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PCA CASE NO 2020-21
In the matter of an arbitration
under the Arbitration Rules of the United Nations
Commission on International Trade Law 1976
and
The Agreement between the Government of the Republic
of India and the Republic of Mozambique for the
Reciprocal Promotion and Protection of Investment
dated 19 February 2009
- between -
PATEL ENGINEERING LIMITED (INDIA)
(Claimant)
- and -
THE REPUBLIC OF MOZAMBIQUE
(Respondent)
The Arbitral Tribunal
Prof Juan Fernández-Armesto (Presiding Arbitrator)
Prof Guido Santiago Tawil (Arbitrator)
Mr Hugo Perezcano Diaz (Arbitrator)
ORAL HEARING
PORTO, PORTUGAL
Monday, 28 November 2022
Registry
The Permanent Court of Arbitration
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The Tribunal:
Presiding Arbitrator:
PROFESSOR JUAN FERNÁNDEZ-ARMESTO
Co-Arbitrators:
PROFESSOR GUIDO SANTIAGO TAWIL
MR HUGO PEREZCANO DIAZ
Administrative Secretary:
MS SOFIA DE SAMPAIO JALLES
Registry, Permanent Court of Arbitration:
DR TÚLIO DI GIACOMO TOLEDO,
Legal Counsel
Court Reporters:
MS LAURIE CARLISLE
MS DIANA BURDEN (English language)
(Diana Burden Ltd, London)
Interpreters:
MR MANUEL SANT'IAGO RIBEIRO
MR CRISTÓVÃO TOMÁS BACH ANDRESEN LEITÃO
MS LARA CRISTINA JERÓNIMO DUARTE
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The Claimant:
Representative:
MR KISHAN DAGA, Patel Engineering
Counsel:
Brick Court Chambers:
MR EDWARD HO
20 Essex Chambers:
MR BAIJU VASANI
Messrs CMS Cameron McKenna Nabarro Olswang LLP:
MS SARAH VASANI
MS LINDSAY REIMSCHUSSEL
MS DARIA KUZNETSOVA
Miranda & Associados:
MS SOFIA MARTINS
MR RENATO GUERRA DE ALMEIDA
MR RICARDO SARAIVA
Fact Witnesses:
MR KISHAN DAGA, Representative
MR ASHISH PATEL (via video conference)
Expert Witnesses:
PROFESSOR RUI MEDEIROS
MR KIRAN SEQUEIRA
MR PAUL BAEZ
MR DAVID DEARMAN
MR ANDREW COMER (via video conference)
MR DAVID BAXTER (via video conference)
MR GERARD LAPORTE (via video conference)
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The Respondent:
Representative:
MR ANGELO MATUSSE, The Republic of Mozambique
Counsel:
Dorsey & Whitney LLP
MR JUAN BASOMBRIO
MS THERESA BEVILACQUA
MR DANIEL BROWN
Fact Witnesses:
MR LUIS AMANDIO CHAÚQUE
MR PAULO FRANCISCO ZUCULA (via video conference)
Expert Witnesses:
MS TERESA F MUENDA
MR JOSE TIAGO DE PINA PATRICIO DE MENDONCA
MR DANIEL FLORES
MR LARRY DYSERT (via video conference)
MR DAVID EHRHARDT (via video conference)
MR MARK LANTERMAN (via video conference)
MR MARK SINGER (via video conference)
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Introduction by the Tribunal ........................6
Point of Order by Respondent ........................8
Reply by Claimant ..................................30
Decision by the Tribunal ...........................42
Claimant's Opening Statement .......................46
Respondent's Opening Statement ...................148
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(9.30 CET, Monday, 28 November 2022)
Introduction by the Tribunal
PRESIDENT: Good morning to everyone.
This is the hearing in PCA number 2021 Patel Engineering (India) versus the Republic of Mozambique. In this beautiful room of the Stock Exchange of Porto, I give the welcome to you and I thank our secretaries for the organisation of this unique venue.
Before we start maybe we can quickly introduce the teams. Ms Vasani, would you like to introduce your team?
MS VASANI: Thank you very much. I am Sarah Vasani. I'm lead co-counsel on this case. I'd first like to introduce my client, Mr Kishan Daga. Mr Daga is a special director at the Claimants and he will be the first witness in this arbitration and you will hear from him tomorrow.
The other members of my team, going down the row here, is Lindsay Reimschussel at CMS. Baiju Vasani, an independent practitioner who is shortly to join 20 Essex. Edward Ho, from Brick Court Chambers. If I go behind Mr Daga we have Ricardo Saraiva, from Miranda, Sofia Martins from Miranda, and Daria Kuznetsova from CMS.
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PRESIDENT: Thank you, Ms Vasani.
MS VASANI: May I just note that our counsel from Mozambique, Antonio Veloso from Pimenta, has withdrawn from this proceeding and the ICC proceeding in light of the recent majority order by the ICC Tribunal, so he will no longer be counsel of record in either case.
PRESIDENT: Very good. Thank you very much. Very good. So we now give the floor to the Republic of Mozambique, Mr Basombrio, if you would like to introduce your team?
MR BASOMBRIO: Yes. Thank you, Mr President, and members of the Tribunal. My name is Juan Basombrio. I'm a partner with Dorsey & Whitney, and with me is my client Angelo Matusse, and that's spelled Matusse. He's the deputy attorney general for the Republic of Mozambique and he's the gentleman sitting immediately behind me.
Also here are two of my partners from Dorsey & Whitney, Theresa Bevilacqua and Daniel Brown. Thank you.
PRESIDENT: Very good. Thank you very much.
So let us start. I understand there is a point of order which the Republic of Mozambique
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09:33
would like to present. Is that correct, Mr Basombrio?
MR BASOMBRIO: That is correct.
PRESIDENT: I give you the floor.
Point of Order by Respondent
MR BASOMBRIO: Thank you. This relates to the issuance of the ICC injunction, and, respectfully, what the Republic of Mozambique would like to do is address that before you today and thank you for the opportunity to address that point with you.
I'm going to start by making four conclusory points that we want to make. Then I'm going to talk about what it is that the ICC has done. I want to explore a little with you the partial award and the Order and what its impact is, at least from our perspective.
Then I want to talk about why we believe that it would be impossible to proceed with the merits if we're going to respect those orders from the ICC. I also want to talk about why we believe that both the partial award and the injunction Order are binding, not only on our adversaries, Patel, but also on this Tribunal.
And finally, we want to make -- we want to
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present our view, I should say, as to what we think the Tribunal should do. So if you would allow me, I'm going to proceed in that order.
So in the first place, the four sort of summary points we want to make are that we believe this UNCITRAL Tribunal -- and we should remember that this is an UNCITRAL Tribunal -- should immediately suspend this arbitration in light of the partial award and injunction order, and that suspension should last only until the ICC issues its award so that Mozambique can preserve its contractual right to litigate the contractual dispute, for lack of a better word, in the ICC, and also so that this Tribunal can have the benefit of being able to review those adjudications, the final award from the ICC, and then decide for itself what's the impact on that, on the treaty claims.
The second point is -- and we say this respectfully to them of course -- that in light of the injunction, it is Mozambique's position that Patel is in violation of the ICC injunction order by showing up here today, and also because they did not communicate to this Tribunal before the start of this hearing that they were going to abide by the injunction order.
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This is perhaps needless to say, but just to have a complete record, I want to indicate that Mozambique is participating under protest without waiver of the injunction, without prejudice and reserving all rights. And, again, I say that respectfully to this Tribunal, but of course we have to make those points on the record.
The third summary point is that we do not believe that this Tribunal should do anything that's considered, from an objective perspective, as not providing the proper amount of deference to the ICC Tribunal. The PCA Tribunal and ICC Tribunal are immensely well respected institutions, and so we recognise that here today we have a difficult situation and it has to be resolved in a prudent way and in a reasonable way, and we believe that what we have suggested is the way to proceed.
Similarly, there's the other side of the coin, which is Mozambique's perspective. We submit that by going forward we're going to injure Mozambique's rights to have the underlying contractual disputes decided in the ICC, and it puts Mozambique in an untenable position.
So having summarised our four points, let me turn, please, first to what has happened in the
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ICC.
So we have two things that operate here today. One is the partial award, which you already have. It's R-92. And the second is Procedural Order 14 with the corrigendum, and I'll just refer to those as the injunction order that was provided to you as well.
What they have adjudicated in the ICC is that the ICC has exclusive jurisdiction to determine any matters in dispute between the parties arising out of the MOI, and Patel is enjoined from pursuing a determination of such matters in this arbitration.
Now, Patel agreed to arbitrate any disputes arising out of the MOI exclusively in the ICC, and in the injunction order the ICC Tribunal has confirmed that that's the case, and I'm going to read a few portions of that injunction order because I do believe that the words that the ICC uses are very important and show the ICC Tribunal's degree of deference towards this PCA Tribunal. I think it is very clear from that order that the ICC Tribunal does not want to step on your shoes, but they also want the same level of respect afforded back to them, and I think that's what they tried to express very carefully in their Order.
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So in paragraph 65 the ICC Tribunal says "As we have already stated in the partial award" -- now, this is a key point, because the injunction order is not a separate order on a new issue standing by itself. Right away the ICC Tribunal says "we are elaborating farther on the partial award", and this is very important, the connectivity between the injunction order and the partial award are very important, because undoubtedly, as we will see, the partial award is a final binding adjudication under ICC rules.
So the ICC Tribunal says the Respondent, Patel -- that's Patel in that case -- never contested that it has the obligation to submit any disputes arising out of this memorandum, the MOI between the parties, under ICC rules. Confronted with the Claimant's, in that case Mozambique and the MTC's arguments that the Arbitral Tribunal's jurisdiction would be an exclusive one, the Respondent has argued that this jurisdiction would not be exclusive.
Now, what Patel went in front of the ICC and said was you have to decide whether your jurisdiction is exclusive or it's concurrent. That's their main argument.
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The ICC in the partial award decided it's exclusive. It is not concurrent. And this is why, in paragraph 66 of the injunction order, the ICC says "the partial award does not allow such a conclusion", that is concurrent. "On the contrary, this Tribunal stated that it is clear and undisputed that the parties have agreed that they have the right and obligation to have any dispute arising out of this memo under Mozambican law resolved in the ICC".
In the partial award the Tribunal insisted that the parties are bound to the specific dispute settlement agreement to have their contract issues arising out of the MOI to be decided in the ICC, which the Tribunal expects them to honour.
In the next paragraph, 67, the ICC says that there is, therefore, no place for any doubt that it was, in the partial award, and still is the understanding of the ICC Tribunal that Patel did, and still does, have an obligation to refrain from proceedings before the PCA Tribunal or any other court or tribunal insofar as they concern any dispute arising out of this memorandum, the MOI.
So right away the ICC Tribunal is being very careful in how they draw the line, and they're
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drawing that line around a box of disputes -- not claims, disputes arising out of the MOI -- and, as we will see, the reason why they talk about disputes is because the ICC clause talks about disputes, and disputes have a different meaning than claims.
In the next paragraph the ICC concludes that Patel's "attempt to requalify the jurisdiction resulting from the MOI as 'concurrent' rather than exclusive is, therefore, misconceived. Not only is there nothing in the unequivocal language used in the MOI to suggest that the jurisdiction conferred to this Tribunal would be in any way concurrent, but this Tribunal has clarified in its partial award that it understands its jurisdiction to be exclusive".
So this is an important point. It's the partial award that has decided that the ICC has exclusive jurisdiction over those issues, and there's no doubt that the partial award is binding today on Patel under the ICC Rules. We don't have to go to court and convert to it a judgment, we don't have to do anything, and we will get to that in a little while.
Now, when we had the initial hearing that led to the partial award, we asked the ICC Tribunal
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to enjoin Patel at that time, and the ICC Tribunal said we're not going to do that right now, we're going to reserve our rights because we want to give Patel the benefit of the doubt. We want to see if Patel is going to abide by our partial award. And that's why, in paragraph 7, the ICC -- 70, I'm sorry, the ICC Tribunal says that they did not initially enjoin Patel because it was "confident that in the light of its decision the parties will be able to coordinate and use the available jurisdictions in the reconciling spirit of such mutual respect between international arbitration tribunals for their respective jurisdictional spheres, which this Tribunal also trusts the PCA Tribunal to share".
In other words, the ICC Tribunal -- and these are now my words -- would adjudicate --
PRESIDENT: Mr Basombrio, let me -- do we need the interpretation? Because I see the interpreters are interpreting. I'm not seeing anyone listening to the interpretation, and can I just double check with you? Do we need the interpretation?
MR BASOMBRIO: No. I don't think we do at this time.
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09:47
PRESIDENT: It's not being recorded either.
MS JALLES: Some people are connected to Zoom. I'm not sure whether they need --
PRESIDENT: Do they need Portuguese translation?
DR TOLEDO: The option is there so they have the possibility to choose a channel.
PRESIDENT: I just wanted to be sure that the interpreters are not doing their work unnecessarily. But it's good and bad news for the interpreters, your services are needed, so you will have to continue.
Sorry, Mr Basombrio, but I always like that interpreters, when they do their job, that it really has helped. Thank you for indulging my interruption.
MR BASOMBRIO: No problem at all, and being economical and efficient is in everyone's benefit. Thank you.
So let me go back to the point I was making as to why it is that the ICC Tribunal did not enjoin Patel. As I read, they basically gave them the opportunity to comply themselves.
And then the ICC Tribunal says that it
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trusts the PCA is going to have a similar approach, and so in other words, from our perspective the ICC Tribunal will adjudicate disputes arising out of the MOI, and this UNCITRAL Tribunal will adjudicate the treaty claims.
Now, we want to tell you that Mozambique has complied with this approach. In the ICC, Mozambique has amended its Statement of Claim. We sought declaratory relief not only over the underlying contract issues but we sought initially declaratory relief that there were no treaty violations. We have amended our Statement of Claim and deleted all references to any treaty claims, so when I come here today and I'm asking you to respect the injunction and suspend, I'm not saying it with empty words. We have taken that position and have withdrawn all those claims or all relief requested related to the treaty claims from the ICC.
Now, in the view of the ICC Tribunal, Patel did not respect the partial award, so this is what the ICC Tribunal says, and since this is not being recorded I'm going to refer you again to the citations. This is the injunction order at paragraph 71, and this is what the ICC says.
"This confidence [that Patel would abide]
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appears to have been misplaced. Despite the clear invitation 'to coordinate, and use, the available jurisdictions' in the light of the allocation of jurisdiction decided in the partial award, the Respondent has done nothing of that sort to respect its obligation under the MOI. The above passage was not as purported by the Respondent a form of endorsement of some concurrent jurisdiction of the two Tribunals in tandem for 'any dispute arising out of the MOI'. Any such dispute 'shall be referred to arbitration' under the ICC Rules and is within the exclusive jurisdiction of this Arbitral Tribunal".
So the Tribunal concentrated on the word "shall", S-H-A-L, in the arbitration clause. Also, let me note as an aside here, that in the partial award the Tribunal in the ICC specifically held that it did not have jurisdiction over the treaty claims. So not only have they said we have no jurisdiction over the treaty claims, only the contract claims, but Mozambique has abided by that ruling and withdrawn all of its declaratory relief related to any treaty claims.
Now, during the ICC injunction hearing, Patel made some statements to the ICC Tribunal which were quite aggressive, and these are some of the
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reasons that tipped the ICC Tribunal into issuing the injunction, besides the fact that in their view, Patel had not abided by the partial award.
I must say that even today, as we sit here today, Patel has not said they're going to abide by the injunction. This is what the ICC injunction order states.
In paragraph 82, Respondent reaffirmed its conclusion that there would basically be nothing left to be decided by this Tribunal once the PCA Tribunal has decided on the claims and Respondent explained that this would be by design.
The ICC Tribunal was very troubled by the fact that Patel would tell it directly, with the strategy that we have there's going to be nothing for you left to decide after the PCA decides, and this is what we, Patel, want. We want to pull the rug from under your feet.
The ICC Tribunal also quotes this statement by Patel in paragraph 82. "We really say the claims here are really nothing; that is why you are left with nothing". Then the ICC Tribunal also quoted Patel's statement during the ICC injunction hearing again that "granting the relief requested by the Claimants 'ultimately would not prevent the
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UNCITRAL arbitration from proceeding in any event'".
That's paragraph 95.
Now, to us, Patel's suggestion that even an ICC injunction would not prevent this UNCITRAL arbitration establishes Patel's premeditated intent to violate the injunction, and it is entirely presumptuous and perhaps mistaken of Patel to assume that this UNCITRAL Tribunal is going to ignore and disregard an ICC injunction before that injunction has even been issued, and to say that to the ICC Tribunal we find disrespectful.
This is why the ICC Tribunal observed, in paragraph 95 -- and this is their words. "It is remarkable that the Respondent puts forward an anticipated lack of respect for this Tribunal's order as a ground for not granting the order in the first place".
Now, finally, and this will be my last citations of the order, the ICC Tribunal addressed the issue that the treaty claims are based on alleged rights arising out of the MOI. And you know there's an issue, how do you deal with that, right? So the exclusive versus concurrent jurisdiction was one of the two major points in dispute; this is the second major point in dispute between the parties,
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and this is how the ICC Tribunal resolved it.
It said, "To the degree that the resolution of the Treaty claims depends on the adjudication of a dispute arising out of the MOI and properly before an ICC Tribunal with (exclusive) jurisdiction over 'any dispute arising out of this MOI', this Tribunal needs to insist on deciding these issues exclusively".
So that's at paragraph 84.
Then it says, "In this respect it is sufficiently clear that the dispute arising out of the MOI, even if one were to accept that that is a mere question of fact for the Respondent's claims under the treaty, needs to be resolved exclusively in accordance with the terms of the MOI".
And in paragraph 88 the Tribunal concludes, "According to the Respondent's own admission, it has requested the PCA Tribunal to adjudicate claims that, despite their non contractual causes of action, will require other tribunal to determine numerous contractual matters in dispute arising out of the MOI. This is prima facie a violation of the arbitration agreement in the MOI and risks rendering virtually moot the mission of the ICC, which has exclusive jurisdiction
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over those matters. It follows that Patel" -- I'm sorry -- "Mozambique has a prima facie claim that they're entitled to the relief that we were seeking".
So let's turn now to the relief that was provided, and you have it already but I will read the ICC injunction order. So it says that the Respondent, Patel, is enjoined from pursuing the determination of any matters in dispute between the parties arising out of the MOI in any other forum, even if only accessorily, for the purpose of adjudication of treaty claims until this Arbitral Tribunal has taken its decision on those matters.
So we believe that that injunction order is very carefully and very narrowly tailored.
First, it's directed only at Patel.
Second, it enjoins Patel from pursuing the determination, so the word "pursuing" means that Patel violates the injunction by prosecuting this arbitration, by doing what they're doing right now.
It talks about determination.
A determination includes what this Tribunal is doing right now, or would be doing, I'm sorry, if you went on to the merits. But the injunction is limited to any matters in dispute
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between the parties arising out of the MOI, which trails the arbitration clause, and, to remove all doubt, the injunction order specifies that Patel is enjoined from pursuing the determination of such disputes "even if only accessorily for the purpose of adjudication of treaty claims".
Now, therefore, it is impossible for Patel to proceed with this UNCITRAL arbitration without violating the ICC injunction order, because Patel is pursuing a determination of matters in dispute between the parties arising out of the MOI. Again, we're talking about matters in dispute, and I don't have to go through all that again, but I will give you some examples.
They say they have their version of the MOI, we have our version of the MOI. They have their understanding of what it means; we have our understanding. They claim they have rights; we say they don't have rights. These are all the matters in dispute. What happened in the public tender, what's the effect of the public tender -- all of these things are matters in dispute arising out of the MOI. Without the MOI, there would be none of that. And they're asking you to consider, determine, and adjudicate all those matters. It
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doesn't matter whether it's done in the context of an international claim or a local claim. Those are disputes, we think those claims, that have to be adjudicated.
So if we went forward, the first time that they use the word "MOI", I would have to object. It's impossible to go forward. So I want to remember -- I'm sorry, I want to remind the Tribunal that we have tried to do everything possible to come to you first, and we came to you on a bifurcation motion, we came to you before and after the partial award, and we asked you to decide these issues first as preliminary matters before we got to this point where everyone's sitting here.
