Summary

Source: icsid.worldbank.org

I. INTRODUCTION
A. Preliminary statement
B. Organization of the Memorial
II. THE TRIBUNAL FAILED TO STATE REASONS ON WHICH IT BASED ITS CONCLUSIONS ON QUANTUM
A. The Tribunal's reasoning related to the valuation of the Construction Land is contradictory, irreconcilable and/or insufficient and the Tribunal ignored key evidence
1. The Tribunal's reasoning related to the valuation of the Construction Land is contradictory and insufficient
a. The Tribunal stated that land located in the Batajnica area was not comparable to the Construction Land--but then accepted Serbia's reliance on an asking price for land in the same area
b. The Tribunal rejected Dr. Hern's reliance on the Batajnica transactions post-dating the Valuation Date, but then accepted Serbia's reliance on asking prices with unknown dates
c. The Tribunal refused Dr. Hern's reliance on the First Confineks Valuation because it was not based on "comparable transactions"--but then accepted Serbia's valuation, which was based solely on five asking prices and no comparable transactions
d. The Tribunal rejected Dr. Hern's use of the Mrgud Valuation because Mr. Mrgud relied on asking prices--but then accepted Serbia's valuation based solely on asking prices
e. The Tribunal provided contradictory, insufficient and inadequate reasoning for its acceptance of a 30% discount to the value of the Construction Land
i. The Tribunal's reasons for the application of the discount are contradictory and insufficient
ii. The Tribunal provided insufficient, inadequate and contradictory reasoning for the magnitude of the discount
f. The Tribunal accepted Ms. Ili's valuation of the Construction Land even though it contradicted the Tribunal's own findings on the appropriate valuation methodology
i. The valuation should be based on actual comparable transactions as the primary, most relevant evidence
ii. Asking prices have the lowest evidentiary value and the valuation should not rely on asking prices with no corresponding information about dates and sources of these prices
iii. The valuation should only rely on evidence from comparable areas-- the Tribunal specifically identified Batajnica as a noncomparable area
iv. The valuation should only rely on evidence pre-dating the Valuation Date
v. A discount is justified where evidence used in the valuation relates to comparable land with better access to infrastructure
vi. Smaller land plots are more valuable per m2 than comparable larger land plots
2. The Tribunal ignored key evidence when valuing the Construction Land
a. The Pazova transactions
b. Second Confineks Valuation
c. Two highly relevant actual comparable transactions
B. The Tribunal failed to provide any reasons for its valuations of BD Agro's other assets
1. The "Novi Becej" castle and land
2. The "Current assets"
C. The Tribunal provided contradictory and insufficient reasoning with respect to its valuation of BD Agro's liabilities
1. The Tribunal provided contradictory reasoning with respect to its valuation of BD Agro's liabilities
a. The Tribunal first refused to rely on evidence post-dating the Valuation Date, but then used such evidence to calculate BD Agro's liabilities
i. BD Agro's debt vis-à-vis Banca Intesa
ii. Second Confineks Valuation
iii. BD Agro's 2015 Financial Statements
b. The Tribunal provided contradictory reasoning for its calculation of redundancy payments
c. The Tribunal provided contradictory reasoning for its calculation of the conversion fee
d. The Tribunal provided contradictory reasoning for inclusion of liabilities related to court proceedings
2. The Tribunal did not provide sufficient reasons for its valuation of the capital gains tax
3. The Tribunal did not provide sufficient reasons for its valuation of the total estimated liabilities
III. THE TRIBUNAL HAS MANIFESTLY EXCEEDED ITS POWERS BY REFUSING TO EXERCISE JURISDICTION OVER CERTAIN CLAIMS
A. Manifest excess of powers is a ground for annulment
B. The Tribunal manifestly exceeded its powers when it declined jurisdiction over Mr. Rand's Indirect Shareholding
1. The Tribunal departed from the definition of "investment" in the Canada-Serbia BIT and established case law when it rejected jurisdiction over the Indirect Shareholding
2. The Tribunal did not inquire about Mr. Rand's contribution, nor did it inform Mr. Rand that he needed to prove its existence
3. The Tribunal recognized contributions made by Mr. Rand towards BD Agro, but then chose to ignore them in relation to the Indirect Shareholding
C. The Tribunal manifestly exceeded its powers when it declined jurisdiction over Mr. Rand's investment in the form of the Loans
1. The Tribunal erroneously declined jurisdiction over the Loans under the Canada-Serbia BIT
2. The Tribunal erroneously declined jurisdiction under the ICSID Convention over the Loans
a. The Tribunal manifestly exceeded its powers when it rejected jurisdiction under the ICSID Convention over the Loans
b. The Tribunal failed to provide reasons for its decision to reject jurisdiction over Mr. Rand's investment in the form of the Loans
IV. THE TRIBUNAL'S DECISION ON COSTS MUST BE ANNULLED
V. REQUEST FOR RELIEF

I. INTRODUCTION

A. Preliminary statement

1. The Award1 should be partially annulled for two separate reasons: (i) the Tribunal2 failed to state reasons with respect to most aspects of its decision on quantum; and (ii) the Tribunal manifestly exceeded its powers when it declined to exercise its jurisdiction over some of the claims raised by Mr. William Archibald Rand ("Mr. Rand"). Nothing in Serbia's Counter-Memorial on Annulment ("Counter- Memorial") refutes Mr. Rand's arguments presented in the Memorial on Annulment ("Memorial").

