Motion for Directions (hereinaf-
ter “the Motion”) on 6 October 1997. Therein the Respondent chal-
lenged the Claimants’ standing under NAFTA. Specifically, the
Respondent requested that the Claimants demonstrate:
“(i) for each of them, their standing to invoke Section B of
Chapter Eleven; (ii) if they have such standing, whether
they are advancing a claim under Article 1116 (…) or Arti-
cle 1117; (iii) if the claim is being asserted under Article
1117, whether it is being asserted by the investor who owns
or controls the enterprise; and (iv) in either event, that the
enterprise which any of them claim to own or control, or in
which any of them claim to have an equity, security or
other interest was, at the material times, a valid and subsist-
CASES 11
ing corporate entity, duly incorporated under applicable
Mexican law.”
44. The Motion also stated that it was critical that the enterprise
alleged to have been harmed “has validly authorised the submission of the
claim to arbitration.”
45. In response, the Claimants submitted their Reply to the Motion
for Directions dated 5 November 1997 in which they sought to demon-
strate that: Article 1117(3) of NAFTA “expressly contemplates” that an
investor may bring a claim under Article 1116 and 1117; that the Claim-
ants have standing as per Article 1139’s definition of “investor” and
“investment;” and that the “valid subsisting” corporate entity referred to
in the Respondent’s Motion held the concession at the material times,
and duly authorised the submission of the claim.
46. The “Respondent’s Response to Claimants’ Reply to the Mexican
Government’s Motion for Directions Regarding Standing to Submit a
Claim to Arbitration” (hereinafter “the Response”) was received by
ICSID on 12 December 1997. Therein the Respondent reiterated its
claim to have the issues concerning the nature of the claim and of the
Claimants’ respective standing resolved prior to the consideration of the
merits. Furthermore, the Respondent questioned the adequacy of the evi-
dence submitted by the Claimants purporting to support their right to
invoke Section B of NAFTA.
47. By letter dated 16 December 1997, the Claimants requested an
extension of a month in which to submit the Memorial. The Tribunal
acceded by letter of 17 December 1997.
48. In an “Interim Decision Concerning Respondent’s Motion for
Directions” (hereinafter “the Interim Decision”) dated 22 January 1998,
the Arbitral Tribunal ruled that although “the pleadings (…) raise a num-
ber of complex issues which may have the effect of restricting the compe-
tence of the Tribunal (…) they seem unlikely to eliminate altogether the
need to consider the merits,” and thus the issue of standing would be
dealt with in the pleadings on the merits. In particular, the Tribunal made
the following four observations: that if part of Mr Azinian’s claim was
made by him as an “impermissible surrogate” for Mr Goldenstein, this
12 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
could be determined by the Tribunal at a later stage as it would affect the
quantum but not Mr Azinian’s standing pro se; that if it was true that
Mr Davitian was not a shareholder at the material time(s) this might
defeat his standing but would not obviate the consideration of the merits,
nor would his “provisional presence” as a claimant complicate the facts to
be tried on the merits; that if Messrs Azinian and Davitian were trying to
introduce claims outside the jurisdiction of the Tribunal as established by
the NAFTA, this could be dealt with in due course; and that although the
Claimants have identified “DESONA B” as the entity harmed by the
allegedly wrongful actions of the Respondent and although the complica-
tions relating to the various forms of “DESONA” will form part of the
merits, neither “DESONA A” nor “DESONA B” is a claimant.
49. On 28 January 1998, the Claimants submitted their Memorial
which the Respondent received on 10 February 1998.
50. On 1 April 1998, the Respondent filed a second Motion for
Directions (hereinafter “the Second Motion”) seeking further particulars
and the production of additional documents. The Respondent also
requested the Tribunal to direct that the running of time for the filing of
the Counter-Memorial be suspended until the Claimants produced the
particulars and documents detailed in the Second Motion.
51. The Claimants, by letter dated 9 April 1998, declared themselves
amenable to producing the documents sought and “the documentary evi-
dence called for by Mexico’s Request for Particulars (…) without the
necessity of a ruling by the Tribunal.”
52. The Arbitral Tribunal ruled on the Second Motion by letter dated
27 April 1998, stating that it would:
“await the production of information voluntarily proposed
by the Claimants. Upon receipt thereof, the Respondent is
invited forthwith to inform the Arbitral Tribunal whether it
still considers it necessary to apply for any additional rul-
ing(s), and to request a reasonable adjustment of the time-
limit for its Counter-Memorial.”