It was Patel who convinced you not to do that repeatedly. They told you don't decide it now. You can't. It's intertwined with the merits. You have to wait. And they convinced you to wait.
And then when we brought you the partial award, they told you still don't decide it now, the partial award has changed nothing, and they convinced you to wait again. So the reason why we are in this predicament today is because of Patel.
Now, while they were telling you that, what did they do? They went to the ICC Tribunal and
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said stay this arbitration, so they voluntarily speeded up the issue at the ICC. Instead of waiting to make their arguments at the merits hearing, they said decide that right now and put an end to this while the PCA decides. That's where we went in and we said no. Not only should you not stay, but what you should do is enjoin them instead. And that's why the ICC decided, and that's why the ICC decided first.
But I just want -- my client wanted me just to re-emphasise --
PRESIDENT: Do you have much longer to go, Mr Basombrio?
MR BASOMBRIO: I think about 15 minutes.
PRESIDENT: OK. Can I get a time check for you?
MR BASOMBRIO: A what?
PRESIDENT: A time check.
MS JALLES: Yes. It has been 29 minutes 18 seconds.
PRESIDENT: Half an hour. You have gone for half an hour.
MR BASOMBRIO: I anticipate 15 minutes. This part will go faster.
So, finally, we believe the ICC award and
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the injunction are binding on Patel and this Tribunal, as I said and let me give you the seven reasons why. One is the ICC Arbitration Rules.
If you look at the cover letter from the ICC, that's R-94, this is what the ICC said. "We remind you of your obligation under article 35.6 of the Rules which provides every award shall be binding on the parties, thus by submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such a waiver is validly made".
So under article 35.6 the partial award is binding and is binding on Patel, and the order of enforcement, the injunction order, is part and parcel and accessory to the partial award because that's what it was interpreting. So under ICC Rules this is a binding, final, res judicata issue. It removes it from the dispute in this case.
Now, we have cited the Waste Management case about res judicata. It applies in that international sphere, and so we believe the second reason why the award is binding and the injunction is binding is on the principle of res judicata, as
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explained in Waste Management, RLA-160 at paragraph 39.
Third, the third reason why the award and the injunction are binding is under Dutch law. If you look at the Civil Code, and you can look at it at dutchcivillaw.com, the article is 1075. It says that the Netherlands will follow the New York Convention, and, as you know, article 2 of the New York Convention requires signatory states to enforce arbitration clauses, and so this has been incorporated explicitly into Dutch law, courts in Holland have an obligation to enforce those arbitration clauses, and that would require also enforcement of the partial award.
To us, the fourth reason why the partial award and the injunction are binding is that -- especially the injunction -- we need to recognise the rule of law. The rule of law requires that sister tribunals respect and enforce lawful orders and judgments of other sister tribunals, and that's what we have here.
International comity would be the fifth point. I don't need to explain that. It's self-evident.
The other two reasons why this Tribunal
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should suspend are important. If we proceed with the merits, we are risking substantial waste here. You know that under the New York Convention, article 5, an award can be vacated if jurisdiction was exceeded, and that's the problem here. We have a res judicata decision from the ICC that takes away the issues. If this Tribunal were to decide those issues, we believe, respectfully, that it would subject a final award to being vacated under the New York Convention.
When you think about it, there's really no reason why you have to proceed with the merits today, there's no valid legal reason, and what makes more sense is to wait now and see what the ICC has to say.
The last point I want to make is I want to talk about the integrity of this proceeding. You know, we asked you to suspend last Friday, and the Tribunal sent that e-mail saying we're moving forward. Now, that e-mail was sent before you ever heard anything from Patel. Patel didn't say we don't want you to go forward.
And now Patel is using that e-mail as a shield. When they sent the core bundle they said we're here, we're giving you the core bundle because
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you've told us to come here, and this is going to create an issue for my client now because if I try to seek some sort of contempt order against Patel, they're going to say we were told by the UNCITRAL Tribunal to show up.
Now, I believe that was not the intent of the Tribunal that you were basically just telling people, look, everyone is travelling, let's talk about it on Monday, and nothing more, but I say it on the record because I want to make sure I just reserve our argument for the future that that's all that this Tribunal intended, let's just talk about it all together when we're here on Monday.
So to conclude, we make four points. Number 1, it's impossible to proceed without violating the partial award and injunction. Number 2, we believe PEL is in violation. Number 3, if we proceeded onto the merits we believe our client would be prejudiced, and therefore we believe that on the basis of mutual respect, we urge this Tribunal to recognise and uphold the partial award and injunction order and suspend this arbitration until there's a final award in the ICC.
And I know I spoke for a long time, I want to thank the attorneys for Patel, Mr Daga, and the
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Tribunal for giving me the opportunity to set forth our thoughts. Thank you.
PRESIDENT: Thank you. Thank you, Mr Basombrio. Let us get a time check from the secretary.
MS JALLES: Respondent used 35 minutes, 51 seconds.
PRESIDENT: 35 minutes. Let's do the following. It's now 11.10. Let's break. How long would you need, Ms Vasani?
MS VASANI: We're happy to either proceed or break for five to ten minutes.
PRESIDENT: Five minutes? Whatever you prefer.
MS VASANI: Let's do ten minutes.
PRESIDENT: Ten minutes. Very good. So we are back at 11.20 -- no, 10.20. The computer is on Spanish time.
(Short break from 10.11 am to 10.23 am)
PRESIDENT: We now resume the hearing, and I give the floor to Claimant.
Reply by Claimant
MS VASANI: Mr President, members of the Tribunal, I'd first like to thank the Tribunal for its direction of last Friday confirming that the
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hearing would take place following the receipt of the majority order. Now, Claimant was obviously shocked and disturbed by that majority order, both in relation to its content and also its timing, on the eve of the hearing when our efforts should have been focused on preparing to present PEL's treaty claims before this Tribunal.
It was especially shocking, given that this was Respondent's sixth attempt to enjoin PEL before the ICC Tribunal from proceeding with this arbitration with all others being either ignored or rejected, and the fact that this particular application had been pending for over six months.
I will structure my comments this morning as follows.
First, I'd like to take the Tribunal through what the majority opinion actually requires.
Second, I'd like to respond to some of the Mr Basombrio's comments. Third, I'd like to discuss how the majority order violates PEL's due process rights, and, fourth and finally, I'd like to invite this Tribunal to make directions in respect of this situation.
Now, despite what you've heard from Respondent, there are no grounds to stop this
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hearing from proceeding. The ICC majority order specifically states that it is not attempting to enjoin or impede this treaty Tribunal from hearing all matters within its jurisdiction, and that's at paragraphs 85 and 99 of the majority decision.
Further, Claimant's understanding is that the majority injunction does not prevent Claimant from appearing at this hearing, notwithstanding what Respondent argues. Indeed, the ICC majority specifically rejected Respondent's request to enjoin Claimant from participating in the hearing because the ICC majority saw that as going "beyond the bounds" of what was adequate, and they did that at paragraph 97 of their majority opinion.
Instead, the ICC majority has enjoined Claimant from, and I quote, "pursuing the determination of any matters in dispute between the parties arising out of the MOI in any forum, even if only accessorily for the purposes of adjudication of the treaty claims", end of quote.
And they've ordered that until they make a final determination in their proceedings. According to the majority, this is an in personam order against my client but it changes nothing as far as this arbitration is concerned.
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I'd like to just quickly note a few comments about the points that Mr Basombrio made earlier.
First, he made most of his presentation in relation to the partial award and what he purports and how his client interpreted the partial award. I would just like to draw the Tribunal's attention to the dissenting opinion at paragraphs 13 et sequence where certainly the dissent and my client were not of the view that the partial award prevented us from pursuing our treaty claims.
And I'll note at paragraph 139 of the partial award, the Tribunal found that "Any obligations arising out of the MOI -- and thus any dispute over such obligations -- appear to be, from that perspective, merely accessory and preliminary questions for determining the dispute between the parties over the alleged violations of Respondent's rights under the Treaty and thus the availability of remedies provided by that treaty under international law".
So in our perspective, the majority order is contrary to what they found in the partial award.
The other point I'd like to make is that Mozambique says it complied with the partial award
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by stripping the treaty claims from its statement of case. While that's partially true, it took some of them out after two bites of the apple because it didn't do so initially, and even after doing so it has still left in a number of claims and evidence that is completely irrelevant to the contractual dispute. PEL has no affirmative claims under the ICC arbitration and yet, there are pleadings in abundance about PEL's DCF valuations, for example, in the treaty claims.
Now, PEL didn't comply, that's the other point that I want to raise. That was the allegation made by Mr Basombrio. I will state that my client believed it was in compliance in light of the 20 years of jurisprudence that confirms the distinction between contract and treaty claims.
Indeed, Mozambican law allows for a court or tribunal to consider ancillary or preliminary matters that are necessary to decide the claims before it even if another tribunal or court has jurisdiction over related matters.
Now, as far as the criticism that was cited in the majority order about PEL saying there was nothing to decide, that was completely taken out of context. The reason that PEL said there was
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nothing to decide was given after we stated that the damages claims that Mozambique makes in that case are for putative and nominal damages. Putative and nominal damages do not exist under Mozambican law. PEL has been very clear about that, and Respondent has never provided any evidence to the contrary.
Second, the other claims in the ICC case are tort claims, and we say that that Tribunal doesn't have jurisdiction over tort claims such as defamation because they do not arise out of the MOI, and in any event they'd be barred by the statute of limitations.
And finally, the remainder of the relief that is sought by Respondents in that case is declaratory, and what PEL's position is is that you're not allowed to just give advisory declarations. It has to go to a legal right. And that is the reason we said there would be nothing left to decide because one of the declarations they seek is that the MOI is not binding. If that is true and the ICC Tribunal determines that to be true, then all of their claims would be barred by the statute of limitations.
That is the context in which PEL said that there would be nothing left to decide. In fact,
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there would be lots of things to decide but there would be nothing left of substance to Mozambique's claims, and that's by design, because this was an attempt to essentially bring the treaty claims to the ICC Tribunal in the first instance.
I'd like to now move on to explain how the ICC majority order violates my client's due process rights.
Even with this supposed narrow scope I've already explained that the order actually doesn't prevent from you pursuing this hearing. It actually is an in personam or purports to be an in personam injunction against my client. But, nevertheless, the majority order is incongruous and unprecedented. It is breathtaking.
Could I ask the Tribunal whether it has had the opportunity to review the dissenting opinion which Mozambique initially did not send or mention to the Tribunal?
PRESIDENT: (Nodded)
MS VASANI: I believe we have copies of that as well as Procedural Order 14 and the corrections to Procedural Order 14 before everyone.
Claimant is in full accord with the dissenting opinion as that dissent points out, "This
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type of injunction has never been issued before and it directly contravenes 20 years of settled jurisprudence". The dissenting opinion also makes clear that the injunction goes beyond the ICC Tribunal's competence as it "enjoins a party from making certain arguments before a different arbitral tribunal whose jurisdiction is based on a different instrument of consent than the one that empowers this Tribunal. By silencing a party before a different tribunal, the majority effectively strips that other tribunal of its Kompetenz-Kompetenz".
It would seem obvious that the other tribunal should decide what a party can and cannot argue before it, not our Tribunal, and that was the dissent at paragraphs 1 and 2. The ICC majority issued its injunction at least partially based on its belief that this Tribunal would defer to the ICC Tribunal's findings on all disputed issues of fact relating to the MOI because in the majority's view, and I quote, "the dispute arising out of the MOI, even if one were to accept that this is a mere question of fact for PEL's claims under the treaty, needs to be resolved exclusively in accordance with the terms of the MOI. Further and without explanation, the majority has decided that this
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presumed deference to its findings should limit this Tribunal from even hearing evidence from Patel on any issues related to the MOI".
This was repeated by Mr Basombrio this morning when he asked you to give deference to the ICC majority. Nothing that this says will impede the ICC Tribunal, and nothing that you decide will impede the ICC Tribunal from deciding its separate contract claims. They have free rein to do that.
But what they are doing here, in the words of Mr Basombrio, is stepping on your shoes.
Now, this has placed my client in an untenable position in two ways -- or at least two ways.
First, any restraint by PEL in what it argues will necessarily impede this Tribunal's jurisdiction, as due process requires this Tribunal only to rule upon arguments made before it. If PEL is silenced by the injunction, it will remove particular issues from this Tribunal's jurisdiction. This infringes PEL's due process rights under the BIT and under article 10.36, subsection 2 of the Dutch Arbitration Act to present its treaty claims before the Tribunal as scheduled.
Second, my client's due process rights are
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also infringed given that the injunction seeks only to silence Claimant from pursuing the determination of issues related to the MOI, while leaving Mozambique free to make any arguments it wishes. Under the majority order Mozambique can make all of those jurisdictional arguments about a purported lack of investment, about the MOI not being binding, and PEL would be forced to simply not respond.
Neither of these two due process violations is tenable as a matter of either Dutch law or international law.
Thus, what is critical for my client is this Tribunal's position on what it wishes to hear this week and whether it will confirm its previous orders, and as a reminder of those previous orders I would turn the Tribunal to its Procedural Order No 3 where the Tribunal rejected Respondent's motion to bifurcate. It did so because it agreed with Claimant that in order to assess Respondent's objection that there's no investment, this Tribunal would have to assess issues related to the merits. Those issues included, among other things, all the rights under the MOI associated with the project.
Now, in PO4 this Tribunal found that a stay "pending a decision by another Tribunal
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constituted on the basis of a different agreement is not justified", and that was for several reasons.
First, Respondent's agreement to the procedural calendar in the UNCITRAL proceedings and its refusal to consolidate the ICC proceedings with the UNCITRAL proceedings. Second, the fact that a stay of the UNCITRAL proceedings would cause unreasonable delay and nothing in applicable legal standards provides for a sine die suspension of an ongoing arbitration, particularly when the procedural calendar has been agreed for quite some time.
Third, "Despite the overlap between the two proceedings, a stay of these proceedings pending a decision by another Tribunal constituted on the basis of a different agreement is not justified because the respective causes of action appear to be quite different, considering not only that one proceeding is based on the treaty and another one on the MOI, but also that although the same parties are involved in both arbitrations, their corresponding rules of Claimant and Respondent are reversed".
Then, when Respondent tried once again to stay the proceeding by letter, this Tribunal reiterated the same three reasons from its first stay decision. It noted that nothing had changed,
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regardless of the issuance of the ICC partial award. It further reiterated that the causes of action and instruments of consent are different in each proceedings, and there was no good reason to revisit the first stay decision and stay these proceedings particularly before the hearing on jurisdiction and merits has been held.
And that is letter A-39, for the Tribunal's reference.
Now, further and as the dissent points out, there is functionally no difference between the majority order, which essentially is an anti arbitration order, and an anti arbitration injunction from a Mozambican court. Court order anti arbitration injunctions have been attempted in the past against treaty tribunals and they've been given short shrift. Both parties have consented to your jurisdiction and in particular your mandate to determine how your proceedings should be run and what falls under your jurisdiction.
I have been instructed by my client to present its case in full if this treaty Tribunal considers that the ICC majority order does not fetter its jurisdiction and directs that the full hearing should unfold as scheduled.
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And with that, Mr Chairman, I'm happy to answer any questions from the Tribunal.
PRESIDENT: Thank you, Ms Vasani. Is there any question for the parties?
PROFESSOR TAWIL: Not from my side, Mr President.
MR PEREZCANO: Not from me.
PRESIDENT: Very good. So we will now break for the Tribunal to deliberate, and we will come back. We'll let you know through the secretaries when we are ready to resume the hearing. Thank you.
MR BASOMBRIO: Thank you, Mr President.
(10.41 am)
(The Tribunal withdrew to confer)
(10.58 am)
Decision by the Tribunal
PRESIDENT: Thank you for waiting. We resume our hearing. The Tribunal has had the opportunity to deliberate, and we have come to the following conclusion.
There is a basic distinction in the type of disputes which can be resolved by arbitration. There can be international law disputes which derive from a treaty breach and there can be contractual
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disputes which derive from breaches of contract, and as you know, and as we have said in our previous decisions, this is an international law tribunal constituted under the BIT between India and Mozambique. We are an international law tribunal, and the scope of our jurisdiction is restricted to international law disputes which imply a breach of the obligations assumed by the Republic of Mozambique under its BIT.
The second point is that we have, as an international law tribunal constituted under the BIT and the UNCITRAL rules, we have the right and the duty to define our own jurisdiction. This is a basic principle of international arbitration.
And to make it very clear, this principle is unaffected, is unfettered by any order issued by any other arbitration tribunal.
The third point is that we reiterate what we said in our PO3 and PO4 in our previous decisions. There is nothing there which we would like to change at this stage.
Fourth, we direct that the hearing should proceed as scheduled if Claimant wishes the hearing to proceed.
And the fifth point, we will issue in due
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course a reasoned written statement explaining our decision.
So, regarding the rest of the day, there are two other points of order which are outstanding, it's the presence of Dr Flores and the incorporation of certain documents which has been requested by Claimant. We will address these two issues at the end of the hearing today.
We acknowledge receipt of the opening statement by Claimant, we give it the number H-1, and we give Claimant the floor to start its opening presentation. Ms Vasani, you have two and a half hours. Please bear in mind that, A, you are being interpreted and, B, you are being transcribed, and you will have to make pauses and you will have to make a break in the course of your presentation. We'll see whether we can survive hunger before lunch time. If we can, it would be ideal that we finish before lunch time; if not we will break for lunch and continue after.
Mr Vasani, you have the floor.
MR VASANI: Thank you, Mr President. The floor falls to me.
PRESIDENT: Sorry, that was not intended!
MR VASANI: Not at all, sir.
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Two quick points, if I may. We will therefore continue on the basis of the Tribunal's order, and strictly on the basis of that order. That's point number 1.
Secondly, I did hear Respondent's counsel iterate that it will object as soon as I mention the word "MOI". Perhaps rather than interrupting my opening we can note Respondent's counsel's objections and you could put that now as a sort of standing objection, and I'll cede the floor.
MR BASOMBRIO: Thank you, Mr Vasani.
Of course Respondent is going to reserve all rights, we're proceeding under protest, as I indicated earlier. We will have a standing objection so as not to interrupt your presentation, Mr Vasani, if that's OK with the Tribunal, but I do not believe that Claimants have answered the question presented by the president of the Tribunal. As I recall what the Tribunal just said was "we will proceed if that's what the Claimant [Patel] wants us to do". I believe that answer needs to be provided before we can proceed, pursuant to the ruling of this Tribunal.
PRESIDENT: Thank you. Mr Vasani, you have the floor. Please.
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MR VASANI: Thank you, sir. So good morning, members of the Tribunal. It is my distinct honour to present -- sorry, did you want me to answer the question of Respondent or continue with my opening?
PRESIDENT: Let's go to the opening statement.
MR VASANI: Thank you. Can the members of the Tribunal either see the screen or do they have hard copies in front of them?
PRESIDENT: I have it.
MR VASANI: Thank you. As I said it's my honour to be before such a distinguished Tribunal in what I would say is resplendent surroundings. We're not quite at the Peace Palace but I think very, very close -- perhaps even better.
In the time allotted by the Tribunal our opening statement will go as follows. I'm going to cover Claimant PEL's affirmative case on liability and I am then going to turn the floor over to my co-counsel, Ms Vasani, to present PEL's responses to Respondent's objections to jurisdiction and the merits, and then the floor is going to return to me to walk you through Claimant's case on quantum.
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Of course I would certainly welcome, and my co-counsel would welcome, questions from you at any time either during the presentation or afterwards.
Now, as the Tribunal knows, I have had I would say the advantage of coming into the case somewhat late, in the sense that I have been able to read the record as it has been developed through the arguments in the written submissions, and so this morning my aim is not to repeat the record. You have read that, I have read that. Rather, what I want to do is to try and target what I think are the key issues, the key documents that I would submit to you are necessary for you to decide this case. Certainly these are the documents that jumped out to me as I read through the record for the purposes of this opening.
Now, before I do that, I do want to set the record straight on one particular aspect that I felt was particularly unfair, and that is who is PEL? Who is Patel? Who is this Claimant?