2. Mr. Rand seeks only partial annulment of the Award. He does not seek annulment of the Tribunal's decision to uphold jurisdiction under the Canada-Serbia BIT with respect to Mr. Rand's investment in a 75.87% beneficial shareholding in BD Agro ("Beneficially Owned Shares").3 Nor does he seek annulment of the Tribunal's decision that Serbia violated the standard of fair and equitable treatment under Article 6 of the Canada-Serbia BIT when it unlawfully terminated the Privatization Agreement on 28 September 2015 and seized the Beneficially Owned Shares on 21 October 2015.4

3. These parts of the Award are not subject to the Committee's review and need not-- and in fact, must not--be addressed again in the present annulment proceedings.

Nonetheless, Serbia dedicates an entire Part C of its Counter-Memorial--no less than 18 pages--to set out its disagreement with the Tribunal's decisions, essentially repeating the same arguments that it raised in the arbitration proceedings and that were expressly addressed and rejected by the Tribunal in the Award.5

4. Serbia's submissions are clearly irrelevant because the task of the Committee is to decide on Mr. Rand's request for partial annulment of the Award--and Serbia's grievances do not relate to the parts of the Award that Mr. Rand seeks to have annulled.

Therefore, Mr. Rand will not respond to Serbia's factual allegations set out in Part C of the Counter-Memorial. These allegations have been conclusively rejected by the Tribunal. Nothing more is needed to address them.

5. Mr. Rand also does not seek annulment of the Tribunal's decision that Serbia must fully compensate Mr. Rand for the harm caused to him by the illegal seizure of his investment, that the compensation must correspond to the equity value of Mr. Rand's shareholding and that the equity value must be calculated as the difference between the fair market value of BD Agro's assets and the total value of BD Agro's liabilities as of the valuation date of 21 October 2015 ("Valuation Date").6

6. Mr. Rand, however, does seek annulment of most parts of the Tribunal's valuation of BD Agro's assets and liabilities, and he does so for a number of reasons.

7. First, the Tribunal's reasoning related to the valuation of BD Agro's most valuable asset--279 hectares of prime land designated for construction of business and commercial areas ("Construction Land")--is contradictory, irreconcilable and/or insufficient. Worse yet, the Tribunal ignored key evidence related to the valuation of the Construction Land.

8. The Parties submitted a large number of contemporaneous documents on the value of the Construction Land. These documents included, among other things, the following:

a. evidence on actual transactions involving parts of the Construction Land;

b. evidence on several other contemporaneous transactions with comparable construction land;

c. contemporaneous valuations of comparable construction land prepared by the Serbian Tax Authority; and

d. contemporaneous valuations of the Construction Land prepared by Serbian valuators.7

9. The Tribunal's treatment of this evidence was manifestly contradictory and its reasoning for rejection of some of the evidence was clearly insufficient. For example, while the Tribunal refused to rely on some of this evidence expressly because it post- dated the Valuation Date, it then relied on evidence post-dating the Valuation Date for valuation of BD Agro's liabilities.

10. Worse yet, the Tribunal squarely contradicted its own holdings of the appropriate valuation methodology when it based its valuation of the Construction Land solely on five adjusted asking prices submitted by Serbia--rather than on evidence from numerous actual contemporaneous and comparable transactions, which the Tribunal itself stated should carry greater evidentiary value than asking prices.

11. The Tribunal's valuation of BD Agro's remaining assets and liabilities was equally flawed. The Tribunal did not provide any reasons at all for its valuation of BD Agro's remaining assets. Its reasoning related to its valuation of BD Agro's liabilities was also contradictory and insufficient.

12. The lack of reasoning, contradictory reasoning and failure to address relevant evidence each constitute a ground for annulment under Article 52(1)(e) of the ICSID Convention, and they warrant partial annulment of the respective parts of the Award because each had a major impact on the outcome of the case. As Mr. Rand explains in detail below, the errors in the Tribunal's reasoning decreased BD Agro's valuation by as much as EUR 61 million.

13. Another reason for partial annulment of the Award is that the Tribunal manifestly exceeded its powers when it declined to exercise its jurisdiction over Mr. Rand's: (i) claims related to his investments other than the Beneficially Owned Shares, i.e. Mr. Rand's 3.9% indirect shareholding in BD Agro ("Indirect Shareholding") held through his wholly-owned Serbian company, Marine Drive Holding d.o.o. ("MDH");8 (ii) loans to BD Agro of approximately EUR 2.2 million for the purchase and transport of BD Agro's new herd;9 (iii) and payment of approximately EUR 160,000 for the services of herd management experts provided to BD Agro ("Loans").10

14. The Tribunal's rejection of jurisdiction over the Indirect Shareholding represents a manifest excess of powers because the Tribunal:

a. departed from established case law providing that there is no need to investigate, for the purposes of establishing jurisdiction, whether the claimant satisfies additional conditions to the ownership of shares;

b. failed to inform Mr. Rand that it would apply the so-called Salini test and require evidence of his "contribution" with respect to the Indirect Shareholding; and

c. failed to recognize the existence of numerous contributions made by Mr. Rand towards BD Agro, despite expressly recognizing these contributions in relation to Mr. Rand's ownership of the Beneficially Owned Shares.

