Reproduced from www.worldbank.org/icsid with permission of ICSID.
Claimant's Memorial - 4 September 2020
Table of Contents
- I. INTRODUCTION
- II. FACTUAL BACKGROUND
- A. Odyssey Is a Global Leader in Deep-Ocean Exploration and the Development of Marine Minerals
- B. Odyssey Discovers the Don Diego Deposit
- C. Phosphate Is an Essential and Finite Resource
- D. Odyssey Incorporates ExO and Obtains a 50-Year Concession for the Don Diego Deposit
- E. Odyssey Explores the Concession Area and Confirms the Concession Holds a Strategically Significant Phosphate Deposit
- F. Odyssey Selects Boskalis as a Dredging Contractor and, Working Together, They Develop a Straightforward Engineering Solution Using Proven Technology to Exploit the Phosphate Deposit
- G. ExO Applies for the Environmental Permit
- 1. The Environmental Approval Process
- 2. Odyssey Prepares Its Application for the MIA Approval, Engaging Leading Environmental Scientists Around the World
- H. ExO Files the MIA
- I. The Evaluation of the MIA
- 1. Key SEMARNAT Personnel
- 2. DGIRA Reviews the MIA and Considers It to Be Thorough, Comprehensive, and "Outstanding," ExO Provides Additional Information Requested by SEMARNAT, and Undersecretary Pacchiano Expresses Concerns About Political Issues
- 3. DGIRA Concludes That the Project Should Be Conditionally Approved, but Undersecretary Pacchiano Intervenes, Citing Potential Harm to His Own Political Career, and Demands That ExO Withdraw and Re-submit the MIA, Restarting the Clock for SEMARNAT's Review
- 4. ExO Re-Submits the MIA
- 5. ExO Participates in a Second Round of Public Consultations and Responds to Additional Information Requests Over Many Months
- 6. Secretary Pacchiano Becomes Upset When ExO Threatens Legal Action Over the Unwarranted Delay, Abruptly Ends a Meeting with ExO Representatives, and Orders DGIRA to "Find a Reason" to Deny Approval of the Project
- J. SEMARNAT Denies Environmental Approval of the Project, Citing Its Purported Impact on Sea Turtles
- K. ExO Submits a Petition for SEMARNAT to Review Its Wrongful Decision. .......... 59
- L. After SEMARNAT Refuses to Consider ExO's Review Petition, ExO Appeals the Denial to Mexico's Federal Tribunal of Administrative Justice
- M. The TFJA Throws Out SEMARNAT's April 2016 Decision
- N. In Utter Disregard for the TFJA's Decision, SEMARNAT Fails to Reconsider Its Determination in Good Faith and Arbitrarily Denies the MIA a Second Time
- O. Odyssey Commences NAFTA Proceedings and Simultaneously Appeals SEMARNAT's Second Denial to the TFJA
- P. Meanwhile, Mexico Has Approved Several Comparable Dredging Projects Proposed by Similarly-Situated Mexican Investors and Investment Enterprises
- III. THE TRIBUNAL HAS JURISDICTION OVER ODYSSEY'S CLAIMS AGAINST MEXICO
- A. Odyssey Is a Protected Investor Under NAFTA
- 1. Jurisdiction Ratione Personae Has Been Established
- 2. The Tribunal Has Jurisdiction Ratione Personae Over Odyssey's Claims Brought on Behalf of ExO Under Article 1117
- B. Jurisdiction Ratione Materiae Has Been Established
- C. The Dispute Meets NAFTA's Temporal Requirements
- D. The Tribunal Has Ratione Personae Jurisdiction Over Mexico
- E. Odyssey and ExO Have Waived Their Rights to Pursue Monetary Relief Before Domestic Courts in Mexico
- IV. MERITS
- A. Mexico Violated NAFTA Article 1105
- 1. NAFTA Article 1105 and the Minimum Standard of Treatment
- 2. The Evidence Demonstrates that Mexico's Treatment of Odyssey and ExO Violated the Minimum Standard of Treatment
- B. Mexico Failed to Provide Full Protection and Security to Odyssey's Investment, Violating Article 1105(1)
- C. Mexico Violated NAFTA Article 1110(1)'s Prohibition on Indirect Expropriations
- 1. Mexico Is Prohibited From Engaging in Illegal Indirect Expropriations
- 2. Mexico Illegally Expropriated Odyssey's Investment in Violation of Article 1110(1)
- D. Mexico Violated NAFTA Article 1102
- 1. Mexico Is Obliged to Treat NAFTA Investments in a Manner No Less Favorable Than It Accords to Domestic Investors
- E. Mexico Treated Odyssey's Investment in a Manner Less Favorable Than It Accorded Domestic Investors
- 1. These Six Projects Are in "Like Circumstances" to the Don Diego Project
- 2. ExO's MIA Was Evaluated in a Less Favorable Manner in Comparison to All Other Mexican State-Backed Dredging Projects