Because if one were to read Respondent's filings, you'd see PEL as this nefarious actor that commits acts of bribery and fraud and misrepresentation. You'd also see that they say
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that PEL can't contract this type of project, they just don't have the expertise and experience.
So I want to go through what is a cursory demonstration of PEL's history and accomplishments, because I think even just doing that is going to put to bed the specious and inappropriate smears that I think have no place in arbitration, and in fact certainly with no evidence to back them up.
So let's answer the question who is PEL.
It is a publicly-traded company with more than 70 years of experience and expertise. It's worked across the globe in a variety of sectors including large-scale power, civil construction, and transportation projects. It has more than 5,000 personnel, including designers, planners, technicians and engineers. Its portfolio of projects demonstrates the depth of its engineering and project management experience on large scale and mega infrastructure projects, and these projects include everything from tunnel drilling to dam construction to marine works, to road and rail construction, and PEL not only constructs infrastructure projects, it owns and operates them as well. So this BOT, or BOO, as the Tribunal will be familiar, PEL does that and it does that on a
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regular basis.
And it has contracted with private entities and government entities around the world. It has received numerous awards for its work over the years. That includes best executed hydroelectric power project of the year and an award for outstanding performance and super quality construction building a railway.
So this is a reputable, historic, and leading Indian company with a long and established track record of expertise, experience and success, so I would ask the Tribunal to keep in mind who PEL is as you listen to Respondent this afternoon try to throw mud at my client's good name. When you compare the portrayal that they are trying to feed you of who PEL is versus who PEL really is, that mud just won't stick.
That can be confirmed not just by the evidence I have on the record and the slides you see in front of you, but also by Mr Daga, who is the first witness you are going to hear this week. He himself is an experienced engineer, and he has been with PEL as its director of projects since 2005, and he was of course the lead PEL representative in relation to its investment in Mozambique.
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At the time PEL began conceiving of the project, the Ministry of Mineral, Resource and Energy's plans for coal export were entirely unobtainable within Mozambique's existing coal transportation infrastructure. As Mr Daga has testified, at that time the only port in the country that could handle coal was over 600 kilometres from the coal mines. This made transport of this coal out of Mozambique entirely unfeasible. The existing ports also didn't have the capacity to handle large amounts of coal.
Now, when PEL pointed this out at the initial exploratory meetings with the government, it was told that the coal industry should come up with its own solutions without government involvement, but the incentives just were not there for each mining company to develop its own rail to port logistics solution for what was a serious problem for the government.
So, instead, PEL envisaged a massive PPP project where the government and a private partner, rather than the coal industry, would own the railway corridor and a deepwater port. This idea for a PPP rail to port logistics corridor was expressly in line with Mozambique's objectives at the time. In
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fact, the World Bank said that an idea like this, a project like this, would be a game-changer.
It's evident if you look at a map of Mozambique, and there's a small one there to the side of the slide, that a port along the Zambezia coast, that's roughly in the middle of the coast there in Mozambique, that is going to be closer to the coal mines and therefore it is going to represent axiomatically a savings on transportation costs, but Mr Daga was told at least twice that Mozambique had looked at this potential solution but had considered that that large swathe of coast line there where you see Zambezia coast, that that was unsuitable for a deepwater port. He was told this once by the former chairman of CFM, that's Mozambique's rail and port authority, a government company you're going to hear about a lot during the coming week, and he was told the same thing by Mr Zucula. Mr Zucula at the time was the Minister of Transport and Communications and he oversaw CFM's work, and we're going to cross-examine him on Wednesday.
PEL continued to describe the benefits of this plan to several governmental authorities and the possibilities of a port somewhere along that
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Zambezia coast line. These meetings included meetings with Minister Zucula, with the head of CFM, the Minister of Planning and Development, and eventually the government took an interest in the plan but only if PEL would foot the bill for some initial research into potential port locations in Zambezia province. The Ministry of Transport and Communications, who I am going to call the MTC, that's what it's been in the pleadings, insisted on its specialists doing the work, but PEL had to pay for that study and be involved in that study.
Thanks to that Preliminary Study that PEL paid for and assisted with the potential port locations were narrowed down to four potential locations in Zambezia province, and the strongest preference was for Macuse. While further studies were needed the Preliminary Study showed several advantages in using Macuse, a location Mozambique had a previously dismissed as a deepwater port. That location, Macuse, was further up the river and it was slightly inland from the coast line, and what that meant was that it was not directly exposed to cyclones and tides, coastal currents were also more moderate there, and it was in a low seismic intensity zone.
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Now, while the Preliminary Study expressed a preference for Macuse there were still navigational constraints at the proposed port location. There were shallow waters, sand bars, narrow and migratory channels, winds, and large breaking waves, but PEL was confident that it could find the engineering solutions to these potential issues and, with more study, it could prove up its concept.
I just want to stop there at this Preliminary Study point and make the following argument. This study, which was paid for by PEL, conducted by government specialists, did not mention any existing or even previous plans to develop a port at Macuse for coal production or any existing significant port infrastructure in that area. All it said was that back in the '90s there had been a port at Macuse that was about -- I think it was something like 5 metres of draft, so that's not the big coal ships that PEL had envisaged, and back then the government had considered adding in a railway line to service imports and exports to Malawi. But any existing infrastructure or a 20-year old plan that never came to fruition was a far cry from PEL's game-changing deepwater port and railway corridor to
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the rich coal mines in the Tete province.
So our point is this. If, as Mozambique claims, it was always looking into developing Macuse for this game-changing railway port link, that it was its idea, that it had thought about this a long time ago, we would have seen that mentioned in the preliminary report. There is no such mention, and that speaks volumes.
The other document that Mozambique tries to bring to your attention over and over to suggest that this railway corridor from Tete to Macuse is its idea is the 2009 transport strategy that they say is evidence that the concept is theirs, but the Tribunal will have studied this document and have seen it doesn't discuss anything like PEL's project at all. There is a passing single paragraph reference of connecting an existing railway line to a port at Nacala that could help get some coal out by largely adding in roadways, not railways, and the document briefly mentions Macuse, among several other ports, and it's described as one port of many that may in the future potentially be made feasible, not as a decided port option.
Just to be clear, the main focus is Nacala, and Nacala is nowhere even close to Macuse,
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and you can see from the map -- this map I would say is created much later, this is not contemporaneous with that 2009 document, so this was created at the time PEL put forward its PFS, but I'm using it for illustrative purposes of the 2009 document -- and you can see the Nacala corridor, which is what the 2009 document refers to, and PEL's Macuse corridor. The Nacala line is the green one at the top that runs east to west on the upper right-hand side of the map, and PEL's Macuse corridor is the blue one that makes a sort of L-shape and ends up in a port in the bottom left of the map. They're not even close.
And even if somehow this 2009 document showed Mozambique had already envisaged a rail line from Tete to Macuse and a deepwater port there, which clearly it doesn't, Mozambique certainly wasn't making it a priority. If this was a concept, a ground-breaking, country-changing concept, you don't just give it a passing one-paragraph reference in a 2009 document.
So Respondent's notion that PEL did not develop and prove up the concept that has become the project simply doesn't stand up to scrutiny.
Let me now turn back to the narrative.
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We're back on the Preliminary Study. The MTC liked the Preliminary Study because their specialists said to them -- presumably -- hey, listen MTC, this is the real deal, something is here we need to explore, and therefore PEL and the MTC began to negotiate a deal to further develop PEL's idea for the rail to port logistics corridor. And that culminated in the memorandum of interest, the MOI, of May 6, 2011.
Now, everyone agrees that the MOI was signed that day, and there was a Portuguese version and an English version. While it is PEL's position that the Portuguese version was signed that day, we submit that it was not the correct version of Portuguese that was meant to be signed that day, but everyone agrees that the Portuguese version that we have in the record was indeed signed that day.
What we do disagree on are three key issues largely centered on clause 2 of the MOI and whether it grants PEL the right to a direct award of concession or to implement the project, and those disagreements can be focused into three questions, and I'm going to answer those three questions sequentially for you.
Firstly, whose English version is authentic?
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Second, whether the English or Portuguese version of clause 2 better reflects the parties' bargain.
And, third, the import, if any, of the discrepancies between clause 2 in PEL's English version and that Portuguese version actually signed.
So let's turn to the first issue. Which is the English version that was signed that day on May 6, 2011? And I would submit to you, members of the Tribunal, the evidence is overwhelming that the version that was signed is PEL's English version. That is the authentic version, the authentic original that the parties signed that day, and Mozambique's English version is neither authentic nor original.
PEL's English MOI has been in its possession provably ever since it was signed. So what do you have? You have provenance and you have chain of custody, and, indeed, we have the original with us if the Tribunal would like to hold it and look at it so you can see for yourselves all the things that Mr LaPorte sees that verifies it an authentic document. You have the wetted signatures, you have PEL's wet ink company seal, and you have the government seal directly embossed into the paper
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that you can feel with your own fingers.
And you'll also see, and this is key, that it is entirely consistent with the Portuguese version that both parties agree was signed the same day. The same printer. The same ink. The same signatures. The same paper. The same seals. The same font.
But that's not all. On the 9th of May 2011, only three days after the MOI was signed, those exact originals were scanned into PEL's own document system after Mr Daga returned to India and the scans are exact copies of the hard copy documents, and both Respondent's and Claimant's experts agree that the metadata from those scans confirms that they were scanned in on May 9, 2011 and that the images and metadata have never been altered or tampered with.
Right. What do we have on the other side of the coin?
When it comes to Mozambique's English version of the MOI, it hasn't been able to provide any evidence to show authenticity at all. It hasn't been able to provide any original, despite the fact that it was required by Mozambican law to archive any original of the MOI.
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It hasn't been able to produce this even though you, members of the Tribunal, made them do so in your document production request. They couldn't do it. And Mozambique's own experts cannot say that an electronic-only version is authentic without that key original that they either don't have or they won't give you.
And there are a number of inconsistencies between Mozambique's English MOI and the Portuguese MOI that suggest a lack of authenticity. For example, Mozambique's English MOI is in an entirely different font from the two Portuguese versions and PEL's English version. It is the odd one out. And there are also several red flags that you will see, and you will hear from the experts on Claimant's side, are within the documents itself. The font from the cover sheet is different from the font throughout the document. You'll see large gaps in the spacing. And because that scan is of such poor quality, it's impossible to verify that the signatures and the stamp were made with wet ink. In other words, we don't even know if they were originally made in wet ink or just simply some sort of computer programme or see any embossed seal on that last page, which is of course a key aspect of
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authenticity of any documents.
So between the two English versions our submission to you is it is abundantly clear there is only one deserving of reliance, and that is the original that you will have in your hands.
The second issue, whether the English or Portuguese version of clause 2.1 better reflects the parties' bargain, again, we say the evidence favours PEL's English version. The negotiating history, the circumstances of its execution, and the parties' subsequent conduct make clear that only PEL's English version represents a full meeting of the minds, and here is the evidence to make that good.
The morning of May the 6th -- and that is the day that the parties agreed that they were going to sign the MOI -- you will see an e-mail from the government to PEL saying that there is here attached a final version in Portuguese as agreed by both parties. That's the morning of the day they're going to sign the document.
And that e-mail from the government then says that the English version should be updated to match this agreed version, and that is C-204. And the Portuguese draft in there, you will see clause 2, is virtually identical to clause 2.1 in PEL's
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English MOI, and you can see that in the slide in front of you, just compare that side by side, and it is identical, or if you were being strictly grammatical, it is virtually identical.
And it also had a right of first refusal found in clause 3 of the draft, later moved to clause 2.2 in the final agreement. That morning there is evidence on record that at MTC's offices, PEL's Portuguese speaker reviewed this final draft and worked with MTC to ensure that these final drafts of English and Portuguese matched.
MTC was in charge of printing the final versions of the contract for signature. PEL came to the offices to sign. But the minister, inexplicably, was hours late. By the time Minister Zucula was ready to sign the hard copies, PEL's Portuguese speaker had left, so you are only left on PEL's side with non-Portuguese speaker.
Mr Zucula, who speaks very good English, looked through both versions. Mr Daga and Mr Patel read through the English version and agreed with it. That's Patel's English version before you. Before signing the Portuguese version, Mr Daga and Mr Patel, who are not Portuguese speakers, and with PEL's Portuguese speaker no longer being available,
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asked Mr Zucula whether it reflected the changes that the parties had agreed upon that you see in C-204. Mr Zucula turned to Mr Chaúque, who is a lawyer for MTC who we will also cross-examine this week, and Mr Chaúque confirmed that the documents reflected the agreed-upon changes.
And only then, in reliance on Mozambique's representations, and entirely unaware of the unilateral changes Mozambique had made to the Portuguese MOI, did PEL's representatives sign the MOI. So you'll see these unilateral changes in the current Portuguese version signed by both parties.
Now, here is where I'd ask the Tribunal to look at the record, because the record tells us everything, the evidence tells us everything. Neither party can explain where that language that you see in the Portuguese version of the MOI comes from, where is its provenance.
There are no previous drafts in the record in either Portuguese or English with that language. The record shows no further meetings, no e-mails, no communications between the parties between the e-mail on the morning of May the 6th and the signing that evening that could explain the changes to the Portuguese language version.
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So these were changes, and Mozambique has not explained where do these changes come from? Show us. They can't, because these changes were made unilaterally unbeknownst to PEL and are not reflective of the English version that you see before you in the original. And they are not reflective of what the record shows you is the final agreed-upon Portuguese version in C-204.
Just as importantly as the facts of the record of that day, May the 6th, is what happened after that particular day. After the MOI's signing, the parties pursued a path reflective entirely of PEL's English MOI. After the PFS was approved PEL was told to start negotiating with CFM to create a company to implement the project, and that only makes sense if the project company was going to operate the PPP concession.
Throughout the parties' dealings, clause 2.1 of PEL's English MOI was expressly referenced, cited repeatedly, without any comment or suggestion from Mozambique that PEL's English version was incorrect. In other words, you will see in the record citation of correspondence, contemporaneous correspondence, between the parties citing the English version of the MOI and never once does
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Mozambique say, oh, wait, that's not what our Portuguese version says; that's not the deal we struck. Never once do they say that.
And that includes, I would add, contemporaneous correspondence and even a letter from the Mozambican High Commissioner in India.
So we would say to you this, that between the English and Portuguese versions PEL's English version reflects what was agreed to by the parties and what was cited on record throughout their relationship, and that brings me to the third point of disagreement.
Why, after years of agreeing, as you can see in the correspondence between them, that PEL's English version of the MOI is the deal, does Respondent now claim that PEL's English version is not authentic or that the Portuguese version must now prevail as a matter of law. And that is because they are trying to read out of the MOI clause 2.1 that is in PEL's English version. You can see that language on the screen in front of you.
Mozambique seems to believe that without that language, the MOI never granted PEL the right to a direct award of a concession. But each of those arguments to write out this clause 2.1 of the
[Page 65]
11:33
English MOI is incorrect.
First, as I've already said, their English version of the MOI is highly suspect, and I will come back to that in closing because I'd like to put that at a higher point, but I will do that only once I speak to Mr Zucula and Mr Chaúque, but for now let's just say it's highly suspect, and all the evidence shows that PEL's English MOI is, in fact, the agreement that the parties signed.
Realising this, Mozambique's next argument is to incorrectly claim that their Portuguese version trumps the English version regardless, but there is no evidence and certainly no law to support that argument. As I've already said, removing 2.1, that second part of 2.1, was a unilateral change that the record proves that PEL never agreed to, and therefore that Portuguese version that they ask you to rely on is unexplained. Absent an explanation, I don't see how this Tribunal could or should rely on a clause where you can see the evidence of what was agreed in the morning and then an unexplained change by the time the parties signed. Where is that explanation?
Additionally, it is undisputed that both contracts state that the English and Portuguese
[Page 66]
11:35
versions have equal value, and you'll see that in all the MOIs, and both legal experts agree that Mozambican law provides for party autonomy in contractual agreement and as Professor Medeiros has explained, Mozambique's other arguments as to why that may not be applicable are inapposite.
Now, if the Tribunal does not want to take the position or feels it cannot take a position as to the hierarchy of the English over the Portuguese, I would submit to you you don't have to do that because, in fact, they are largely harmonious, at least in intent if not specifically in objective.
They both show, the English and the Portuguese both show, that PEL was going to be the one implementing the project by a concession given by Mozambique. Both versions explicitly say that there is going to be a granting of a concession by Mozambique to PEL.
Clause 1 of both the English and the Portuguese says that the purpose of the PFS -- in other words, why we're even sitting here today, why the MOI was even agreed to in the first place, is, quote, "the granting of a concession by the government of Mozambique to PEL for the construction and operation of the project".
[Page 67]
11:37
So even in the Portuguese version granting of a concession to PEL to implement the project is explicitly referred to as the objective of the MOI, and in clause 2.2, the right granted, whether called a right of first refusal or direito de preferência, is specifically tied to a right to implement the project on the basis of a concession given by Mozambique.
And the fact that the parties intended to grant a concession to PEL is also implicit in the exclusivity clause of clause 6. Mozambique promised in both contracts, English and Portuguese, that PEL would have exclusive rights to develop the project to similar projects both during the time the PFS was under way and also during the approval process for the project, and we submit Mozambique would not agree to an exclusive relationship with PEL to implement the project via a Concession Agreement if it intended to put the project out to public tender where exclusivities would end.
So it's on PEL's English MOI that we submit the Tribunal should rely, but there is nothing, we say, in the Portuguese version that contradicts what PEL's English version MOI says.
So we get a clear picture of the bargain
[Page 68]
11:38
the parties struck. The plain language confirms PEL was granted the right to a direct award of the project concession subject to two conditions precedent. Let's go through those conditions precedent.
First, PEL was required to carry out the PFS at its own expense, and this is undisputed. Mozambique agrees that PEL was required to undertake the PFS and could not back out without breaching the MOI. And in exchange, in consideration for the costs and risks of undertaking the PFS, which was an endeavour that was going to take several years, or several months at least, and several millions of dollars of expenditure, PEL was promised exclusivity, it was promised confidentiality, and Mozambique promised not to grant rights to the project to anyone else and keep the information PEL shared related to the project confidential, which makes commercial sense because PEL is going to spend a lot of time and a lot of money to show that Macuse is the port for the deepwater port and how the railway line is going to get there. This is something that no one as I've shown you from the record had thought was possible before.
Most importantly in clause 2 is where the
[Page 69]
11:39
parties placed their two conditions to the right of the direct award.
Now when I read this, members of the Tribunal, I like to think of things in analogy terms, so here's my analogy, and I do hope its helpful. It's a picture of a door with two locks and both PEL and the MTC had a key to one of the locks each. Before the door opened and the direct award vested, each party would have to choose at its own election to unlock their respective locks.
Mozambique's key was approval of the PFS. That was at its discretion.
On PEL's side the right of first refusal offered it the chance to decline the project if Mozambique approved the PFS but if PEL no longer wanted to pursue the project. Let's say it wasn't sufficiently profitable any more, it wanted to do something else with its money. But once PEL exercised the right, once Mozambique exercised the right, they put the key in the lock, they turned it, the door opens, now they're contractually committed on the path to a direct award.
And that is, no matter what legal system, a binding agreement to do that, and you can see that not only from the expert reports of the Mozambican
[Page 70]
11:41
law experts but because of the language, the many uses of the word "shall" -- this morning Respondent's counsel emphasised the word "shall" in his dispute resolution clause. Well, I would say look at the word "shall" throughout the agreement, not just in the dispute resolution clause. If what he says is mandatory, well, it's mandatory in the rest of the agreement too.
And the dispute resolution clause that Respondent's counsel is so fond of, well, I have not often seen agreements to agree that have arbitration provisions, and of course it is an entirely valid agreement under Mozambican law.
The MOI is an administrative contract by which the MTC binds itself to perform a future administrative act, that is the award of a concession contract, and the fact that certain rights granted in the MOI are subject to certain conditions precedent before they vest does not mean that that agreement is not binding or somehow lacked a clear object, because that object in clause 1 of the English and the Portuguese MOI tells you exactly what the MOI is meant to do. It is meant so that PEL does the PFS in order for the government to grant PEL a concession.