53. The Claimants complained by letter dated 5 May 1998 that the
Respondent was violating Rule 43 of the ICSID Additional Facilities
CASES 13
Rules by contacting the Claimants’ witnesses. The Claimants asked the
Tribunal to establish an understanding to the effect that witnesses cited
by one side should not be contacted unilaterally by the other side. By
letter dated 6 May 1998, the Tribunal inquired if the Respondent had
any objection to complying with the understanding proposed by the
Claimants.
54. The Respondent replied by letter dated 12 May 1998, contending
that interviewing non-party witnesses about statements made in the
Claimants’ Memorial in no way contravened the Additional Facility Rules
of ICSID and that the Respondent “should be free to gather information
from non-party witnesses as it sees fit” given that “it is a well-established
principle that a party has no property in a witness.” With regard to Rule
43, the Respondent submitted that it regulates questions arising during
the oral procedure only.
55. By letter dated 18 May 1998, the Claimants answered the
Respondent’s letter of 12 May 1998, conceding that a party has no prop-
erty in a witness but reaffirming their initial point that “such contact
[that of the Respondent with regard to the Claimants’ non-party wit-
nesses] is designed to develop impeaching information as to the sworn
statements obtained without the presence of opposing counsel.” The
Claimants went on to state that “(i)t is quite clear that (sic) Respondent is
attempting to adduce extra-judicial evidence through ‘other means’ and,
therefore, these extra judicial examinations do fall (…) under Article 43,
which confirms authority on the panel to issue protective orders. It is a
fundamental rule of law that the Tribunal does have the power and the
authority to conduct its proceedings in an orderly fashion with a view
towards fairness to both sides.” The Respondent replied by letter on
20 May 1998, reiterating the points made in its communication of
12 May 1998.
56. The Arbitral Tribunal ruled, by letter dated 19 June 1998, on the
complaint concerning interviews by one Party of witnesses whose written
statements have been introduced by its opponent, as follows:
“The Arbitral Tribunal considers that the issues raised by
the Claimants are not dealt with by the ICSID Additional
Facility Rules. Nor is the Arbitral Tribunal aware of any
basis on which it could preclude communications between
14 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
a party and a third-party witness. The Arbitral Tribunal
accordingly advises the parties as follows:
1. The Arbitral Tribunal declines to restrict any party’s
ability to interview witnesses who freely choose to
meet with that party’s representative(s).
2. During any such interview, the witness is (as far as the
Arbitral Tribunal is concerned) free to answer or
decline to answer individual questions as he or she sees
fit.
3. The Arbitral Tribunal expects that any such witnesses
would be informed, in advance, by the party seeking
to meet him or her that his or her legal counsel may be
present at any interview.
4. Statements made by a witness during any such inter-
view shall not be received into evidence.
5. The only testimony to be given probative value is that
contained in signed written statements or given orally
in the presence of the Arbitral Tribunal.
6. The Arbitral Tribunal does not require that any party
which secures the agreement of a witness to a meeting
give the other side an opportunity to be present dur-
ing that meeting; whether a witness makes the pres-
ence of both sides a condition for accepting such a
meeting is not a matter for the Arbitral Tribunal.”
57. In the interim, on 18 May 1998, ICSID had received the Claim-
ants’ Response to the Respondent’s second Motion for Directions of
1 April 1998.
58. On 8 June 1998, the Respondent filed a “Motion for Directions
to Answer Request for Particulars and Produce Documents” in which it
renewed the demands of its Second Motion for Directions. It requested
that the Arbitral Tribunal direct the Claimants to give further particulars
and produce additional documents; and that the time for filing the
CASES 15
Counter-Memorial be suspended until the Claimants complied with the
requested direction of the Tribunal. On 18 June 1998, the Claimants
replied to this third Motion for Directions by letter. They claimed that
they had responded to the best of their ability to the prior Motion for
Directions and requested that the Tribunal direct the Respondent to sub-
mit their Counter-Memorial.
59. The Arbitral Tribunal, by letter dated 22 July 1998, declined to
rule on the Respondent’s Motion for Directions of 8 June 1998, noting
that the Respondent would have a full opportunity to comment on “per-
ceived deficiencies” in its Counter-Memorial. Furthermore, it instructed
the Respondent to submit its Counter-Memorial by 1 October 1998.