15. Similarly, the Tribunal's rejection of jurisdiction over the Loans represents a manifest excess of powers because the Tribunal:

a. incorrectly applied to the Loans a carve-out from the protection of the Canada- Serbia BIT under Articles 1(k) and 1(l) thereof;

b. incorrectly departed from: (i) the definition of "investment" in the Canada- Serbia BIT; and (ii) established case law, providing that there is no need to investigate whether Mr. Rand's investment in the Loans satisfies the requirement of "duration" under the so-called Salini test; and

c. stated, without any reasoning whatsoever, that the Loans did not meet the alleged requirement of "duration" even though Mr. Rand had held the Loans for up to a decade before the commencement of the arbitration.

16. The Tribunal's manifest excess of powers with respect to both the Indirect Shareholding and the Loans is a ground for annulment of the respective part of the Award under Article 52(1)(b) of the ICSID Convention.

17. The Tribunal's annullable errors are undeniable. Thus, Serbia attempts to salvage the Award by proposing an incorrect, excessively stringent standard of review that would make it impossible to ever annul any ICSID award. For example, Serbia erroneously suggests that the Committee cannot look into the substance of the Award and examine the Tribunal's understanding of facts, interpretation of law and appreciation of evidence.11 This cannot be the case. The Committee's review of the reasons for annulment invoked by Mr. Rand necessarily requires that the Committee examine the merits of the Tribunal's findings.

18. The object and purpose of the annulment procedure is not limited to safeguarding the integrity of the proceedings, but equally protects the integrity of the resulting award.

Thus, the Committee must be able to assess whether the Award complies with the requirement that "the reasoning presented in the award should be coherent and not contradictory, so as to be understandable by the Parties and must reasonably support the solution adopted by the tribunal".12

19. The "reasoning presented in the award" refers to both fact and law.13 It is therefore squarely within the Committee's mandate to examine the Tribunal's factual findings and legal conclusions. Without such an examination, the Committee could not determine whether "the award has failed to state the reasons on which it is based", as it is mandated to do under Article 52(1)(e) of the ICSID Convention.

20. Similarly, the Committee will have to examine the substance of the Award when it considers whether "the Tribunal has manifestly exceeded its powers" under Article 52(1)(b) of the ICSID Convention. Established case law confirms that a rejection of jurisdiction when jurisdiction exists amounts to an excess of powers.14 The Committee, thus, must be able to form its own view on whether jurisdiction existed and was erroneously rejected.

21. Serbia's claim that Mr. Rand "frequently introduces new legal arguments" in these annulment proceedings is also without merit. What Serbia labels as "new arguments" are in reality comments on the Tribunal's reasoning in the Award. Needless to say, Mr. Rand could not have commented on the Tribunal's reasoning--or lack thereof-- before he received the Award.

22. The applicable legal standard obviously cannot prevent Mr. Rand from analyzing the Award and explaining why the Tribunal failed to state reasons for some of its decisions and/or why the Tribunal committed a manifest excess of powers. Any other interpretation would run contrary to the object and purpose of the annulment procedure under Article 52 of the ICSID Convention because it would prevent the applicants from showing the existence of annullable errors.

23. Finally, Serbia is mistaken when it argues that the ICSID Convention favors "finality of ICSID arbitration awards".15 According to Serbia, the finality of ICSID awards means that any doubts should be resolved "in favor of the arbitral tribunal."16 Serbia's argument has been expressly disproved in the decisions of several ad hoc committees.

24. ICSID ad hoc committees have repeatedly confirmed that no presumption "in favorem validitatis" applies in annulment proceedings under Article 52 of the ICSID Convention.17 For example, the ad hoc committee in Soufraki expressly concluded that such a presumption "finds no basis in the text of Article 52 and has not been used by annulment committees":

Some commentators have suggested that in case of doubt, an annulment committee should decide in favor of the validity of the award. Such presumption, however, finds no basis in the text of Article 52 and has not been used by annulment committees.18

25. Contrary to Serbia's submissions, the discretion of ad hoc committees not to annul an award, even in the presence of an annullable error, is far from unlimited. Numerous ad hoc committees agreed that such discretion should only be used "where annulment is clearly not required to remedy procedural injustice",19 i.e. when the annullable error in the particular case could not have had a material effect upon the outcome of the case.20 Ad hoc committees also stressed that the discretion "should not be exercised to the point of defeating the object and purpose of the remedy of annulment."21

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26. If the correct legal standard is applied to the facts of this case, it is clear that the Tribunal committed several annullable errors that had a material effect upon the outcome of the case. As a result, the Award should be partially annulled for the reasons set out above and in more detail in the following parts of this Reply.

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Footnotes omitted