Summary

Source: icsid.worldbank.org

CLAIMANT'S ANCILLARY CLAIM REPLY

Table of Contents

I. INTRODUCTION
II. STATEMENT OF FACTS
A. KEY FACTS RELATING TO LEGACY VULCAN'S ANCILLARY CLAIM CANNOT REASONABLY BE DISPUTED
B. MEXICO SHUT DOWN LA ROSITA BASED ON THE PRESIDENT'S POLITICALLY MOTIVATED INSTRUCTIONS
1. Mexico's Attempt to Downplay President López Obrador's Remarks Regarding Legacy Vulcan and CALICA Fails
2. Mexico Misrepresents the Facts in an Effort to Justify the President's Attacks Against Legacy Vulcan and CALICA
C. MEXICO'S ALLEGATIONS OF ENVIRONMENTAL VIOLATIONS ARE BASELESS AND PRETEXTUAL
1. PROFEPA's Justifications for Closing La Rosita Are Baseless
a) CALICA Is in Compliance With Its Environmental Impact Obligations
b) CALICA Has Not Violated Forestry Laws
c) PROFEPA's Allegations of Environmental Harm Are Unfounded
2. Mexico's Newly Conjured "Violations" of the 1986 Investment Agreement Are Equally Baseless
3. Mexico's Shutdown Has Left CALICA Legally Defenseless
D. MEXICO UNJUSTIFIABLY DELAYED RENEWAL OF CALICA'S CUSTOMS PERMIT AND LATER SUSPENDED IT INDEFINITELY
E. MEXICO'S SWEEPING ALLEGATION OF BAD FAITH AND DECEPTION IS BASELESS
III. LEGAL BASIS FOR CLAIMS
A. AS THE TRIBUNAL HAS ALREADY DETERMINED, CLAIMANT'S ANCILLARY CLAIM IS ADMISSIBLE AND THE TRIBUNAL HAS JURISDICTION TO RESOLVE IT
1. NAFTA Chapter 11 Applies to Legacy Vulcan's Ancillary Claim
a) The Plain Meaning of USMCA Annex 14-C Confirms That Legacy Vulcan's Ancillary Claim Falls Within the Scope of NAFTA Chapter 11
b) Mexico's Position Contravenes the Object and Purpose of NAFTA and the USMCA
c) Public Statements Made by the USMCA Parties and Other Trade Agreements Confirm that Mexico Is Wrong
d) The Tribunal Has Already Determined that NAFTA Applies to Mexico's Conduct At Issue Here
2. Mexico's "Unclean Hands" Argument Does Not Render Legacy Vulcan's Claim Inadmissible
B. MEXICO HAS NOT REFUTED THAT IT FAILED TO ACCORD FAIR AND EQUITABLE TREATMENT TO LEGACY VULCAN'S INVESTMENTS IN MEXICO UNDER NAFTA ARTICLE 1105
1. Mexico's Conduct Was Arbitrary
2. Mexico Failed to Act in Good Faith
3. Mexico Violated Legacy Vulcan's and CALICA's Due Process Rights.
4. Mexico Frustrated Legacy Vulcan's and CALICA's Legitimate Expectations
C. MEXICO'S ENVIRONMENTAL REGULATORY POWERS DO NOT IMMUNIZE IT FROM VIOLATIONS OF NAFTA ARTICLE 1105
IV. COMPENSATION
A. LEGACY VULCAN IS ENTITLED TO FULL REPARATION UNDER NAFTA AND CUSTOMARY INTERNATIONAL LAW
1. NAFTA Does Not Establish a Territorial Limitation on the Scope of Recoverable Damages
2. Full Reparation Requires Compensation for the Diminution of the Fair Market Value of Legacy Vulcan or the Netback Value of CALICA's Reserves
3. Mexico's Argument that Legacy Vulcan Contributed to Its Own Injury Cannot Be Taken Seriously
4. Legacy Vulcan Has Met Its Burden to Establish the Damages It Is Entitled to in Relation to Its Ancillary Claim
B. BRATTLE'S DCF ANALYSIS PROVIDES THE BEST ESTIMATE OF LEGACY VULCAN'S DAMAGES
1. The Brattle DCF Analysis Is Reasonable and Well-Supported
a) CALICA Was and Expected to Remain Highly Profitable
b) Brattle's Mitigation Analysis Is Reliable
c) Brattle's Conclusions Are Consistent With VMC's Financial Disclosures
2. Full Reparation Requires Reversing the Double-Taxation of the Income of the U.S. Yards
3. Mexico's Valuation Is Implausible and Grossly Understates Damages
a) Hart and Vélez's CALICA Network DCF Model Is Conceptually Unsound
b) Hart and Vélez's CALICA Network DCF Model Contains Errors and Incorporates Unreasonable Assumptions
c) Hart and Vélez's DCF Model for "CALICA Mexico" Suffers from Many of the Same Errors as the CALICA Network DCF.
V. MEXICO'S UNTIMELY REQUEST FOR LEAVE TO FILE A COUNTERCLAIM
A. MEXICO'S REQUEST FOR LEAVE TO FILE A COUNTERCLAIM IS UNTIMELY AND THUS FAILS ON PROCEDURAL GROUNDS
1. Mexico's Request Is Inconsistent With Procedural Rules Governing the Arbitration
2. Mexico's Request Disregards the Agreed Procedural Calendar and Threatens to Disrupt this Proceeding
B. THE TRIBUNAL LACKS JURISDICTION OVER MEXICO'S COUNTERCLAIM
1. Mexico's Counterclaim Does Not Fall Within the Scope of the Parties' Consent
2. The Nature of the Claim Does Not Implicate Any Investor Obligations Under NAFTA Chapter 11
3. Mexico's Counterclaim Is Not Closely Related to Legacy Vulcan's Primary Claim
VI. REQUEST FOR RELIEF