[Page 71]
11:42
I want to pause a minute there because I think we've had a few strawman arguments from Mozambique and I just want to clear those up, if they really needed to be cleared up in the first place.
PEL has never stated that the MOI is a Concession Agreement. Of course it is not. As is clear from its pleadings, the MOI granted PEL the right to a direct award of a concession once both conditions were fulfilled. In other words, once the two keys were in the lock, once they were turned the door opened, and the right to implement the project vested, then they would negotiate the Concession Agreement, the government would approve that, and phase 2 of the overall investment would proceed.
But because the MOI was not in and of itself a concession agreement it didn't have to contain all the necessary terms of a concession agreement to be legally valid and binding under Mozambican law. And for that same reason you don't need any approval besides the MTC minister. You don't need at that stage the Council of Ministers. We see that later and I will come on to that because it's critical, but you don't need at the stage of the MOI the Council of Ministers or the Ministry of
[Page 72]
11:44
Finance or the Administrative Court or the other approvals Mozambique says you need at the time of the MOI.
But, anyway, I would say that even if there were some aspects of domestic law that were allegedly missing, they are irrelevant as a matter of international law given Mr Zucula's signature on behalf of the government of Mozambique, and his role as the Minister of Transport and Communication at the time. They would be estopped in international law from trying to use any violation of their own law to escape liability.
And I'm also going to show you the PPP law that came into effect, but at the time that the MOI was signed the 2011 PPP law was pending. But the parties knew -- and there is testimony on both sides of this fact -- that when it came time that the PFS was going to be approved and the actual concession was going to be agreed, the concession would be governed by the new 2011 PPP law, and that law allowed for the direct award of a project concession in certain circumstances if it is approved by the government and it is duly substantiated. That's article 13(3) and I'm going to show you exactly where in the record that happens.
[Page 73]
11:45
So stopping there, that is the first pillar of Claimant's case. The deal struck in the MOI and best reflected in PEL's English MOI was that after PEL submitted the PFS, each party had the option whether it wanted to engage further. Once Mozambique approved the PFS, once PEL exercised its right of first refusal, once the key was put into the lock and turned, the door opened and the parties contractually commit to each other that they're on the path to the direct award; they're on the path to the Concession Agreement.
So I want to now just pause there and look at what each party did with its key -- Mozambique with its approval of the PFS and PEL with its right of first refusal.
Let's start with the PFS.
PEL dedicated considerable time, money, and effort to the PFS. It knew of course that the PFS was going to be subject to scrutiny by MTC's engineers, and remember, these are the same engineers who at the time are looking after the Beira line. That's a line I haven't showed you, but it's a line that goes through the south.
So these people know. They know their stuff. They're already looking after a railway
[Page 74]
11:47
line. They're already looking after a coal port. So these are not ingenues who will just look at a PFS and say that looks good; they know what they are talking about. So PEL knew that if the MTC were not satisfied with the PFS, they're going to reject it, and then PEL's time would have been wasted. Their money would have been wasted.
So they performed a serious analysis to determine the technical feasibility of the project. They made frequent visits and spent considerable time on the ground and people were there working day in and day out. They spent months looking at every aspect of the project. For example, they looked into four potential rail routes before landing on one. PEL analysed the topography along the proposed rail route. They did a field study by travelling extensively along the proposed route from Macuse to Mocuba, from Quelimane to Macuse noting all national roadways, town and village roads and railway crossings to examine and verify the exact physical features along the route, and additionally, due to a special request from Mr Zucula, PEL also analysed the entirety of the abandoned railway between Quelimane and Macuse to assess whether that could be reinstated.
[Page 75]
11:48
For the port location, although PEL strongly preferred Macuse, it continued to do further studies on other potential areas to ensure that Macuse was indeed the best option for the government. It studied oceanographic and meteorological data and geological and physiographical characteristics of the Zambezia coast line and in particular of the Macuse basin; it conducted a wave modulation study; it looked at silting patterns in the Macuse basin, tidal conditions in and around the Macuse basin, and annual rainfall in the area. PEL even did further analysis on the most promising two sites before ultimately confirming that Macuse was indeed the most suitable port location.
PEL also functionally planned the port and rail facilities such as considering the number of berths needed at the port and rail facilities, the machinery, the equipment that would be needed, and analysed the railway truck design. It gave an initial overview of the rolling stock needed and sketched preliminary tonnage profiles and train operating plans.
On the financial side PEL also provided preliminary costs for both port and railway elements
[Page 76]
11:49
of the project, and it also identified future studies required for the port and railway.
Now, these are not just desktop studies. This is not some person sitting somewhere in India just Googling information. PEL's consultants and employees went out on the ground in Mozambique and collected the data, and just to give the Tribunal an example -- and this was really, again, something that jumped out to me when I looked at this -- to give you an example of the level of commitment and detail, PEL paid for one poor soul to sit at Macuse for an entire year just to see the weather conditions at the port of Macuse so they could understand the rainfall, the wind, et cetera. And they also spent days travelling along the projected railway route to understand the topography of the land. Again, to give you an idea of the dedication that PEL put in to making this project a reality, to making their investment a reality, when that railway route was not accessible by car, they got out of the car and they walked in the Mozambique wilderness through to where this railway line was going to go. And it didn't just look at existing conditions. With the PFS PEL analysed the proposed solutions, know-how, that would allow the Macuse location to
[Page 77]
11:51
become the deepwater port that Mozambique desperately needed.
In particular, PEL proposed dredging at the mouth of the Macuse River to remove sandbars, that would reduce the siltation in the approach channel and provide better navigational conditions to ships. PEL also proposed erecting a breakwater that would create a sheltered area and keep the waves from bringing in additional sand that would silt up the dredged area. And based on these solutions, based on this know-how, the PFS provided further evidence that a port near Macuse on the river was the best path to provide Mozambique with the socio economic benefits it sought for its coal industry.
Then on May the 9th, 2012, in the culmination of PEL's nearly two years of investigations and studies involving, as I've said, boots on the ground, PEL's engineering minds providing know-how to rail and port solutions and working with local people and local officials to ensure the project would work, PEL proudly gave an oral presentation about the PFS to numerous Mozambique officials and provided the PFS to the government.
[Page 78]
11:53
That presentation to the government included the top technical and commercial personnel from throughout the government. Whoever needed to know in the government knew. That includes the MTC, the CFM, the Ministry of Planning and Development, the Ministry of External Affairs, the Ministry of Mining and the Ministry of Finance. This is a broad and collective effort by the government to scrutinise the PFS.
And, indeed, the record shows that Minister Zucula praised the technical aspect of the report and PEL's presentation. He asked of course, as you would expect, for follow-up data. PEL provided the MTC with additional economic information a few days later. PEL also participated in a meeting with CFM shortly after presenting the PFS to address their concerns, and then Mozambique took the PFS and reviewed it internally. For example, on the 11th of May PEL had a meeting with CFM at their offices. On the 17th of May we have evidence that Mr Ruby, a government employee who was involved in the Preliminary Study in the PFS, an engineer, gave a presentation about the project to CFM's board, and further questions from the government and answers from PEL are on the record on
[Page 79]
11:54
technical aspects of the railway.
So now we're at a point, members of the Tribunal, where Mozambique has to decide does it put its key in the door in the lock and turn it. The PFS is done. Does Mozambique want to move forward with PEL to a direct award? And they had every right, subject to good faith, to reject the PFS or to go and say I want more information, and it knew that once it approved it, if it approved it, it's going to move forward on this contractual path to a direct award.
And on 15 June 2012, Mozambique squarely puts its key in the lock, turns the lock and approves the PFS -- and not only that, it asks Patel to put its key in the lock and commit itself by exercising there and then its right of first refusal to do the project, and that's the second pillar of PEL's case.
Mozambique, fully aware of the import, the contractual import of its actions, approves the PFS, and only three days later, after Mozambique asks it to do it, exercise your right, PEL, it says, PEL exercises its right of first refusal, and it's clear that PEL understood that at that point its obligation to implement the project had vested, and
[Page 80]
11:56
that's the third pillar. At that point PEL had also fully committed to the project.
So at that point both conditions precedent that I showed you in the MOI had been satisfied. In terms of my analogy, both parties had put their key in the lock, both parties had turned it, now it's time to walk through the door.
Now, three pillars were sufficient for PEL's right to vest, but there is another factor that evidences PEL was granted the right to implement the project, and that final pillar, bar one, is the parties' subsequent conduct shows that they understood that after the MTC's approval of the PFS and after PEL's exercise of the right of first refusal they were firmly on the path to a direct award, and Mozambique left no doubt that it intended to grant PEL a direct award when it approved the PFS, and ask PEL to exercise its right of first refusal.
Nothing in the documents, and I would challenge Mozambique to show us, nothing in the documents from that period even suggests a tender from 2011 and 2012. Quite the opposite. Mozambique asked PEL to negotiate a project company with CFM to implement the project, and I would ask the Tribunal
[Page 81]
1 to look at that word because it's key. "Implement"
2 the project. It would make no sense to have PEL
3 negotiate a project company with CFM to implement
4 the project if MTC planned to launch a public
5 tender.
6 Similarly, Mozambique asked PEL to meet
7 with potential partners to construct the project.
8 Why would PEL meet with partners to construct the
9 project if it is not the one implementing the
10 project?
11 So with the mutual understanding that PEL
12 was on track for a direct award of concession, PEL
13 reached out to MTC for assistance locating the right
14 person at CFM. Who shall I meet with? PEL also
15 asked specifically for an official authorisation to
16 commence SPV negotiations with CFM, and it also
17 asked for confirmation that CFM was Mozambique's
18 designated partner for the intended PPP. And that,
19 I would suggest, members of the Tribunal, is a very
20 prudent and rational position for an investor to
21 take and to ask of the government, but this is where
22 things start to change.
23 Rather than instruct CFM to meet with PEL
24 to start negotiations over the joint venture, MTC
25 pretty much goes missing. Almost two months after
[Page 82]
1 asking for assistance, and with no help from MTC,
2 PEL managed to secure a meeting with CFM's chairman
3 of its own accord, of its own back, and in this
4 early August meeting, August 2012, CFM's chairman
5 said this, that he has no authorisation to negotiate
6 with PEL. And this -- I mean when I say it jumped
7 out at me on the page, CFM's chairman says this --
8 he knows nothing about the project. That response,
9 he knows nothing about the project, is so telling,
10 because it's obviously not true.
11 CFM representatives had attended the PFS
12 presentation and site visit. PEL had already met
13 with CFM directly on 11 May. A few days after that
14 we know that an MTC employee had presented the
15 project directly to CFM's board. Surely this
16 chairman was there at the board meeting?
17 In any event, this is the biggest project
18 on the African continent at the time. So that kind
19 of feigned ignorance by the chairman of CFM tells us
20 something behind the scenes is just not right. It's
21 just not a reasonable response.
22 And when PEL told the MTC about CFM's
23 dubious claim of ignorance about the project,
24 Mr Zucula allegedly told the CFM chairman to
25 negotiate with PEL. However, when the CFM chairman
[Page 83]
1 met with Mr Daga again at the end of August, it was
2 not to negotiate an SPV. Rather, the chairman flat
3 out rejected any hope that PEL had of forming a
4 joint venture with CFM regardless of whatever terms
5 PEL was offering. Apparently -- and this is
6 something I think that Mozambique accepts -- CFM
7 were not interested in the project.
8 Now, given that this meeting happened
9 shortly after a supposed call from Mr Zucula, CFM's
10 representations at that meeting call into question
11 whether Mr Zucula had actually authorised CFM to
12 negotiate with PEL. And Mr Zucula gives us the
13 answer in his witness statement. He says he never
14 authorized CFM to negotiate with PEL. And when PEL
15 tried to talk to Mr Zucula about CFM's refusal to
16 deal, how they could potentially move the SPV
17 forward maybe with another government entity,
18 Mr Zucula is suspiciously unavailable.
19 And PEL tries to send letters to move the
20 project forward. They repeatedly ask, on record,
21 for the MTC to send a draft of the Concession
22 Agreement. That never appears. And since CFM was
23 absolutely not interested, PEL even offered to pay
24 for all of the initial capital in the SPV with no
25 initial contribution to whichever entity MTC finally
[Page 84]
1 proposed.
2 And Mozambique admits MTC was absolutely
3 not interested in this project, but MTC saw no
4 reason to remove the roadblock that it had placed
5 right in front of PEL.
6 So what you have is MTC insisting that in
7 order to do what it had already promised to do, move
8 on the path to a direct award, PEL needed to form a
9 joint venture with CFM, but it continued to insist
10 on this knowing that CFM had no interest in this
11 project and without even authorising CFM to form the
12 joint venture.
13 In fact, and again I'll come back to this
14 in closing once we've spoken to the witnesses, I
15 think there is enough at least at this stage for an
16 inference that MTC told CFM not to negotiate with
17 PEL.
18 I'll make that stronger than an inference
19 in closing, I hope.
20 And PEL also learned at the same time
21 Mozambique had been talking to Rio Tinto about a
22 transportation corridor from Tete to Macuse. And
23 in November 2012 CFM told the press that Mozambique
24 planned to launch a joint venture -- excuse me, a
25 public tender for PEL's project. So this is,
[Page 85]
1 members of the Tribunal, the first breach of treaty,
2 what I'm going to call the CFM stonewall
3 orchestrated by MTC, and here's how that treaty
4 breach grows.
5 The same day that PEL sent yet another
6 letter to move things forward with CFM and MTC,
7 Mozambique told PEL it's decided to launch a tender,
8 and that letter is telling because the reason
9 Mozambique gives for the tender is none of its post
10 hoc rationalisations that you see in this
11 arbitration, right? We don't see PPP best
12 practices; we don't see the tender was the preferred
13 avenue under the PPP law; we don't see the PFS was
14 no good; all the things that we've read, pages and
15 pages and pages about in this arbitration, it's not
16 there in the record.
17 Instead, the sole, the exclusive purported
18 reason Mozambique decided the tender should happen
19 is because PEL had been unable to form a joint
20 venture with CFM, and then what was the supposed
21 reason that PEL had been unable to launch this joint
22 venture? Not that CFM was not interested in the
23 project, which MTC knew. Not that MTC had failed to
24 instruct CFM to move forward with PEL. Not that CFM
25 even refused to meet substantively with Patel to
[Page 86]
1 negotiate an equity, but that CFM somehow wanted
2 more than 20 per cent equity participation.
3 But there is no evidence on the record of
4 CFM or MTC or anybody asking for more than
5 20 per cent. The only evidence you see in that 2012
6 period is radio silence from CFM and MTC, and on the
7 other side PEL desperately trying to get somebody to
8 engage with them. How can PEL negotiate with a
9 party -- 20 per cent, 30 per cent, 40 per cent,
10 whatever it is -- how can you engage with a party
11 that has absolutely no interest in the project and
12 doesn't even meet with you?
13 So knowingly keeping PEL on a path that
14 contained an insurmountable roadblock that only it
15 could remove, and then using that same roadblock as
16 a way of depriving PEL of its right to implement the
17 project is a classic FET breach.
18 So what could MTC have done, if it was
19 acting in good faith, what a government would have
20 done, what a government should have done? Tell the
21 CFM that the government had designated CFM as the
22 government's representative in the SPV. It could
23 have facilitated negotiations. It could have
24 facilitated an agreement. It could have formed the
25 SPV itself if CFM was truly not interested and the
[Page 87]
1 MTC didn't want to force CFM to act.
2 It could have nominated another government
3 entity to be the partner and take CFM's place. But
4 not replying to PEL at all, especially once it knew
5 that it had set PEL an impossible task, like
6 Sisyphus trying to push the boulder up the hill and
7 the boulder will always come back down, that task
8 was never going to be completed. The government
9 knew that, and then it used its own impossible task
10 to then say to Patel sorry, you failed at an
11 impossible task we set for you and now we go to
12 tender.
13 Reading the record, Mozambique has
14 essentially admitted that MTC and CFM breached the
15 treaty. CFM is subordinate to MTC. That's on the
16 record already. It does what the MTC wants, it acts
17 in the government's public interest only, it would
18 have done as it was told to do. And CFM's conduct
19 is attributable to Mozambique. We already have
20 MTC's conduct but I also here would like to point to
21 CFM's conduct and attribute it to the Mozambican
22 state, because under Mozambican law PPPs are created
23 to provide services the state is obliged to make
24 available to its citizens. That is article 2.2(a)
25 of CLA-65A.
[Page 88]
1 What can a state do in a PPP? It can
2 choose to participate itself, or it can nominate one
3 of its state-owned entities to take its place, step
4 into its shoes, the shoes of the government.
5 So here, when MTC says to Patel we've
6 designated CFM, you go ahead and talk to CFM to
7 create the joint venture, MTC points to CFM saying
8 this is the entity that will take our place in the
9 PPP and as a result, in that instance, if not
10 otherwise, CFM is acting with governmental authority
11 when it declined to negotiate with PEL.
12 And, further, Mr Zucula has essentially
13 admitted that he lied to PEL in 2012. Back then he
14 said he had authorized CFM to negotiate. Now he
15 claims it wasn't his job to authorise a joint
16 venture between CFM and PEL. But that was exactly
17 his job. That's what the law says. CFM couldn't
18 form a joint venture with PEL without his say-so.
19 Because in addition to approving CFM's
20 joint ventures, MTC and Mozambique exert control
21 over CFM. Mozambique appoints all of CFM's board
22 members, Mozambique approves all its activity plans,
23 and approves its programme contract which sets forth
24 all the activities it will carry out. CFM would
25 never have refused or feigned ignorance if Mr Zucula
[Page 89]
1 at MTC had told CFM we, the government, has said
2 you, CFM, are our representative in the joint
3 venture.
4 So, again, I'll make the inference, which
5 I want to make stronger in the closing, CFM appears
6 to have been following explicit instructions from
7 MTC to stonewall. These actions, these obvious
8 lies, the lies of the CFM chairman, "I don't know
9 anything about the project", the blowing hot and
10 cold, the insisting on a course of action known to
11 be impossible and then using that same impossibility
12 to frustrate PEL's rights -- textbook FET
13 violations. That's trying to defend itself from
14 what I would suggest is a manifest FET breach.
15 Respondent puts a lot of emphasis on Exhibit C-19.
16 This is a January 2013 letter from Mr Zucula to PEL.
17 So it's contemporaneous in the sense that
18 it is from the Roth time period but it is not in
19 2010, 2011 and 2012 when all this is taking place.
20 It comes in 2013, and purports to talk about things
21 that happened in the past. I want to make two
22 points about this letter.
23 First, this letter, as I said, in 2013
24 looking back is the first time we see Mozambique
25 attempts at a post hoc rationalisation. Mozambique
[Page 90]
1 claims that when the MOI talked about a right of
2 first refusal to implement the project, what it
3 somehow meant was a scoring advantage in the public
4 tender. This is -- and I've looked at the record
5 carefully -- the first time we see a public tender
6 ever mentioned in the record in relation to PEL.
7 It's never mentioned in the MOI, and it's never
8 mentioned in any communication that I've seen any
9 time before January 2013 from MTC and PEL.
10 And we also see Mr Zucula claim that he
11 discussed a tender with PEL in June 2012, but
12 Mozambique has provided no documentary evidence to
13 show that a tender was ever discussed with PEL
14 before this point, let alone in June 2012.
15 Mr Zucula also claimed he had several discussions
16 about CFM's share percentage. Again, no evidence on
17 the record from Mozambique of such discussions.
18 And Mr Daga has testified that he was
19 never informed of a tender or never told that CFM
20 wanted more than 20 per cent before this letter. So
21 the MTC letter of January 2013 is not
22 contemporaneous evidence of what occurred. It's the
23 first time in the middle where the parties are
24 already in dispute that Mozambique starts to
25 re-write the history of what the MOI meant or what
[Page 91]
1 the parties discussed. That just isn't recorded in
2 the documents that you will see in 2011 and 2012.
3 After this letter in January 2013 PEL is
4 obviously devastated. It wrote back expressing its
5 sincere disagreement with the MTC's changed position
6 on the MOI. It tried to talk to MTC and other
7 government officials about this sudden change, but
8 to no avail. And then the salt in the wound comes
9 when Mozambique published a tender notice that was
10 evidently down to the kilometre based on PEL's hard
11 work.