60. On 5 October 1998, ICSID received a partial version of the
Respondent’s Counter-Memorial. It received the remaining portions on
23 October 1998, following a letter from the Claimants dated
20 October 1998, complaining of the delay and requesting a 45-day
period for the Reply and an additional 30 days for the Rejoinder. The
Respondent objected to a second round of written pleadings by letter
dated 28 October 1998 and requested that the Claimants “express in
detail its reasons that would justify submitting a reply and [a] rejoinder.”
61. By letter of 30 October 1998, the Claimants responded on the
issue of further written pleadings, invoking Article 38(3) of the ICSID
Rules as grounds for a second round of pleadings and describing their
purpose as follows:
“(a) Identify matters of common ground in submissions
both as to law and fact; (b) Respond to the Government of
Mexico’s characterization of pertinent law and its applica-
tion to the issues in this case; (c) Address specific consider-
ations bearing upon the respective parties’ burden of proof
with reference to competent evidence; and (d) Reply to the
accusations of bias, lack of creditability and outright wrong-
doing directed at the majority of the Claimants’ witnesses.”
62. By letter dated 10 November 1998, the Respondent rebutted the
Claimants’ letter of 30 October 1998, stating that the Claimants had not
demonstrated that a second round of written pleadings was necessary, the
reasons given being just as easily capable of being addressed in the oral
16 ICSID REVIEW—FOREIGN INVESTMENT LAW JOURNAL
proceedings. It went on to demand that, in the event the Arbitral Tribu-
nal were to deem that a Reply and a Rejoinder are necessary, such a Reply
be limited to issues that “the Tribunal agrees are properly the subject of a
Reply to the Counter-Memorial in the circumstances of this case.” Fur-
thermore, the Respondent opposed the Claimants’ earlier request to ten-
der “DESONA’s operating journals, reconstructed from old records,
which the Claimants refused to produce in response to the Respondent’s
repeated requests.” In paragraph 18 of this letter, the Respondent stated
in particular:
“If the Tribunal determines to allow any type of Reply relat-
ing to this category of information, it should (i) require the
Claimants to describe with particularity which issues they
wish to address, (ii) ensure that the list includes only matters
that the Tribunal deems as “new” issues raised for the first
time in the Counter-Memorial, and (iii) expressly forbid the
Claimants from including other issues or legal argumenta-
tion in their Reply.”
63. The decision of the Arbitral Tribunal concerning the filing of a
Reply and a Rejoinder was given by letter dated 24 November 1998. It
directed the parties to prepare a further round of written pleadings as “the
oral phase of the proceedings is likely to be better focussed by allowing
Reply and Rejoinder Memorials,” and stated that:
“(a)t the same time, the Tribunal acknowledges that many
of the observations made in the Respondent’s letter of
10 November are pertinent in principle, such as the restric-
tive criteria listed in paragraph 18. It would not, however,
be efficient to initiate a separate preliminary debate over
the permissible scope of a Reply which is yet to be submit-
ted. It should be enough for the Tribunal to exhort the par-
ties to ensure that their respective final Memorials are
responsive to their opponent’s previous submissions, and be
organised in such a way that this responsive character is
plain to see.
The same reasoning applies to evidence in support of a
Reply or Rejoinder, including the DESONA operating
CASES 17
journals. The Tribunal notes that the Respondent at one
point called for the production of such evidence, and still
suggests that it was not previously produced because it
“would severely undermine the validity of [the Claimants’]
experts’ so-called ‘indications of value’.” (Paragraph 34 of 10
November letter.) While the Respondent asserts that it
would at this stage suffer prejudice if such materials are pro-
duced, because it may have to develop new counter-argu-
ments and indeed new analyses to serve as support for those
counter-arguments, the Tribunal does not view this objec-
tion as decisive. In the first place, in as much as it could be
raised against any evidence accompanying any Reply the
objection goes too far to be acceptable in principle. Secondly,
there is no basis to rule a priori that it would be particularly
burdensome to deal with the materials the Claimants wish to
produce. (With respect to operating logs, it is the experience
of the Tribunal that notwithstanding their typical bulkiness
they are not necessarily difficult to interpret with respect to
basic information such as productivity and downtime.)
In view of the above, and having furthermore regard to the
fact the Claimants have had time to consider the Counter-
Memorial, the Tribunal instructs the parties to proceed as
follows:
(1) The Claimants to file their Reply by 19 January 1999.
(2) The Respondent to file its Rejoinder by 19 April
1999.” (Emphasis in original.)
64. By letter dated 12 January 1999, the Claimants requested permis-
sion to file their Reply on 20 January 1999 due to a nation


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