- 3. There Were No Factors Justifying Differential Treatment
- V. ODYSSEY IS ENTITLED TO COMPENSATION FOR RESPONDENT'S NAFTA BREACHES
- A. The Appropriate Standard for Reparation Is Full Compensation
- B. Compensation Should Reflect the Fair Market Value of the Entirety of ExO's Concession and Claimant's Investment in Mexico
- C. Methodologies to Determine the Fair Market Value of the Don Diego Project
- 1. The Valuation Date
- 2. Compass Lexecon's Application of The DCF Method to Phase I
- 3. Compass Lexecon's Application of the Real Options Valuation to Phase II
- 4. Full Reparation Must Include the Project's Strategic Value
- 5. Full Reparation Must Include ExO and Odyssey's Lost Opportunity
- D. Full Reparation Requires Odyssey and ExO to Be Awarded Compound Pre- and Post-Award Interest
- E. Tax
- VI. REQUEST FOR RELIEF
1. This arbitration arises out of Respondent Mexico's breaches of NAFTA's investment protections (i) requiring fair and equitable treatment and full protection and security (Article 1105), (ii) prohibiting indirect expropriations (Article 1110), and (iii) requiring treatment no less favorable than that it accords to its own investors (Article 1102), all in connection with Claimant's Mexican enterprise's application for environmental approval for a phosphate dredging project.
2. Using expertise in marine exploration it developed over two decades, Claimant Odyssey discovered one of the most significant sedimentary phosphate sand deposits in the world off the coast of Baja California Sur in the Gulf of Ulloa within Mexico's exclusive economic zone. Phosphate is a valuable natural resource used primarily to produce fertilizer and animal feed. A growing global population and the finite nature of the resource means that phosphate is an increasingly valuable and strategically important commodity.
3. With the intention to exploit this resource, Claimant caused the incorporation of a Mexican enterprise, Exploraciones Oceánicas S. de R.L. de CV ("ExO"), and ExO obtained a 50-year Concession for the deposit from Respondent. Odyssey then spent the next 13 months exploring the Concession to quantify and characterize the deposit and gather the baseline data it would need to develop the deposit in an environmentally responsible way. The results confirmed that the deposit is world class--both in size and in-situ grade.
4. Odyssey next worked with a division of Royal Boskalis Westminster R.V. to develop an engineering solution to extract the ore using established dredging techniques. Compared to terrestrial mining, dredging is cheaper and has a far smaller environmental footprint. The plan they arrived at was designed with mitigation measures to be environmentally responsible and acceptable and would not materially impact any flora or fauna in the region.
5. Before extraction could commence, however, the dredging project (the "Project") required environmental approval. In accordance with relevant Mexican regulations, ExO prepared and submitted to the Mexican Secretaría de Medio Ambiente y Recursos Naturales (Ministry of the Environment and of Natural Resources, or "SEMARNAT") an environmental impact statement ("MIA") that comprehensively explained the potential environmental impacts of the Project, which are minimal, and the various mitigation measures that would be employed.
6. After 18 months during which ExO participated in public consultations and responded to numerous requests for information from SEMARNAT, and following significant delays caused by SEMARNAT's unlawful and arbitrary demand that ExO withdraw and re-submit the MIA with letters of support from various interest groups, the SEMARNAT staffers responsible for reviewing and approving MIAs were prepared to issue an approval, [...]
7. [...], the SEMARNAT Secretary himself, Rafael Pacchiano Alamán--a political appointee with no environmental science expertise--intervened, instructing the SEMARNAT staff to "find a reason" to deny the permit, stating that an ExO representative had "insulted" him. A more gross violation of the rule of law is difficult to imagine. Indeed, [...] there was no legitimate basis on which to deny the permit. So, they were forced to invent one. SEMARNAT thus issued a denial stating (contrary to reason and fact) that the Project would impact protected sea turtles.