12 In an attempt to salvage its investment,
13 make lemonade out of lemons, PEL agreed to
14 participate in the tender but strictly under
15 protest. It formed a consortium of highly
16 experienced companies but made clear to its
17 consortium partners and to Mozambique that PEL would
18 continue to pursue its rights to a direct award.
19 And then, on the 18th of April 2013, PEL
20 learned that two days earlier the Council of
21 Ministers had decided to grant PEL a direct award,
22 and I want to stop here because this document is
23 simply the most important document in this whole
24 case.
25 I took the liberty at having a look at
[Page 92]
1 Respondent's opening statement this morning, the
2 slides, and they gloss over this document, and I'm
3 not surprised they gloss over it but please bear
4 what I'm about to say in mind when you see them
5 gloss over this because this is a stake in the heart
6 of their defence.
7 Let's start with who is the Council of
8 Ministers? The Council of Ministers is the
9 government. That's what the constitution says. It
10 is the government. It is the highest governmental
11 authority in Mozambique, and at that time, in
12 addition to the President of Mozambique, you've got
13 28 other members of the Council.
14 What I want to point out is this. Several
15 of the members of the Council were very familiar
16 with PEL and the work of PEL in the PFS. Obviously
17 you have Mr Zucula, who is the Minister of Transport
18 and Communication. He was intimately familiar with
19 the project.
20 But remember, as I told you and as you see
21 in the record, PEL had several meetings and
22 communications with the Minister of Planning and
23 Development as well as meetings with the Prime
24 Minister. You've got other council members involved
25 directly in approval of the PFS. That was the
[Page 93]
1 Ministry of Planning and Development, the Ministry
2 of External Affairs, the Ministry of Mining, and the
3 Ministry of Finance.
4 So the Council at this meeting
5 of April 2013, 16 April 2013, is very familiar in
6 large part with the project, and it is concerned
7 about getting this project up and running as fast as
8 possible because it's in the national strategic
9 interest to do so. And given PEL's familiarity with
10 the project and the government's familiarity with
11 PEL and its work, it makes sense that the government
12 gave PEL a direct award that it had always been
13 promised.
14 So let me say three key things that this
15 resolution does. First, the resolution -- and we
16 don't have the resolution; we have a letter stating
17 the resolution. I wish we had the resolution and,
18 had Respondent abided by its document production
19 requests, we'd have had the resolution. We don't.
20 But the resolution grants PEL a direct award.
21 Directly. Following exactly the procurement steps
22 outlined in the PPP law. And Professor Medeiros has
23 noted that this act by the highest body in
24 Mozambique is undeniably an act that establishes
25 rights. It confirms and approves the rights granted
[Page 94]
1 under the MOI, but it is the highest act of
2 Mozambique, and it's added another key pillar, and
3 I would submit to you the ultimate key pillar into
4 our diagram, because we're no longer on the path to
5 a direct award; we have been granted a direct award.
6 Second, the resolution and letter are
7 evidently not, as Mozambique claims and I'm sure
8 we'll hear this afternoon, just the Council of
9 Ministers investigating a different avenue in
10 parallel to the tender, or merely suggesting
11 discussions with PEL, as Mr Zucula puts it in his
12 witness statement. The Council of Ministers, the
13 highest collective executive body in the land, does
14 not come together and put on its agenda the idea of
15 discussions. It doesn't deal with that kind of
16 low-level activity.
17 And it's also clear that it grants a
18 direct award, from what PEL is asked to do in the
19 letter. The subject of the letter starts with
20 "negotiation of the terms of concession" and that is
21 a legal phrase directly borrowed from the PPP law,
22 and it also says PEL has to start those negotiations
23 in a week. It's urgent.
24 The government also wouldn't ask an
25 investor for a $3 million bank guarantee and require
[Page 95]
1 it to be valid until a contract is signed unless it
2 intends to sign a contract. It also doesn't ask
3 somebody to start negotiating massive offtake
4 agreements with mining companies unless that company
5 is the one that's getting the direct award.
6 What it's doing is asking PEL to fulfil
7 the next step in the PPP regulations, provide a bank
8 guarantee.
9 And, third and finally, and this for me is
10 the clincher, so to speak, the Council of Ministers
11 expressly articulates the reasons PEL is to be given
12 a direct award.
13 They say, as you can see in the letter,
14 the project is needed as soon as possible, PEL has
15 done all the work, time is of the essence, and
16 therefore it is in the national strategic interest
17 to give PEL a direct award. Those are duly
18 substantiated reasons, and they meet squarely with
19 the requirement in article 13(3) of the PPP law in
20 effect at the time for two things to happen.
21 Number 1, the government has to approve
22 it. That's what the resolution did. Number 2, the
23 government has to duly substantiate its exceptional
24 nature. Again, that's exactly what the resolution
25 did.
[Page 96]
1 And given that nothing changed in PEL's
2 credentials or its work or how it conducted the PFS
3 from the time they did it to the time of this
4 document, it means the project was always in the
5 national strategic interest. In fact, the only
6 thing that's changed from the MOI and PFS to the
7 Council of Ministers' resolution is that now the
8 Council of Ministers has seen the work of PEL. Now
9 they know who PEL is. Now they know that this is
10 the company that Mozambique wants to give the direct
11 award in the national strategic interest.
12 The gravitas of the decision, then, is
13 that it's in the national strategic interest to
14 grant PEL a direct award, and so the government
15 granted it. And it really cannot be understated; it
16 doesn't come out of the blue. It's a deliberate
17 exercise by the highest governmental body after due
18 consideration taking into account the work done by
19 PEL and the needs of the country at the time.
20 And there is no way -- no way -- that this
21 document can be mistaken for a 15 per cent scoring
22 advantage, or anything else, any of those other post
23 hoc rationalisations. They die, they wither, in the
24 face of this document. It really overrides all of
25 the post hoc rationalisations that Mozambique has
[Page 97]
1 conjured up for the purposes of this arbitration.
2 And Professor Medeiros tells you that once that
3 legal act has been established, it can't be freely
4 revoked under Mozambican law, but that's exactly
5 what Mozambique purported to do, which is a second
6 breach of the treaty.
7 So what happened when PEL received this
8 letter? It duly complied. A meeting was scheduled
9 quickly for discussions over the promised draft
10 Concession Agreement. It obtained and handed over a
11 $3.1 million bank guarantee from the Bank of Baroda,
12 and that's a real sign of good faith, members of the
13 Tribunal, because you know from your experience that
14 tying up that kind of capital from your creditors,
15 it's a big deal, and it expressed a willingness to
16 submit other documents requested by Mozambique as
17 they became available. But again, things are
18 happening behind the scenes.
19 Unbeknownst to PEL in the meantime the
20 Council of Ministers performed a complete U-turn,
21 and in violation of Mozambican law and in violation
22 of the treaty they seek to take away the rights that
23 they have just granted to PEL.
24 But I would draw your attention to the
25 reasons that they give, the ostensible grounds that
[Page 98]
1 they give. They say after hearing from unnamed
2 stakeholders, we're having another look at the legal
3 and regulatory framework, and now the Council of
4 Ministers has decided we're going to go with a
5 tender.
6 As Professor Medeiros explains, that's a
7 revocation of PEL's rights established in
8 the April 16th resolution. It's illegal as a matter
9 of Mozambican law.
10 But here is the question that I would ask
11 the Tribunal and that Mozambique didn't answer then
12 and can't answer now. What happened to the national
13 strategic interest? It's absolutely disappeared
14 without trace, without explanation. Why was it no
15 longer in the national strategic interest to give
16 PEL the direct award that it granted it on April the
17 16th?
18 And, besides that, who are these
19 stakeholders? Who heard them? When did they hear
20 them? What did they say? Why was what they said so
21 important? And what were these regulations and laws
22 that they looked at at that time that they didn't
23 look at before the April 16th decision?
24 It's so unexplained, so insufficient to
25 overcome their carefully studied and substantiated
[Page 99]
1 decision of April the 16th. Something happened
2 behind the scenes. I would love to tell you what
3 that was, but I can't.
4 And why can't I? Because Mozambique has
5 failed to provide us, or you, any documents from
6 either of these two Council of Ministers meetings,
7 despite the fact that it's legally required to
8 archive those documents. All these questions I've
9 asked you I would love to have answered. But
10 Mozambique won't let us, and they won't let you.
11 And so, members of the Tribunal, you must
12 find adverse inference here that Mozambique has
13 purposely withheld or its failure to produce means
14 that those meeting materials have not been produced
15 because they are helpful to PEL's case to show the
16 substantiation in the April 16th meeting versus the
17 damage to Mozambique claims in the later Council of
18 Ministers meeting. It is unfathomable. I just
19 can't believe that there would be no record of the
20 highest executive body in the country on a matter of
21 national strategic interest.
22 Those documents exist. We just don't have
23 them.
24 So Mozambique first promised PEL the right
25 to implement the project and a binding contract and,
[Page 100]
1 second, finally granted PEL a direct award with the
2 Council of Ministers' decision, and then both times
3 Mozambique changed its mind and took that right
4 away, first with the CFM stonewall and, second, the
5 Council of Ministers' U-turn. And the tender that
6 was concluded in which PEL participated under
7 protest -- we've discussed this in our pleadings --
8 was highly irregular. There were incredibly short
9 timelines, unclear evaluation processes, and a
10 complete lack of transparency.
11 However, Claimant has been unable to
12 determine what actually happened given the lack of
13 record evidence on the issue. Claimant requested
14 Mozambique to produce the tender file, the bidding
15 documents and the information about how the bids
16 were scored, and we considered this information
17 relevant and material to whether Mozambique
18 conducted a fair tender proceeding and therefore met
19 its treaty obligations.
20 In response, Mozambique produced a paltry
21 few documents, nothing that actually shows it
22 conducted its tender or evaluated PEL's scores in a
23 manner that was compliant with Mozambican law or
24 indeed the treaty. And Mozambique is now using its
25 failure to produce documents related to the tender
[Page 101]
1 as both a sword and a shield. It claims the tender
2 was entirely regular and in line with PPP best
3 practices, but it has failed to produce documents to
4 substantiate those claims.
5 This is again even though it must have
6 those documents in its possession because the law of
7 Mozambique requires it to have those documents, and
8 earlier this year the Tribunal will remember that
9 PEL renewed its request for at least the winning
10 bidding material for assistance with its quantum
11 case, and we would say that document is also
12 relevant and material to the various bids and how
13 they were evaluated and whether they were done in a
14 fair and equitable manner. PEL's request was
15 denied, so at this stage, members of the Tribunal,
16 due to a lack of record evidence, I'm not going to
17 go further into the additional breach based on the
18 tender process this morning. However, if the
19 Tribunal does decide to order production at the end
20 of the hearing, and you can see that highlighted in
21 your order, and we would at the end of this hearing
22 urge you to do so based on the evidence we will
23 hear, then we would like to reserve our rights based
24 on that evidence to come back to you to pursue those
25 arguments and pursue that further breach of the
[Page 102]
1 treaty.
2 Let me end, members of the Tribunal, and
3 then I'll pass the floor to my co-counsel on this.
4 PEL had every right, every legitimate
5 expectation, to expect that once Mozambique approved
6 the PFS and once PEL exercised its right to first
7 refusal, in other words once both parties turned
8 their key in the lock and the door opened, that
9 Mozambique would do its part to honour the bargain
10 it made. Instead, PEL's rights were vitiated
11 through Mozambique's stonewalling, post hoc attempts
12 to re-write the MOI and the parties' relationship,
13 and finally the Council of Ministers' U-turn and the
14 award of this project, PEL's hard work, PEL's
15 know-how, PEL's concept to another company set up
16 Mozambique, and that other company will reap the
17 benefits of my client's work. These are textbook
18 breaches of the BIT between Mozambique and India.
19 So I will now yield the floor to Ms Vasani
20 to discuss Mozambique's responses to all of this
21 evidence, and then I will come back to you on
22 quantum.
23 PRESIDENT: Thank you, Mr Vasani. Just
24 that I have it clear, you have reserved the right at
25 the end of the hearing to ask us to revisit our
[Page 103]
1 decision in A-41?
2 MR VASANI: Yes, sir, if I may. In other
3 words, we have a claim for a treaty breach for
4 irregularities in the tender. However, considering
5 that the Tribunal has held over its decision on
6 further documents on that, with the Tribunal's
7 permission I'd like to hold that claim in abeyance
8 until the Tribunal rules on that document request,
9 because at this stage I really would like those
10 further documents to continue to prove up the case
11 and I do feel that, once you've heard the evidence
12 from the witnesses, you will see that it is relevant
13 and that those documents are relevant and material
14 to the claim we would like to make to you in full.
15 PRESIDENT: Thank you. No, my only point
16 is that we do not have a request on the table right
17 now; that is something which you leave for the end
18 of the hearing.
19 MR VASANI: Yes. To follow your own
20 words, sir, you say "end of the hearing" and
21 I understood that to mean once you've heard the
22 witnesses, so in accordance with your ruling that's
23 what we intend to do.
24 PRESIDENT: Very good. So, Ms Vasani, you
25 are now going -- how do you prefer to be addressed?
[Page 104]
1 MS VASANI: I am happy with either.
2 PRESIDENT: It's Ms with a long "I"?
3 MS VASANI: Ms Vasani is perfect.
4 PRESIDENT: Is the way you prefer?
5 MS VASANI: Ms Vasani is perfect.
6 PRESIDENT: That's not helpful because the
7 court reporter has now put Ms and I really don't
8 know what Ms means ...
9 MS VASANI: That's correct.
10 PRESIDENT: I put -- this is off the
11 record.
12 (Short discussion off the record)
13 My question to you is how long will it
14 take you to finish?
15 MS VASANI: Sure. My section of
16 discussing objections to jurisdiction and various
17 post hoc rationalisations will be about 35 minutes,
18 and Mr Vasani's section on quantum will be --
19 MR VASANI: About 25 minutes.
20 MS VASANI: So we're still about an hour
21 out or so.
22 PRESIDENT: Let's see how we are doing.
23 Maybe we can finish before lunch, which would be the
24 preferred solution.
25 MS VASANI: Could I also ask for the
[Page 105]
1 slides to be put up once more? Thank you very much.
2 We've just heard PEL's affirmative case,
3 it's cogent, it accords with the contemporaneous
4 documentary evidence, and it demonstrates an
5 investor that was lured into Mozambique for the
6 promise of something more.
7 But as soon as Mozambique got its hands on
8 the PFS, work product that was worth years of time
9 and effort and cost millions of dollars to produce,
10 Mozambique had what it really wanted. It then
11 discarded my client and its valuable rights to the
12 project. It sent Patel on a wild goose chase with
13 the CFM to create an excuse to strip PEL of its
14 rights before formally giving PEL a direct award
15 with one hand and then purportedly taking it away
16 with another in a manner that was blatantly
17 unlawful, unfair, and contrary to the protections
18 afforded in the BIT.
19 Now, in the face of this overwhelming and
20 clear evidence, what does the Respondent say? Well,
21 Mozambique has submitted a kitchen sink defence full
22 of post hoc rationalisations. It repeats these post
23 hoc rationalisations over and over again, regardless
24 of any applicability to the facts or the pertinent
25 legal issues in this case.
[Page 106]
1 Now, Claimant has fully rebutted these
2 accusations in its pleadings, so I won't go through
3 them all point by point again. Rather, I'd like to
4 spend my time this morning, or rather this
5 afternoon, covering these points thematically.
6 You'll see on the screen before you
7 Respondent's post hoc rationalisations on the slide,
8 and I will briefly go through them one by one.
9 The first issue is Respondent's
10 jurisdictional objections. Now, as a general point
11 and as this Tribunal has no doubt noticed,
12 Respondent's legal arguments are convoluted and
13 sometimes can be difficult to follow, but one thread
14 running through all of them is fundamental
15 misstatements of several aspects of public
16 international law.
17 Now, we've covered these misstatements in
18 our pleadings, and the references to where we
19 address those in our latest pleading are on the
20 slide there before you. I'll also cover a few of
21 the factual issues that underline those objections
22 later, such as the temporary debarment and
23 Mozambique's unsupported corruption allegations.
24 For now, though, the only objection I'll briefly
25 mention is the final one, Respondent's claim that my
[Page 107]
1 client didn't have an investment under the BIT,
2 either because PEL's investment only constituted pre
3 investment expenditures or because there's
4 purportedly no binding agreement at all.
5 Now, the starting and ending point for
6 determining whether my client had an investment is
7 article 1(b) of the BIT. That provision defines
8 investment expansively as "every kind of asset
9 established or acquired" before going on to a
10 detailed, non exhaustive list of examples which
11 constitute an investment, including "rights ... to
12 any performance under a contract having financial
13 value" in article 1(b)(iii), and "business
14 concessions conferred by law or under contract"
15 under article 1(b)(v).
16 As Claimant has demonstrated, PEL
17 unquestionably had rights to performance under the
18 MOI that had financial value, and the Council of
19 Ministers itself, the highest government body of
20 Mozambique, directly awarded PEL the right to a
21 concession in the name of its national strategic
22 interest.
23 I could stop there, but I'd like to note
24 that the cases Mozambique cites to claim that
25 there's no investment are entirely inapposite.
[Page 108]
1 First, several of them interpret the
2 undefined term "investment" in the ICSID Convention
3 rather than the defined term "investment" in the
4 BIT. But, in any event, there's no question that
5 PEL undertook an investment here. It contributed
6 substantial money resources -- monetary resources --
7 in Mozambique over the course of years, including
8 through financing both the Preliminary Study and the
9 PFS. And it did so at its own risk. It also
10 transferred its know-how to develop the project
11 concept by preparing and then submitting the PFS
12 which Mozambique and its instrumentalities duly
13 considered, approved, and then used as the basis for
14 their sham tender.
15 Now, while it's true that PEL was only
16 permitted to complete the first phases of its
17 overall project, the government's intervening
18 illegal conduct prevented it from going further.
19 That can't negate the fact, and indeed the unity of
20 the investment theory does not allow it to negate
21 the fact, that indeed these critical first phases of
22 PEL's investments were, and are, an investment for
23 the purposes of the treaty.
24 Second, each and every case cited by
25 Respondent has no agreement that created binding
[Page 109]
1 obligations. Either the parties never concluded any
2 type of contractual agreement at all, or any
3 document that they signed expressly stated that it
4 was not binding. Here, as Mr Vasani just explained,
5 the MOI was binding and it conveyed real enforceable
6 rights.
7 Third, Mozambique claims that the
8 contractual rights with conditions precedent are not
9 an investment. But that is both incorrect --
10 PRESIDENT: Ms Vasani, we have a technical
11 problem here. Something has happened to the --
12 (Pause)
13 Please.
14 MS VASANI: Sure.
15 Mozambique claims that contractual rights
16 with conditions precedent are not an investment, but
17 that is both incorrect and entirely irrelevant.
18 It's incorrect because it's undisputed that Patel
19 had confidentiality and exclusivity rights from the
20 day the MOI was signed. Those alone constitute an
21 investment under the BIT.
22 But it's also irrelevant because both
23 parties had satisfied the two conditions precedent
24 and PEL's MOI rights had vested long before any
25 claim breached. So in the analogy that we described
[Page 110]
1 earlier, both keys had already been locked.
2 So essentially Mozambique's jurisdictional
3 objections just don't hold water, and this Tribunal
4 should dismiss them all.
5 Mozambique's next post hoc rationalisation
6 is the impact of PEL's debarment, temporary
7 debarment, by the National Highway Authority of
8 India, or the NHAI as I'll describe it.
9 Now Mozambique has tried to make this fact
10 applicable to everything -- jurisdiction,
11 admissibility, and the merits -- but the problem for
12 Mozambique is that both legally and factually, it
13 just doesn't work. It's important to understand the
14 facts leading to the temporary debarment. After
15 winning a bid for a highway construction project PEL
16 realised it had made a calculation error. Realising
17 this, it declined the award and voluntarily
18 forfeited a 3 million US dollar bid security. That
19 was in line with the process set forth in the
20 bidding documents if a bidder declined an award.
21 NHAI went ahead and awarded the bid to another
22 bidder shortly thereafter.