I. INTRODUCTION

2. Mexico's Counter-Memorial fails to refute the facts that animate Legacy Vulcan's ancillary claim, its entitlement to relief in light of Mexico's wrongful conduct, and the amount of loss Mexico has caused Legacy Vulcan. The evidence is overwhelming. As the Tribunal was deliberating to issue the Award, Mexico launched an unprecedented campaign of public attacks against Legacy Vulcan and CALICA in an effort to pressure them into dropping this arbitration.

Mexico's conduct left Legacy Vulcan with no choice but to seek the assistance of the Tribunal to prevent the aggravation of the dispute. Despite the Tribunal's order, Mexico has continued its anti-CALICA campaign. For close to ten months, Legacy Vulcan's operations in Mexico have been paralyzed, and there is no indication that this situation will change. The Tribunal has the power to right this wrong. It should award Legacy Vulcan the relief it seeks.

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VI. REQUEST FOR RELIEF

281. For the foregoing reasons, Legacy Vulcan respectfully requests that the Tribunal render an Award in its favor:

a. Upholding Legacy Vulcan's ancillary claim and dismissing Mexico's jurisdictional objection to this claim;

b. Declaring that Mexico has breached NAFTA and applicable principles of international law by failing to accord Legacy Vulcan's investments, including CALICA, fair and equitable treatment in violation of Article 1105;

c. Determining that this breach has caused damages to Legacy Vulcan;

d. Ordering Mexico to pay to Legacy Vulcan compensation, in accordance with NAFTA and customary international law, in an amount sufficient to provide full reparation to Legacy Vulcan for the damages incurred as a result of the wrongful conduct at issue regarding this ancillary claim, including:

i. Compensation for damages arising out of Mexico's wrongful measures in the amount of;

ii. Compensation of to account for the double taxation that would result on a portion of this Award;

iii. Pre-Award compound interest at a rate reflecting the cost of short-term borrowing by the Government of Mexico from the date of the breach to the date of the Award, and post-Award compound interest also reflecting the cost of short-term borrowing by the Government of Mexico from the date of the Award until actual and full payment by Mexico, even if the Award is converted into a judgment of a court of a State party to the ICSID Convention;

e. Ordering Mexico to pay all costs and expenses of this arbitration proceeding (including this ancillary claim), including the fees and expenses of the Tribunal and the cost of legal representation, plus interest thereon;

f. Rejecting Mexico's request for leave to file its counterclaim; and

g. Ordering such other or additional relief as may be appropriate under the applicable law or that may otherwise be just and proper

Respectfully submitted,

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