8. ExO appealed the denial to the Mexican Federal Administrative Tribunal ("TFJA"), which unsurprisingly unanimously annulled the arbitrary and unfounded denial and remanded it to SEMARNAT for a re-review. However, Secretary Pacchiano, apparently seeking to enhance his own political reputation by denying the permit, immediately ordered the SEMARNAT staff to issue a second denial and announced to the world that such Denial would be forthcoming shortly. And, just like with the first Denial,[...] there was no legitimate basis to deny the permit. The lack of any reasoned basis for either denial is also demonstrated in the reports of numerous global environmental experts described in further detail below.
9. SEMARNAT's conduct constitutes breaches of three separate provisions of NAFTA, namely:
a. Article 1105, which provides that "[e]ach Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security";
b. Article 1110(1), prohibiting indirect expropriations; and
c. Article 1102, pursuant to which each Party must grant investors and investments of another Party treatment no less favorable than it has accorded to the investors and investments of Mexico or of any third State.
10. The unlawful denial of the permit eliminated the entire economic value of Claimant's investment, and Odyssey, which brings claims on behalf of itself and ExO, is entitled to recover from Respondent full compensation for this loss.
II. FACTUAL BACKGROUND
A. Odyssey Is a Global Leader in Deep-Ocean Exploration and the Development of Marine Minerals
11. Founded in 1994, Odyssey is a pioneer in deep-ocean exploration.1 Its roots are in the archaeologically-sensitive exploration and recovery of artifacts and cargoes from shipwrecks in the deep ocean.
12. Using state-of-the-art technology, highly-trained, experienced personnel, and strong research capabilities, Odyssey discovered and explored more shipwrecks than any other entity in the world, and was able to locate and recover shipwreck artifacts and cargoes at depths that were previously unreachable or economically unfeasible.2 Mark Gordon, the Chief Executive Officer of Odyssey and Chairman of Odyssey's Board of Directors, explains:3
Through this work, we became pioneers in using advanced deep- ocean technology--such as side scan sonar for mapping the seafloor, remotely operated vehicles ("ROVs"), and positioning systems. Our research and scientific services team ("RSS") became experts at researching national archives, academic papers, and oceanographic characteristics to identify prospective shipwrecks by photograph and video pre-disturbance, and to excavate them and recover artifacts consistent with or exceeding globally- accepted archaeological standards.
13. A decade ago, Odyssey made the strategic decision to leverage this expertise and re-focus its core business on the discovery, exploration, and development of marine minerals.4 It was a natural evolution, as Mr. Gordon discusses in his witness statement, and one which was informed by one of the world's foremost experts in seabed excavation and drilling, Robert Goodden.5 Partnering with Mr. Goodden and Dr. Timothy McConachy, a world- renowned deep-ocean geologist, Odyssey acquired an interest in SMM Project LLC.6 Through a subsidiary, SMM Project held licenses to explore the seafloor in the Exclusive Economic Zones ("EEZs") of four South Pacific countries.7 Shortly thereafter, SMM Project was absorbed by a new entity, Dorado Ocean Resources ("DOR"), with Odyssey retaining a significant shareholding interest and contracting to provide the marine exploration services.8
14. This initial exploration work focused primarily on the discovery and assessment of Seafloor Massive Sulfide ("SMS") deposits, polymetallic nodules, and crusts.9 To carry out this work, Odyssey entered into a long-term charter agreement for the Dorado Discovery, a research vessel that the company then custom-outfitted with advanced technology and equipment for mineral project development at full ocean depths of greater than 6,000 meters.10 This included advanced survey and drilling equipment, scientific labs for geology and water chemistry analysis, and refrigerated sample and core storage:11
The Dorado Discovery had one of the world's most advanced multibeam sonar systems capable of recording backscatter, which allows us to identify and characterize geological structures while mapping the seabed. It was equipped with TowYo survey technology, which allowed us to conduct water chemistry data collection continuously and in real time (important for vents and plumes), and a magnetometer (important for mapping large geology formations and sensing metals). There was a ROV [remove operated vehicle] system for inspection and sampling. We also added advanced drilling and coring capabilities, including a remote controlled deep-water robotic drill rig that could work at depths of up to 3,000 meters. In 2012, we installed state-of-the-art vibracore technology for deeper, continuous core sampling.
15. Pictures of the Dorado Discovery, and some of the sampling equipment it deploys, are shown below.
Footnotes omitted from this excerpt