23 Then on May 20, 2011, which was two weeks
24 after the MOI was signed, not before, NHAI told PEL
25 that for 12 months it would not be permitted to bid
[Page 111]
1 on NHAI projects. That's it. A client telling a
2 contractor that it won't be permitted to bid for
3 more contracts for a limited 12-month period. No
4 "civil death" like Mozambique claims; just a
5 temporary debarment from one agency in India that
6 happened after the MOI was signed.
7 Now, PEL felt this was unfair so it
8 decided to challenge that decision in the Indian
9 courts because it felt that by forfeiting its bid
10 security it had already paid the price for declining
11 the award and it should not be barred from further
12 bids during the course of the next year. That
13 challenge procedure was entirely civil, and it was
14 brought by PEL, not against PEL. No criminal action
15 or criminal court was ever involved, definitely no
16 "conviction" like Mozambique attempts to insist.
17 There was no allegation of any illegal or mal fide
18 conduct. At no point did any court find that PEL
19 acted in bad faith or maliciously. The language
20 that Respondent loves to quote is actually the court
21 repeating what the other party said and
22 acknowledging that it was not illegal or irrational
23 for the NHAI to think that. And PEL was expressly
24 permitted to bid on other contracts with other
25 Indian government agencies. In fact, it did just
[Page 112]
1 that. It continued to contract with other Indian
2 government entities even during the temporary
3 debarment period to the tune of awards exceeding
4 half a billion US dollars. So, again, no civil
5 death. No conviction.
6 And once the temporary debarment ended,
7 NHAI itself and its parent agency happily continued
8 to qualify PEL for contracts, and PEL in fact
9 received awards from PEL's parent agency.
10 It goes without saying that, if NHAI truly
11 considered PEL was not commercially reliable and
12 trustworthy as Mozambique continues to assert, they
13 wouldn't have continued to qualify PEL for so many
14 future contracts, or award it future awards.
15 Factually, Mozambique has tried to make a
16 mountain out of a molehill but, even ignoring these
17 facts, Mozambique's arguments lack any legal support
18 whatsoever. And now I'd like to turn to that.
19 First, there was no contractual duty to
20 disclose anything prior to signing the MOI. Now,
21 Mozambique has not pointed to a single warranty or
22 term in the LOI that would have required PEL to
23 disclose anything. And surely, if it cared so much
24 about civil penalties like this, it would have
25 required pre contractual disclosure or a warranty in
[Page 113]
1 the MOI.
2 Second, under Mozambican law, there was no
3 general duty to disclose the debarment before
4 signing the MOI. While there are duties that relate
5 to precontractual disclosure, the MOI doesn't fall
6 under those. And this is covered more in detail by
7 Professor Medeiros but one key point here is that
8 Mozambique had a duty of self information, and this
9 information was publicly available and easy to find.
10 Also, the timing simply doesn't work because this
11 disclosure duty applies only to pre contractual
12 disclosures and the MOI was signed before the
13 temporary debarment went into effect. My client
14 couldn't disclose what wasn't in effect.
15 And by the time of the tender submission,
16 nothing in Mozambique's tender documents requested
17 information about temporary debarments either.
18 Nothing in the tender notice required disclosure,
19 and the tender bidding documents only required
20 disclosure of existing disqualifications.
21 Now, at the time the PGS consortium
22 submitted its proposal in 2013, the temporary
23 debarment had already lapsed and there were no
24 existing disqualifications to disclose.
25 Finally, Mozambique has claimed post hoc
[Page 114]
1 that it wished to know this information because, had
2 it known the information, it wouldn't have dealt
3 with PEL. But Mozambique has failed to point to any
4 evidence whatsoever to show that a temporary
5 debarment would have been material and relevant to
6 its decision at that period in time.
7 If it really wanted to know that
8 information, it would have asked -- it would have
9 asked for warranties, or it would have done its own
10 Google search. But that's not what it did.
11 Mozambique's complete failure to do any due
12 diligence whatsoever shows that it actually didn't
13 care about the information at that time.
14 Indeed, its own expert, Dr Ehrhardt, has
15 acknowledged that Mozambique should have done its
16 own due diligence and that a "cursory search"would
17 have revealed the debarment.
18 From an international law standpoint, all
19 the cases cited by Mozambique are entirely
20 distinguishable. In each case they cite, Claimant
21 made an intentional misrepresentation, withheld
22 information that it was otherwise required to
23 provide, or was involved in illegal and repugnant
24 behaviour. That's a far cry from failing to
25 volunteer publicly available information on a minor
[Page 115]
1 matter that was never requested or legally required
2 to be disclosed and is utterly irrelevant to the
3 project anyway.
4 Inceysa involved systematic fraud by
5 providing false financial information and false
6 representations. Not an act of omission but
7 commission. Plama involved repeated
8 misrepresentations by the Claimant as to its
9 ownership, which was legally required to gain
10 approval from the Bulgarian government for its
11 purchase. Churchill Mining involved the
12 presentation of forged documents, and Fraport
13 involved knowingly and intentionally violating
14 Filipino law at the time the investment was made
15 that the Philippines could never have known about.
16 Further, as a matter of investment law,
17 the Tribunal must look at the proportionality of the
18 breach and the severity of punishment in rejecting
19 jurisdiction or admissibility. In the words of the
20 Kim versus Uzbekistan Tribunal, the "harsh
21 consequence" of denying BIT protection is not
22 proportional here, especially where the state showed
23 no interest in having this information at the time.
24 Now, when you consider the factual
25 context, Mozambique cannot convincingly show that it
[Page 116]
1 wouldn't have entered into the MOI and later
2 approved the PFS and a direct award of the
3 concession if it had known about the temporary
4 debarment.
5 Remember, PEL had brought Mozambique a
6 logistical solution to its stranded natural
7 resources, a project that would be a game-changer
8 for Mozambique's economy. To suppose that
9 Mozambique would have refused to deal with its
10 counterparty that it already knew and who was ready
11 and already familiar with the project is pure and
12 utter speculation.
13 It's also hypocritical.
14 Mozambique awarded the tender to ITD whose
15 professional integrity record is far from
16 impeccable. In November 1997 the governor of
17 Bangkok debarred ITD from conducting future works
18 for the municipality of Bangkok for six months.
19 Doing so he accused ITD of "lacking social
20 conscience" due to numerous safety violations and a
21 failure to implement pollution control measures.
22 ITD and its CEO, Mr Karnasuta, who was
23 also a board member of the joint venture that is
24 implementing the project in this case, had a
25 consistent track record of bribery and corruption
[Page 117]
1 scandals. That CEO was convicted in criminal
2 proceedings in Thailand for attempted bribery of a
3 public official in June 2019. ITD benefited from a
4 rigged bid as part of Thailand's largest
5 construction project throughout the 1990s and 2000s.
6 And ITD and its CEO were also accused of paying up
7 to 107 million US dollars in kickbacks to Filipino
8 politicians to facilitate a land reclamation deal in
9 Manila Bay. ITD was also accused of violating
10 various other Filipino laws during this scandal.
11 In sum, given the context of PEL's
12 debarment and Mozambique's subsequent choice of
13 concessionaire, this post hoc rationalisation cannot
14 withstand scrutiny.
15 The next area I'd like to discuss is
16 Respondent's repeated references to PPP's best
17 practices, guidelines and procurement norms.
18 Respondent introduced this idea to try to
19 convince you of two things. First, PEL couldn't
20 have understood Mozambique to be serious when it
21 promised to grant PEL a direct award in the MOI
22 because that's not best practice.
23 Second, no matter what's written in the
24 MOI, no matter what contractual terms that the
25 parties agreed to, because best practice is to hold
[Page 118]
1 a competitive tender, that's what the parties really
2 must have meant. Mozambique's reliance on PPP best
3 practices fails for several reasons.
4 First, PPP best practices cannot trump the
5 plain language of the MOI. General practices cannot
6 displace what the parties specifically agreed. The
7 MOI accords with Mozambican law and should be
8 interpreted as written. The word tender appears
9 nowhere.
10 Second, and more importantly, there is no
11 one global best practice. And even if there was,
12 each state has absolute sovereign discretion to do
13 what it wishes regardless of whatever international
14 best practices are.
15 Here, the MOI is in accordance with
16 Mozambican law, and we know that it was in strategic
17 national interest because the Council of Ministers
18 said it was, which also explains why a direct award
19 was appropriate. Third, Mozambique doesn't actually
20 follow PPP best practices that it says are so
21 important in this arbitration.
22 For example, after the 2011 PPP law came
23 into effect, Mozambique routinely provided direct
24 awards without any tender whatsoever.
25 Mozambique and its experts claim that it's
[Page 119]
1 best practice to have several feasibility studies
2 performed before offers are assessed and a project
3 is awarded. But that's not what Mozambique did with
4 this project in this case. It awarded the project
5 to ITD in 2013, signed a Concession Agreement five
6 months later, but didn't actually complete the first
7 feasibility study until significantly later, in 2015
8 and 2016.
9 Mozambique also says that it would be a
10 "fundamental misunderstanding" of PPP practice to
11 give a 3 billion new build infrastructure project to
12 an inexperienced entity without even knowing and
13 vetting the other entities with whom the purported
14 concessionaire intended to partner. Yet, its
15 experts admit that it is entirely normal to award a
16 project several years before knowing who the EPC
17 contractor will be.
18 Here, the earliest that Mozambique knew
19 who ITD's EPC contractor would be was 2016,
20 three years after it signed the Concession Agreement
21 with ITD. And the EPC contractor and consortium
22 partners that ITD picked? Well, two of them,
23 Mota Engil and Codiza, had participated in the
24 tender and received such low scores in the technical
25 portion that they weren't even allowed to continue.
[Page 120]
1 Mozambique also ignores best practices
2 when running the tender in this case, which was
3 fraught with numerous irregularities.
4 For example, it used PEL's PFS as the
5 basis for a sham tender without notifying PEL or
6 obtaining PEL's permission. It never disclosed to
7 the other bidders that it was supposedly giving PEL
8 an advantage or that it was pursuing a direct award
9 option with PEL simultaneously.
10 And Mozambique's failure to keep and
11 produce the tender documents is also against best
12 practices. Tellingly, Mozambique's post hoc
13 rationalisation that it always intended a tender but
14 was alternatively pursuing the possibility of a
15 direct award completely lacks consistency,
16 transparency, predictability and clarity. Again,
17 this contravenes PPP best practices.
18 It would be one thing if promising a
19 direct award was an anomaly, but actually, if
20 Mozambique followed best practices, that would be
21 the anomaly.
22 Mozambique has also concocted a post hoc
23 rationalisation that somehow the right of first
24 refusal in the MOI means a 15 per cent scoring
25 advantage in a tender. Mozambique repeats this
[Page 121]
1 story over and over again in its pleadings, its
2 expert reports, and its witness statements.
3 But there are several problems with this
4 argument. First, on a textual interpretation of the
5 MOI, direito de preferência generally means a right
6 of first refusal as described in the Mozambican
7 Civil Code, and it is entirely incompatible with a
8 scoring advantage.
9 Indeed, the word tender appears nowhere in
10 the MOI, let alone any sort of tender scoring
11 advantage.
12 Second, when you compare the wording of
13 the Portuguese MOI with the wording of the PPP Law,
14 it's clear that while they may have a couple of the
15 same words, namely "direito" and "preferência",
16 those words are found within phrases that are
17 clearly referring to different concepts.
18 On the one hand, the MOI refers to a
19 "direito de preferência para a implementação do
20 projecto". And here, please apologise for my
21 Portuñol because I speak Spanish but not Portuguese.
22 On the other hand, the PPP Law refers to
23 "direito e margem de preferência de 15% na avaliacao
24 das propostas tecnicas e financieras resultantes
25 dessa licitacao".
[Page 122]
1 And the PPP regulations from a year later
2 only refer to a "margem de preferência". There's no
3 "direito" at all. There are two main points of
4 difference between these two concepts.
5 First, the use of the word "margem" before
6 "direito" and "preferência" shows that the reference
7 is to a different legal concept than the standard
8 "direito de preferência" used in the MOI and general
9 contractual practice in the Portuguese speaking
10 legal world.
11 Indeed, even Google Translate translates
12 "direito de preferência" as a right of first
13 refusal.
14 Second, the MOI ties the right to the
15 implementation of the project, that is the execution
16 of the final concession agreement. It is not tied
17 to the evaluation of proposals. Implementation of
18 the project and evaluation of the proposals are two
19 entirely different things.
20 Third, the negotiation history shows that
21 the parties in no way had a 15 per cent scoring
22 margin in mind. It was Patel who first introduced
23 the right of first refusal in English in the draft
24 contract. And those drafts at that time did not
25 even refer to Mozambican law. As Mr Daga has
[Page 123]
1 explained, there was in no way a reference to a
2 scoring bonus but, rather, a reference to PEL's
3 ability to not implement the project if Mozambique
4 approved the PFS but PEL didn't think the project
5 was economically viable or worth pursuing. That was
6 PEL's key to put in the lock, just like the ability
7 to approve the PFS was Mozambique's key.
8 Now, fourth, it's clear that Mozambique
9 didn't think that the right of first refusal was a
10 15 per cent scoring bonus at the time the MOI was
11 signed or at the time the PFS was approved.
12 Mozambique asked PEL to exercise that right at a
13 time when there was no discussion of a tender
14 whatsoever. Rather, the parties were on a clear
15 route to a direct award of the project concession.
16 So where does this morphing of the idea
17 that the right of first refusal means a 15 per cent
18 score advantage come from? Well, the first
19 reference on the record was that January 13, 2013
20 letter when Mr Zucula said that he mentioned a
21 scoring advantage half a year back in June 2012.
22 But that doesn't make sense because, as Mr Vasani
23 already explained, in June 2012 Mr Zucula was
24 telling PEL to negotiate an SPV with CFM.
25 Indeed, Respondent at times has taken the
[Page 124]
1 position that the right of first refusal means
2 something different from a scoring advantage. You
3 can see in Mr Zucula's repeated statements in his
4 first witness statement that the right of first
5 refusal was something distinct and in addition to
6 any preferential position in the tender.
7 Finally, Mozambique's change of
8 interpretation of the MOI doesn't even make sense.
9 PEL was entitled to a 15 per cent scoring advantage
10 by statute. There was no reason to grant a
11 statutory right via a contract, especially in such
12 vague -- in such a vague way, or for PEL to exercise
13 that right. Thus, under the principle of
14 effectiveness, the direito de preferência must mean
15 something else.
16 In the end, the salt in the wound is that
17 it's not even clear that Mozambique actually gave
18 PEL its statutorily earned scoring bonus. Mr Baxter
19 has analysed the information provided and explained
20 that it doesn't show a bonus was given. And let's
21 not forget, Mozambique has refused to provide the
22 necessary documentation that would show that it
23 actually gave a 15 per cent scoring advantage to
24 Patel, notwithstanding that it was legally required
25 to preserve such documents under its own laws.
[Page 125]
1 In short, the right of first refusal never
2 meant and was never intended to mean a 15 per cent
3 scoring advantage.
4 Mozambique's next post hoc rationalisation
5 is a series of complaints about the content of the
6 PFS.
7 Mozambique, largely through its experts
8 Betar and Ehrhardt, but also other witnesses,
9 repeatedly claims that the PFS lacked all kinds of
10 information and data that would be required in order
11 to agree to a concession or to establish a project's
12 feasibility. But what was or was not in the PFS is
13 entirely irrelevant for purposes of determining
14 whether Mozambique breached the treaty applications
15 to PEL.
16 It's undisputed that the MOI did not
17 require a bankable feasibility study or more. It
18 only required a PFS.
19 Now, Mozambique could easily have asked
20 for more in the MOI. Every item that MZ Betar now
21 says the PFS was missing, or needed in more detail,
22 Mozambique could have asked for when it negotiated
23 the MOI.
24 And let's not forget how many people
25 scrutinised the PFS. No less than five ministries
[Page 126]
1 and CFM had representatives at the presentation.
2 They reviewed the PFS in detail. They met with PEL.
3 They had the opportunity to ask follow-up questions
4 and indeed, they did ask follow-up questions and for
5 follow-up information.
6 In addition to all of this internal
7 scrutiny, Mozambique could have hired somebody like
8 MZ Betar to review the PFS before approving it. It
9 could have come back to Patel and said, hey, we
10 don't think the PFS adequately defines the basic
11 terms and conditions for granting a concession. Or
12 these numbers just don't seem to work. Or we need
13 more information about environmental impact studies,
14 et cetera, et cetera.
15 But they didn't do that. Mozambique
16 approved the PFS and that is undisputed. And by
17 doing so, they put the key in the lock and committed
18 themselves to the direct award route.
19 Now, the PFS was a starting point for
20 PEL's right to a direct award. This Tribunal
21 doesn't need to decide whether the PFS was good
22 enough to sign the Concession Agreement immediately,
23 because that wasn't its purpose. The purpose of the
24 PFS was the government wanted a document that
25 convinced it to give PEL a direct award. The
[Page 127]
1 standard they were employing for the PFS was not an
2 objective one. It was subjective. Did the
3 government feel that PEL had proved its concept
4 enough to merit a direct award.
5 Really, when Mozambique says that the PFS
6 was inadequate, what they are critiquing are their
7 own technicians, their own professionals,
8 ministries, and the Council of Ministers, and their
9 own negotiation and approval process. But that is
10 not PEL's fault and not something that has any
11 relevance to the outcome of this arbitration.
12 The PFS was an inter partes contractual
13 mechanism and it was met. Any post mortem on
14 whether it would meet a post hoc expert review is
15 simply inapplicable to the deal the parties struck
16 and how they exercised their contractual rights at
17 the relevant time.
18 PEL doesn't need to reprove the policy of
19 the PFS. It was approved by MTC after due
20 consideration and recognised in the Council of
21 Ministers' resolution on April 16, 2013.
22 Nobody disputes that. All that matters is
23 the legal consequence that flows from that approval.
24 Now, the penultimate post hoc
25 rationalisation is Respondent's claim that by
[Page 128]
1 participating in the tender as part of the PGS
2 consortium and not fully pursuing all avenues to
3 appeal the tender decision, PEL somehow waived its
4 right to a direct award or adopted Mozambique's
5 interpretation of the MOI and somehow has no claim
6 before you. This is factually and legally
7 incorrect.
8 Factually, when PEL submitted its
9 expression of interest to participate in the tender,
10 it explicitly stated it was in no way waiving its
11 rights to a direct award under the MOI. Essentially
12 PEL was saying we're expressing interest but only to
13 the extent that it doesn't interfere with our direct
14 award rights.
15 It was taking reasonable steps to pursue
16 every avenue it could to salvage the bargain struck
17 in the MOI that PEL had followed and Mozambique had
18 twisted. And PEL accepted this explicit -- sorry,
19 Mozambique accepted this explicit reservation of
20 rights. It could have said you can't participate in
21 the tender if you seek to maintain those rights, but
22 it didn't.
23 21 companies submitted expressions of
24 interest, but only six were found to be pre
25 qualified to move forward to the next round of the
[Page 129]
1 tender process. The consortium was one of those six
2 companies. Thus, Mozambique accepted the
3 consortium's reservation of PEL's rights under the
4 MOI.
5 PEL also continued to reiterate its
6 reservation of rights to Mozambique, for example,
7 telling Mr Zucula in June 2013 before technical
8 proposals were submitted that any submissions by the
9 consortium was without prejudice to its rights under
10 the MOI. As a matter of Mozambican law, there was
11 no waiver because PEL specifically told Mozambique
12 it was not waiving its rights. And as a matter of
13 international law, PEL never waived its treaty
14 rights because any waiver must be clear and
15 unequivocal.
16 In short, PEL never waived its treaty
17 rights, never abandoned its MOI rights, and
18 accordingly this post hoc rationalisation is
19 entirely unsubstantiated.
20 Now, the final post hoc rationalisation is
21 an assertion by a convicted felon, Mr Zucula, that
22 Mr Daga "attempted to offer" him a bribe. Now, the
23 fact that Mozambique felt the need to raise a
24 corruption allegation is indicative of its
25 desperation. There is simply no evidence of
[Page 130]
1 corruption. Mr Daga has vehemently denied any
2 attempted bribe. But even if you took Mr Zucula at
3 his own word, his evidence is insufficient to show
4 an offer to bribe.
5 Mr Zucula says that Mr Daga offered to
6 "help" him "out" if he came to India. Where is the
7 quid pro quo? Mr Zucula even admits that this is at
8 best, quote, his "understanding" of an "indirect or
9 implicit offer".
10 Curiously, Mr Zucula remembers the
11 "specific words" that Mr Daga purportedly said some
12 eight or nine years ago after the fact. It's
13 curious also that there's no record that Mr Zucula
14 reported Mr Daga's attempts to law enforcement or
15 anything else. And this detailed post hoc
16 recollection comes from somebody who has been
17 convicted of money laundering and who somehow found
18 his moral feet while in prison.
19 Even more curiously, as seen by
20 Mr Zucula's history, as well as the selection of ITD
21 Mozambique has a history of picking companies that
22 are willing to engage in bribery, but PEL was not
23 picked. Just to be clear, allegations of corruption
24 should never be made lightly, just like allegations
25 of fraud, blacklisting and forgery. It's one thing
[Page 131]
1 to defend a case, this fact happened or the contract
2 says that, but to bring these serious allegations on
3 a flimsy excuse has to affect the overall
4 credibility of the party making those spurious
5 accusations.
6 If you include unsubstantiated accessory
7 indications as part of your kitchen sink of
8 defences, that has to weigh down on the credibility
9 of all of the rest of your defences.
10 And, with that, I will pass the floor back
11 to Mr Vasani to cover quantum.
12 MR VASANI: Thank you. May I ask the
13 secretariat for the time left? What I will do is
14 put my iPhone with timer and I will make sure I'm
15 within the time allotted so that we can make lunch.
16 MS JALLES: Claimant has used two hours
17 and eight minutes.
18 MR VASANI: So 22 minutes. I'm on the
19 clock, Mr President. Thank you. So I am putting 22
20 minutes on the clock right now.
21 I do want to spend a few minutes on
22 quantum if I may. And the first point I want to
23 make is this: This is not a basic case of debt
24 collection. PEL was not hired to do a PFS and
25 wasn't paid for the PFS. This is a case where the
[Page 132]
1 PFS was simply a mechanism by which PEL would get a
2 larger share of the pie for its overall investment.
3 And its vested rights under the MOI and the Council
4 of Ministers' decision gave it rights in one of the
5 largest infrastructure projects ever on the African
6 continent, with attendant confidentiality and
7 exclusivity rights.
8 So this is not a case of someone just not
9 paid for a service that it had done, and I do want
10 to make that clear.
11 I don't need to go through with this
12 Tribunal Chorzow. I think I can definitely skip
13 that. We run the counterfactual when we put PEL in
14 the position it would have been in but for the
15 breaches.
16 We have suggested three approaches, and
17 they are hierarchical. In other words, we have a
18 preference for DCF, loss of chance and then
19 negotiation damages. So they are in the
20 alternative.
21 DCF. I understand that this is an early
22 stage project, so I understand that you are going to
23 want to see absent a history of profitability.
24 Absent a running of the project, you're going to
25 want to see anchors. Something you could hang your
[Page 133]
1 hat on to see, well, in this particular case a DCF
2 is appropriate. OK. Let me give you what
3 I consider to be anchors.
4 Number one, in this counterfactual
5 scenario you have a situation where both parties
6 desperately wanted the same thing. They wanted to
7 make this project a reality. They wanted to make
8 the concession agreement final. As the Council of
9 Ministers found, this project was in the national
10 strategic interest. Mozambique was interested in
11 making this happen and making it happen quickly.
12 And the same is true of PEL.
13 And the second thing is because they both
14 wanted to make this happen so badly and so quickly,
15 you also have confirmation that they would have
16 acted reasonably and in good faith, they would have
17 found solutions to resolve any contractual
18 differences they may have in the final concession
19 award.
20 Now, in addition to those two points,
21 which I think are very important for your
22 consideration of a DCF in this case, there are also
23 other facts in the record that should give you
24 comfort that despite the fact that this is an early
25 stage project, DCF is appropriate.
[Page 134]
1 The first point is this.
2 Many companies -- many companies saw this
3 as a feasible project because they tendered for it.
4 There is a market for this project. And you know
5 that because 21 companies expressed interest. Six
6 were pre-qualified, and three companies submitted
7 bids.
8 And they did that all on the basis of the
9 tender documents, which we know is based pretty much
10 exclusively on the PFS. So you can see an interest
11 in the market of this project.
12 Second, the winning bidder, ITD, signed a
13 Concession Agreement before it conducted any of the
14 feasibility studies that Mr Ehrhardt says are
15 necessary before a concession contract can be
16 signed.
17 Third, a bankable feasibility study was
18 done, and that tells us that on that basis -- excuse
19 me. A bankable feasibility study was done, and on
20 the basis of that bankable feasibility study,
21 funding was received. So this project was, and is,
22 viable.
23 So unless you see something in the record
24 that is an absolute show stopper, and Mozambique has
25 not articulated one in the but-for scenario, you can
[Page 135]
1 assume, because of these facts I've just given you,
2 that the project would have happened in all
3 probability just as it is going to happen in
4 reality.
5 There is nothing inherent in these two
6 parties, nothing inherent in the market that says
7 this project's not going to happen, it's not going
8 to come to fruition. It would have come to
9 fruition. It's going to come to fruition.
10 So then let's say what numbers do we
11 ascribe to this concession. Well, here's what
12 numbers it's not. It's not the 2012 numbers that
13 PEL gave as part of the PFS exercise because they
14 were prepared as a worst case scenario for an
15 entirely different purpose, a focus on whether PEL
16 would be able to service debt in a worst case
17 scenario. They don't actually show how the
18 operation would in all probability have worked.
19 Rather, you will hear from Secretariat
20 formerly Versant, about the numbers used in PEL's
21 two DCF valuations and why they are reliable. For
22 example, the ex post DCF is based on the bankable
23 feasibility study on which the project is actually
24 going to run.
25 The ex ante DCF is based on the PFS and
[Page 136]
1 other data as of 2013, and that was developed enough
2 that ITD and other bidders were willing to sign a
3 Concession Agreement on that information alone, even
4 before a feasibility study was conducted.
5 So in short, even though this is an early
6 stage project, given the facts I've just
7 articulated, DCF is appropriate. And there are
8 numerous authorities where DCF has been used to
9 value a non-operating asset provided there is
10 sufficient certainty. And here I've given you that.
11 And there is one other key fact that I do want to
12 draw to the Tribunal's attention, and that is that
13 this project was special. Why was it special?
14 Because with massive coal resources in
15 Mozambique, both tapped and potential, there was
16 incredible pent-up frustration in the country
17 because there was so much coal that could be
18 extracted from the ground but not enough
19 transportation and export to accommodate that coal.
20 This project would have been the valve.
21 It would have alleviated the pressure to take all
22 that coal out. Any miner in the Tete province that
23 wanted to get its coal out as efficiently, quickly,
24 productively as possible would have used this
25 railway line and this port to do it. Not the long
[Page 137]
1 route up Nacala, not the long route down to Beira.
2 It would have used this. It would have almost had a
3 monopoly on the coal market.
4 So this project is the Mozambican coal
5 market. They go absolutely hand in hand. And the
6 fact that they go together gives you a reason to
7 infuse certainty into the fact that a DCF is
8 appropriate for this type of project in this unique
9 circumstance. And that makes this similar to
10 Crystallex, Gold Reserve, Lemire, Tethyan and others
11 where DCF has been appropriate in early stage
12 projects.
13 And for your reference the numbers -- they
14 were -- they are now back on the screen. Let me
15 turn to a second methodology, and that is loss of
16 chance.
17 If you agree with me that a direct award
18 of a concession would lead to loss but you are
19 uncertain about the terms of the Concession
20 Agreement or how it operated or some of the numbers,
21 then let me quote to you the seminal work of
22 Ripinsky and Williams that say this.
23 "A chance of making a profit is an asset
24 with a value of its own, and that compensation for
25 the loss of a chance is an alternative to the award
[Page 138]
1 of lost profits proper in cases where the claim has
2 failed to prove the amount of the alleged loss of
3 profit with the required degree of certainty but
4 where the Tribunal was satisfied that the loss in
5 fact occurred".
6 How much you reduce that is up to you. We
7 have done it to a 10 per cent reduction, but of
8 course that is entirely in your hands as to the
9 percentage of variance.
10 Now, Respondent wants you to say, well,
11 this is a sunk costs case, and that would be
12 adequate recompense. But as I've said, this is not
13 a case where we were hired to do the PFS and didn't
14 get paid to do the PFS. PEL fronted the cost of the
15 PFS as a first phase of its investment with further
16 phases to come in exchange for a much bigger slice
17 of the pie. Sunk costs would not provide an
18 adequate proxy under Chorzow. It would not provide
19 justice in this case. And in any event, because of
20 PEL's record keeping of expenses as a logistical
21 matter, sunk costs are not provable as a matter of
22 measure of damages.
23 So this is, in a sense, a unique case
24 because it is not, as I said, a debt collection for
25 the PFS. We gave them much more. We gave them our
[Page 139]
1 work. We gave them a concept, and on the back of
2 that, they are going to make millions of dollars of
3 royalty, millions of dollars of tax, millions of
4 dollars of coal exports. And that is thanks to PEL.
5 So we have proposed an additional method,
6 and that is the additional method, and you saw in
7 the submissions earlier this year. And that
8 presumes that instead of breaching PEL's right in a
9 counterfactual world under Chorzow, the government
10 comes to PEL and says the following: We know we
11 promised you a direct award under the MOI. That's
12 what the Council of Ministers did and following the
13 MOI. But we now want to go through a different
14 route. We want to change tack. And what we're
15 going to do is sit with you and negotiate a
16 reasonable release fee so you can walk away with
17 some recompense and we can take your work and go out
18 to the market and now do what we want to do because
19 we've changed our mind.
20 And that, we would suggest to you, is the
21 minimum amount due to our client under the Chorzow
22 principle.
23 Now, this method of damage is routinely
24 employed in private law systems in many countries.
25 So, for example, it's routine in intellectual
[Page 140]
1 property cases around the globe to determine damages
2 for patent or copyright infringement on the basis of
3 hypothetical royalty that would have been agreed
4 between the parties prior to infringing conduct.
5 They're called reasonable royalties. They're in
6 fact mandated by statute in the United States and
7 the European Union. Negotiated damages are also
8 used in other legal systems when the breach of the
9 tangible or immovable property right, and in some
10 legal systems such as England and Wales and
11 Singapore, negotiated damages are awarded for
12 breaches of contractual rights.
13 Now, it's true that this may be a case of
14 first instance before you, members of the Tribunal,
15 in that we have not seen this methodology used in
16 other ISDF cases. But I would say two things to
17 that.
18 First of all, it is squarely within
19 Chorzow. Chorzow Factory does not mandate a
20 particular valuation technique, and this fits
21 squarely within Chorzow, and indeed Respondent has
22 not said that it does not.
23 And, secondly, in the unique circumstances
24 of this particular case, it is ideal for an
25 international law valuation of rights based on this
[Page 141]
1 technique that meet squarely with Chorzow. We're
2 still in a counterfactual where Respondent did not
3 breach the treaty and it is compensatory in nature.
4 But instead of looking at how much the project would
5 have earned over time, the Tribunal is asked to
6 determine how much, in a counterfactual scenario,
7 Respondent would have paid to release it from its
8 obligations to Claimant. Like an income-based
9 approach, the goal of the hypothetical negotiation
10 is to put the Claimant in the position it would have
11 been absent the breach. The use of a hypothetical
12 negotiation scenario is merely another way to
13 measure Claimant's rights, and so it's an exercise
14 in compensatory damages under Chorzow.
15 So Respondent's only qualm seems to be,
16 reading its response, that a 2018 Supreme Court case
17 called Morris Garner, negotiated damages are only
18 awarded in limited circumstances in breach of
19 contract cases under English law. Well, two answers
20 to that.
21 Number one, under English law, there are
22 more recent cases, and I'll just refer the Tribunal
23 to CLA-339, where in a similar case to this under
24 English law actually negotiated damages were given
25 in a contractual situation.
[Page 142]
1 But more importantly is this, that
2 focusing just on English law ignores the many other
3 legal systems and ways in which negotiated damages
4 have been used in private law systems to measure
5 violations of various type of rights, whether
6 they're intellectual property rights, tangible or
7 immovable property rights or contractual rights.
8 This is not -- and I'm not putting before you an
9 English law exercise. I'm putting before you an
10 international law exercise that is grounded in the
11 legal systems comparatively of many countries, of
12 many sectors that fits squarely in this case, in the
13 unique circumstances of this case, and sits squarely
14 within Chorzow Factory.
15 This is not, just to be clear, not an
16 equitable exercise. It's a legal exercise. In all
17 these countries where this exercise is done it's a
18 legal one, not an equitable one. You use the
19 hypothetical negotiation as a means to value the
20 right that was infringed, not as some sort of unjust
21 enrichment and not as some sort of exercise in
22 fairness.
23 Now, how you do that is in our pleadings.
24 Essentially what the Tribunal does is take the data
25 that the parties would have had in their mind at the
[Page 143]
1 time they sat down and then find the number, based
2 on those anchor points of what the parties would
3 have had in their mind and decide on a final number.
4 Some of the numbers are fixed in the
5 record. They are what they are. Some of them are
6 up for dispute. But if they are disputed and you
7 discard them, that does not derail the whole
8 exercise. Rather, what you do is you take what is
9 reliable and what you find to be reasonably certain,
10 and you use that to arrive at the compensatory
11 amount.
12 So let me give you a few examples that
13 I can see in the record which are already anchors.
14 PEL, we know, wanted its right under the
15 MOI and the Council of Ministers resolution. They
16 were valuable rights, and they were worth fighting
17 for. And you saw all the steps that PEL took to
18 uphold its right and fight for them even going as
19 far as tendering without prejudice to its right.
20 And that tells you how much PEL valued all the work
21 that it had done over that -- over those years and
22 said I deserve to earn money off my work.
23 You also know that third parties were
24 interested in this concession, and that means that
25 the right to the direct award was valuable in and of
[Page 144]
1 itself, because those same companies that approached
2 the tender would have been interested in coming in
3 and stepping into the shoes of Patel to take a
4 direct award.
5 You also have in the record PEL's prior
6 settlement offers to the government saying what they
7 thought would be a reasonable release fee for their
8 rights and the assistance that the PFS had provided
9 to MTC.
10 You have in the record from the experts
11 what PEL would have earned had it only been the
12 design engineer for the construction part, obviously
13 much smaller than what it intended, but it's still
14 an anchor point in the record.
15 You have evidence of how much the work
16 that PEL did to give Mozambique this concept, to
17 give Mozambique the PFS without its logo, you have
18 the evidence on record of how much that work
19 benefited Mozambique because it was able to take
20 that intellectual property and now tender and then
21 go with a different company that is going to be a
22 game-changer for the country.
23 You have evidence of PEL's profit margin
24 in the time, which would have been something that
25 PEL had had in mind when it was negotiating this
[Page 145]
1 release fee as to its future profits, and you have
2 Secretariat's understanding of the ex ante DCF,
3 which would have been something that PEL, in fact
4 any third party, would have come in using that
5 information at the time and run a DCF as to what
6 would have been the loss of profits -- excuse me.
7 What would have been the future profits for anyone
8 coming in in PEL's situation.
9 So you have already, before we've even
10 heard from the experts and the fact witnesses, a
11 plethora of anchor points which you can then use to
12 say in this negotiated damages scenario, here are
13 some of the quantum factors that will lead us to a
14 compensatory conclusion.
15 Now I will come back in the closing with a
16 specific amount once we've heard the evidence.
17 I wanted at this stage and in the one
18 minute I have left to give you the outline of how
19 this might look. But let me be very clear. Having
20 spent some time on this negotiated damages, it is an
21 alternative to the DCF. We really do feel that
22 despite the early stage project, the certainty that
23 I've given you, the interest in this project, the
24 fact that it's going to be a game-changer, the fact
25 that it goes hand in hand with the coal industry of
[Page 146]
1 the country, a DCF is absolutely appropriate. You
2 have the bankable feasibility study, and you have
3 the PFS on which so many companies tendered.
4 My last point is this, members of the
5 Tribunal.
6 Costs. This has been -- I haven't been
7 involved but I've read from the record -- somewhat
8 of a contentious case. We've had, as I've read,
9 many different applications from the Respondent's
10 side. Especially if you come out at the lower end
11 of the compensatory amount, it is critical that
12 costs follow the event, because it will make a big
13 difference ultimately to my client that costs follow
14 an award in this case.
15 And in light of the conduct, including as
16 of this morning, repeated applications, allegations
17 that just don't have evidence to back them up,
18 defences that just don't square up, cost has to play
19 an important role.
20 And with that, members of the Tribunal,
21 unless you have any questions for the Claimant, we
22 finish our presentation.
23 PRESIDENT: Thank you. Thank you,
24 Mr Vasani. Let me double check with my colleagues.
25 Any question for Claimant at this stage?
[Page 147]
1 There is no question. It's now 13.37 in
2 Porto. Shall we come back let's say 5 to 3? No.
3 I'm sorry. I get lost with the Portuguese and
4 Spanish time always. So we should be back say 5 to
5 3. Is that OK? Does that give you sufficient time?
6 It's a bit more than an hour. It should be a little
7 bit more than an hour.
8 MS VASANI: That's fine for Claimant.
9 Thank you.
10 MR BASOMBRIO: Yes, thank you,
11 Mr President.
12 PRESIDENT: Is that OK?
13 MR BASOMBRIO: Yes.
14 PRESIDENT: 5 to 3. We are off the
15 record.
16 (Luncheon adjournment from 1.38 to 2.59 pm)
17 PRESIDENT: So we resume the hearing.
18 I acknowledge receipt of the presentation by the
19 Republic of Mozambique, which should be H-2, and,
20 without further ado, I give the floor to the
21 Republic.
22 MS BEVILACQUA: Would you please put
23 Respondent's PowerPoint on the screen?
24 PRESIDENT: You have the floor,
25 Mr Basombrio.
[Page 148]
1 Respondent's Opening Statement
2 MR BASOMBRIO: Thank you, Mr President,
3 and other members of the Tribunal. We appreciate
4 this opportunity to talk to you, and I know that the
5 Republic of Mozambique --
6 (Technical interruption)
7 MR BASOMBRIO: First of all, I want to
8 thank the president, the members of the Tribunal,
9 for giving the Republic of Mozambique this
10 opportunity to present our version of the story.
11 It's not just going to be our version;
12 it's going to be actually the real story of what
13 happened, and you're going to hear our witnesses,
14 Mr Zucula, Mr Chaúque, and I believe you'll find
15 them credible. They are going to tell you what they
16 recall.
17 And when you hear the stories from them --
18 I'm just calling them stories, their testimony --
19 the documents are going to make sense. What
20 happened is going to make sense. And when you hear
21 our legal expert, Ms Muenda, who's the only admitted
22 legal expert testifying, admitted in Mozambique, you
23 will see that it makes sense.
24 And Mr Chaúque, who works at the MTC, he's
25 also another admitted lawyer in Mozambique, and what
[Page 149]
1 he tells you will make sense. And you will see that
2 this is really not a treaty claim. You'll see that
3 this is really a dispute over performance over the
4 contract.
5 Now, I always like to give everyone the
6 benefit of the doubt, and so looking at this, my
7 conclusion, after spending a lot of time with it, as
8 my colleagues across the bar have, is that at the
9 very least there were different understandings on
10 both sides about how things were supposed to work.
11 I'm not trying to impute any kind of ill
12 will or ill intentions. It may well be, and it
13 appears to have been from our perspective that Patel
14 just didn't understand or have enough experience in
15 Mozambique to know what the law was and how the
16 process worked.
17 And something that Mr Vasani has told you
18 about how he personally reacted to the record, and
19 I want to take his lead and do the same and tell you
20 about how I have personally reacted to what I have
21 heard this morning in the opening statement.
22 I am very surprised that, throughout this
23 process, Patel never brought before you their
24 lawyers, SAL & Caldeira, in Mozambique. They were
25 the people that helped them draft the MOI. They
[Page 150]
1 were the people who were advising them, they were
2 the people that were involved in the drafting of the
3 PPP Law in Mozambique, and all of these facts are in
4 the record.
5 Why, you must ask yourselves, did their
6 Mozambique lawyers never submit a witness statement?
7 Why did their Mozambique lawyers never back up what
8 you heard this morning? The reason, you will see
9 after my presentation, is because they would not
10 have backed it up.
11 They also had consultants. They had
12 accountants. They had other advisors. Not one of
13 them has testified. Instead, they have had to go to
14 Portugal to get Professor Medeiros, who is not
15 admitted in Mozambique. There's a process to get
16 admitted and there's a process to practise law.
17 He's never followed it. He's not in the registry.
18 We believe he doesn't even qualify as an expert in
19 Mozambican law any more than I, as a US lawyer,
20 would qualify as an expert on British law because US
21 law derives from British law. So we're going to
22 object to his testimony, but this is sort of a
23 repeating theme.
24 Patel had lawyers in India who represented
25 Patel all the way to the Supreme Court in the
[Page 151]
1 blacklisting. They don't want to use that word.
2 Well, where is their witness statement? How come
3 they are not willing to put forward their
4 reputations and say, no, what you are saying, what
5 your expert -- mine, who's the Solicitor General who
6 handled those cases for the government, why aren't
7 they willing to come in here and say what Patel
8 claims, that this was no big deal? Because they
9 would not say that.
10 What we have here -- and I say this with
11 all due respect to the other side -- is you have an
12 international legal team, a good one, that has
13 looked at the papers and has given them the spin
14 they want to give it, and that's what you heard
15 today, and that was presented.
16 And once you see the evidence and what
17 you're going to hear the next few days, you're going
18 to see that they are factually wrong, they are
19 legally wrong, and what they're asking you to do is
20 to take a last place loser in a legitimate public
21 tender and convert him into the winner, although the
22 MTC did not make this decision. It was made by an
23 independent jury of seven independent industry
24 professionals. That you cannot do. If you did
25 that, it would turn PPP practice on its head.
[Page 152]
1 So before I delve into my PowerPoint, let
2 me just give you in a very simple way how it works
3 in Mozambique and what happened here. I'll just
4 give you, like they say, the elevator story so that
5 we can keep that in the back of our mind as we go
6 through things, and that will speed up moving
7 through the PowerPoint.
8 Under Mozambican law, it is absolutely
9 correct that there are two options. You can get the
10 preferred option, which is a public tender, so you
11 can be a bidder in a public tender. That's the
12 preferred option. Mr Vasani liked to use the
13 analogy of a door with two keys. The proper analogy
14 is really two doors, a very huge door, which is
15 public tender, and the exception, a tiny door, which
16 is direct award.
17 So the question is not whether you have
18 two keys to open one door, but which key did Patel
19 have here. They were provided the opportunity to
20 open both doors, to go through the public tender or
21 to go through a direct award, and both would have
22 been allowed. But what happened?
23 So this is what the evidence is going to
24 show. It is not unusual at all for someone who
25 approaches a government to say I want to do an
[Page 153]
1 unsolicited bid, and the way you do that is through
2 some sort of initial study. And if the government
3 has some interest, you will hear from Mr Zucula, the
4 government says, fine, let's put in paper our
5 general preliminary understandings of where we're
6 going to try to go. And that's the MOI.
7 Really, whether you look at the Portuguese
8 versions or the English versions, one thing is
9 clear. They agree, I think. It didn't grant them
10 the concession. It didn't say they would be granted
11 a concession. It provides a general understanding.
12 And that's one fundamental flaw with this
13 case. You cannot take, in the PPP world, an MOI and
14 convert it into a binding conditional obligation to
15 grant you a concession. That's not done in
16 Mozambique, and our experts are going to tell you
17 that's not done anywhere in the world.
18 We believe that, when you hear the
19 evidence, you will become convinced that the MOI or
20 MOU, however you want to call it, is just what it
21 is. It's a preliminary you're interested/we're
22 interested kind of document. It's the starting
23 point.
24 So under this MOI you will see that they
25 were provided a period of time to do a PFS. 12
[Page 154]
1 months. They did a PFS. We're not denying that PFS
2 was approved. So then what happened?
3 Then two things can happen. You can go to
4 the public tender, and you get a
5 direito de preferência, which if you look at the PPP
6 Law, which they say everyone was understanding would
7 be enacted, their lawyers were drafting it, I don't
8 think there's any dispute here that both sides
9 understood that's going to be the rule of the road,
10 the PPP Law once it gets enacted.
11 You look at the PPP Law, it says
12 direito de preferência means a 15 per cent scoring
13 advantage. And that's quite significant, not only
14 because of the 15 per cent, but because you have had
15 a period of exclusivity of 12 months where you have
16 been able to gain information and an understanding
17 of the project that you're going to bid on that the
18 other bidders don't have. And so the exclusivity is
19 during that time period the government couldn't go
20 to someone else.
21 So you see you're starting to see how the
22 presentation this morning is really off mark. They
23 think exclusivity means you couldn't have awarded it
24 to someone else. That's not what it means. Now,
25 direito de preferência, like I said, has a specific
[Page 155]
1 legal meaning in Mozambique. To translate that you
2 don't go to Google, like was suggested this morning.
3 You have to talk to a Mozambican lawyer.
4 And I guarantee you, if SAL & Caldeira was
5 here, they would tell you that
6 direito de preferência means 15 per cent. That's
7 why they're not here, because that's what they would
8 say. Patel has to get lawyers from London to argue
9 the opposite because no lawyer from Mozambique in
10 their right mind, under oath, would ever say
11 direito de preferência means anything other than the
12 15 per cent. And that's what they got. They lost,
13 they got the key, the direito de preferência, the 15
14 per cent, to go in through that big door, they went
15 into that room, participated in the public tender,
16 and lost. Now, they didn't appeal. That's it.
17 They don't get to go to an international tribunal
18 and say undo it.
19 What could the MTC have done at that
20 point? You have a winning bidder. Someone else.
21 According to Patel's theory, the MTC should have
22 said we are going to, number one, we're going to
23 override the jury. We're going to veto them, their
24 decision. And we're going to give the project to
25 the last place loser and ignore everyone else.
[Page 156]
1 That's basically what they're asking you
2 to do, to overturn the public tender, which they did
3 not appeal, do it ten years later, and give the
4 project to the loser and pull it away from the
5 winner. That would be truly an absurd result.
6 Now let's look at the little door. And
7 the little door -- and I call it the little door
8 because it's the exception, extraordinary exception,
9 under the PPP Law they refer to it as, quote, "last
10 resort" -- to do that you have to get a government
11 partner. It can be CFM, it can be another company.
12 In this case because of the nature of the project,
13 it was CFM. So if you want to do that, you, Patel,
14 have to cut a deal with CFM.
15 What does that involve? It's very -- as
16 our experts have testified -- it's very detailed.
17 You have to form a joint venture company. That
18 joint venture company becomes the company that
19 actually enters into the concession with the
20 government. I mean, you've probably heard this
21 before because you have experience with PPP
22 projects.
23 None of that happened. Now, Patel wants
24 to blame the MTC, saying this was a government
25 company, but governments all over the world,
[Page 157]
1 especially in developing countries, create separate
2 companies to do commercial work, and, yes, they
3 appoint the president, they provide the initial
4 funding, but there's no evidence that there was any
5 alter ego relationship or any of those things that
6 would lead an international tribunal to, so to
7 speak, pierce the corporate veil and say we're going
8 to hold you, government, responsible.
9 So when Patel tells you CFM, whatever they
10 didn't do the government should be responsible for,
11 that's another example of just completely not
12 understanding how the real world works in Mozambique
13 or anywhere else. That's not how direct awards are
14 done.
15 So here, the MTC could not tell CFM that's
16 what you're going to do. They had to decide for
17 themselves. And the evidence shows that CFM didn't
18 like the apportionment of profits that Patel was
19 suggesting. They were too greedy, and CFM
20 ultimately decided no.
21 So what did the Council of Ministers do?
22 What's their smoking gun letter, as they call it?
23 Patel keeps writing letters to everyone, and a
24 letter goes up the executive branch, and so the
25 Council of Ministers looks at it. That's why. They
[Page 158]
1 didn't have to, they could have just ignored it, I
2 guess, but they don't ignore things.
3 So they looked at it, and they gave
4 Patel -- they said if you want to try -- we know
5 you've been trying because you're telling us you've
6 been trying to negotiate with CFM, but we're giving
7 you another week to talk to them and see if there's
8 something that can be done. They tell the MTC if
9 they can work it out with CFM, then you two can talk
10 about the direct award option, but that just never
11 works out.
12 When that doesn't work out, the Council of
13 Ministers says, well, let's continue with the public
14 tender that had already started, and that's
15 important because the public tender starts, they get
16 the direito de preferência, and even at that point
17 the Council of Ministers has the good faith of
18 saying well, let's just give them another shot,
19 I know that we're proceeding with the public tender,
20 but if they can get their ducks in order for a
21 direct award, you know, I want you, MTC, to consider
22 that too.
23 But they can't get their ducks in order,
24 and, to use their analogy, they never get the key to
25 the little door.
[Page 159]
1 So that's basically what happened. And
2 none of that is bad faith. None of that is a
3 violation of an international treaty, and the winner
4 won, and we're not here to recalculate what happened
5 in the contest. We're not going to do any of that.
6 There was no exercise of sovereign power. There was
7 no expropriation. There was none of that. This is
8 really a contract claim that should be decided and
9 aired out in the ICC.
10 So let me turn now to our PowerPoint.
11 PRESIDENT: Professor Tawil has a
12 clarification.
13 PROFESSOR TAWIL: Yes, I would like to
14 understand what you just said. You said,
15 Mr Basombrio, that they were in the tender and then
16 they stopped for them to -- for PEL to renegotiate
17 with CFM and then they went back to the tender? Can
18 you explain that? It's not clear for me.
19 MR BASOMBRIO: Yes. I believe the record
20 shows that the tender had started and it was during
21 the tender that the Council of Ministers gets
22 contacted and they tell the MTC, well, you know,
23 we're going to give them some time to go see if they
24 can talk to CFM and listen to them and see what
25 happens, but ultimately that didn't prove itself
[Page 160]
1 fruitful.
2 PROFESSOR TAWIL: But if they were in a
3 tender, what was the reason for that talk if they
4 were in a tender already?
5 MR BASOMBRIO: The reason for that was the
6 continued letters that were coming from Patel.
7 PROFESSOR TAWIL: OK, thank you.
8 MR BASOMBRIO: And that's sort of an
9 underlying criticism one could have of Patel, that
10 it was trying to play both sides.
11 When Patel says we entered into that
12 tender with reservation of rights, you know, that's
13 a nice legal argument to make but in reality how do
14 you do that? You really can't. If you're going to
15 participate in a tender, that's what you have
16 accepted. You can't undo things and go back in
17 time.
18 Now I want to turn to my opening statement
19 PowerPoint, and because we discussed much of what's
20 stated in the first 16 pages I'm not going to burden
21 anyone here and talk about that again, so I'll skip
22 that.
23 But there is one point I do want to make,
24 so I'll ask my colleague here to put up slide number
25 5. So here's the one point I want to make without
[Page 161]
1 repeating all the arguments you heard from me this
2 morning. What I was trying to do this morning was
3 present the reasons why we don't think we should go
4 forward, and we still don't.
5 In the first two pages of the PowerPoint
6 we've reserved our rights but that's on the record,
7 but let's not lose track of this point. There is a
8 jurisdictional objection by Mozambique that the
9 contractual rights have to be decided in the ICC, so
10 that's a ratione materiae jurisdictional objection.
11 What I want to be clear is that during
12 this hearing, this is one of the issues that's going
13 to have to be decided by this Tribunal, so
14 I understand the Tribunal's explanation that they
15 did not believe that they should suspend the
16 arbitration based on the ICC partial award invoking
17 the Kompetenz-Kompetenz principles. I do not agree
18 because I think that Kompetenz-Kompetenz requires
19 the Tribunal to consider prior awards.
20 For example, if I were bringing a claim as
21 an investor on the basis of a right that has already
22 been adjudicated by a local court that I did not
23 have, in deciding whether there is treaty claims or
24 treaty jurisdiction you still have to take into
25 account those things.
[Page 162]
1 So I will not repeat those arguments
2 again. Just I will summarise the point that it is
3 now in our belief res judicata, the issue that the
4 jurisdiction for contract claims is in the ICC, for
5 the reasons I indicated.
6 So let me turn now to our factual summary,
7 which starts on page 17.
8 In the opening statement of Patel you have
9 heard a lot of statements that really constitute
10 speculation and are not reflected in the facts and
11 are not reflected in the record.
12 Of all the statements, the one that jumps
13 out to me the most is something that you heard near
14 the end, that under this proposal by Patel it would
15 have been game changing, that the government would
16 have made millions and millions, that this is a
17 successful venture that will go forward, that will
18 be built.
19 None of that is true. You will hear this
20 week none of that is true. The winning bidder never
21 built this venture. This venture has been
22 abandoned. Nothing like it will be built. You will
23 hear that the only thing they're going to do is have
24 a little port, and they're going to bring coal with
25 trucks. That's it. You know why? Because the
[Page 163]
1 price of coal has tanked in the world. The demand
2 for coal -- and all of this is unfortunate for
3 Mozambique -- the demand for coal has tanked. Coal
4 is viewed as a problem from an environmental
5 perspective, and the two other railways that have
6 always existed, they have capacity that will never
7 ever, ever be met.
8 So this project, I don't care which of the
9 12 different damages theories you use, it's a loser.
10 If we had given it to Patel, Patel would be doing
11 exactly what they did in India. When they got
12 blacklisted -- and that's not my word, that's the
13 Supreme Court of India's word, blacklisted -- and if
14 they had their lawyers that they used in that case
15 they would tell the Tribunal, yes, we were
16 blacklisted. That's why they're not here.
17 But they were blacklisted because they
18 reneged, to use the Delhi superior court's words, on
19 their bid, because they miscalculated, as you heard
20 by their attorneys today. We would be having the
21 same discussion with them today if they had got in
22 this project. They would be telling Mozambique,
23 this is not what we thought it would be. This is a
24 loser. The price of coal has tanked. You cannot
25 hold us to the multimillion investment under this
[Page 164]
1 Concession Agreement, which they never got, assuming
2 they would have received it. They would be looking
3 for a way out. This is not the golden egg that they
4 told you. Maybe people thought it could be but you
5 know people are wrong, and this is not going to be a
6 point of debate. The project is dead, it's not
7 going to -- it's not being built, and they do not
8 have one single witness that will tell you that the
9 project has been built or that it will be built. It
10 just won't. It's dead. And it makes us question
11 why are you even bringing this claim, because even
12 if you can show that maybe Mozambique wasn't as
13 clear as it should have been and maybe there's some
14 questions of the communications, the way they were
15 done, maybe it was a matter that Mr Daga doesn't
16 understand Portuguese. I don't know. You know,
17 there might be some reason, but I don't need to sit
18 here and speculate. What I do know is that at the
19 end of the day, this is a bad project, a dead
20 project, a nowhere project, and we're really wasting
21 our time here. We're going to be spending a lot of
22 money in two arbitrations, and at the end of the day
23 you will see that there is no evidence that this is
24 a money-maker.
25 And so it was anticipated as a
[Page 165]
1 3 billion-dollar project, as we say in this slide,
2 but that's not how it worked out.
3 We have a number of undisputed facts, and
4 it's always useful to talk about what's not in
5 dispute in an arbitration, and we lay some of them
6 out in the next two slides, but I just want to
7 re-emphasise that the project did not prove itself
8 to be financially viable at the end of the day.
9 So turning to the merits and those facts,
10 the problem here is that a concession cannot be
11 awarded on the basis of a six-page MOI. That would
12 never happen anywhere in the world.
13 The parties executed the MOI in 2011. An
14 initial problem that we've got to talk about is the
15 fact that there are four versions of the MOI, so you
16 have three -- you have two Portuguese versions and
17 two English versions. One Portuguese and English
18 from each party, right?
19 So here's the important point to
20 understand. We can talk about the drafts, what went
21 back and forth, what the parties thought they were
22 signing, but all of that is irrelevant. We're in a
23 civil jurisdiction. What matters is what did you
24 sign.
25 So here we have two Portuguese versions
[Page 166]
1 that are identical. So we agree on that. Then we
2 have our English version, which is identical to the
3 Portuguese versions, and then you have their English
4 version, which is the only thing that's different.
5 And how is it different? It has additional language
6 that's very convenient for them.
7 Now, if you look at it as a civil law
8 judge would look, civil jurisdiction judge, he would
9 say we have a meeting of the minds on the two
10 Portuguese versions and the English version, and the
11 sole outlier -- I disagree with Mr Vasani. The
12 outlier is their English version, the only one
13 that's different. A civil jurisdiction law judge
14 would ignore that, and that would be the end of it.
15 He would say there's no way I'm going to
16 uphold the one that contradicts the other three, and
17 you don't need any experts to tell you that.
18 Now, the other reason is because under
19 Mozambican law the English version controls. I'm
20 sorry -- the Portuguese version controls.
21 I misspoke.
22 Let's turn now to the four clauses of the
23 MOI, or MOU, that cover the prefeasibility process.
24 I want to go through -- obviously I'm talking about
25 the two Portuguese versions and our English version.
[Page 167]
1 I'm going to walk through them quickly and mention a
2 few things that I believe are important to keep in
3 mind during the next few days as you hear the
4 witnesses.
5 Clause 2.1 provides 12 months to carry out
6 the prefeasibility study. That's the period of
7 exclusivity again, and the PFS is then subject to
8 government approval.
9 Now, clause 2.2 says in the Portuguese
10 that if the PFS is approved, they get the
11 direito de preferência, and those are the words that
12 are used, "direito de preferência" in the
13 Portuguese.
14 Now, clause 4 is important because Patel
15 bears the costs of the PFS, and they get the
16 exclusive right during the period of exclusivity.
17 So all of this, what's right on the contract, makes
18 sense with that summary that I gave you.
19 Now, direito de preferência in English
20 means preference. It's important to note that this
21 was not a new concept. It had been in the
22 procurement law in Mozambique for 25 years, and so
23 any Mozambican lawyer would tell you
24 direito de preferência means what's in the
25 procurement law. That scoring advantage. And the
[Page 168]
1 PPP Law says direito de preferência means
2 15 per cent.
3 Now, my esteemed colleagues across the
4 room said well, it also talks about "margem". Well,
5 "margem" just means margin so you get a right of
6 preference or a margin of preference of 15 per cent.
7 I don't think that really changes anything.
8 Now, what happens if the PFS was not
9 approved? It ends. And then they have to look for
10 another MOI. That starts to make the MOI
11 conditional. So if we look at the PPP Law that was
12 eventually enacted, it clearly provides that the
13 standard legal framework for awarding a concession
14 in large scale projects is bidding. It's public
15 bidding. And I don't think I need to say much to
16 try to convince you of that. That's the worldwide
17 approach, including the approach recommended by the
18 World Bank.
19 The direct award, here's the cite to the
20 law, is exceptional. It's "a measure of last
21 resort". And PEL would need to get agreement with
22 CFM.
23 So clause 2 -- and this is going to become
24 really important in a few minutes -- clause 2
25 provides the conditions, what it is that PEL has to
[Page 169]
1 do, and then clause 7 -- and remember clause 7 --
2 says if this is unviable we're going to sign a new
3 MOI for something else.
4 And the last clause that's important to
5 understand is clause 8, which says all of this is
6 going to be governed by Mozambican law, so we really
7 don't care about what they do in Portugal, because
8 what matters is what you do in Mozambique.
9 So just to make the point, slides 29,
10 starting with 29, that shows you Patel's Portuguese
11 version and ours, and they're identical. In terms
12 of all of these clauses that I've just mentioned,
13 they're both signed, they both have the seals of
14 Patel, they are both signed by both representatives,
15 Mr Daga and Mr Patel, and here's a picture that we
16 have of the signing, and they signed the versions in
17 Portuguese, and you can see in the circle that it's
18 the same, and then we have another picture that also
19 shows the same.
20 Now, let me pause here for one second.
21 Look at that photo that's being signed there by
22 Mr Zucula. This is another good example of the wild
23 conspiracy theories that you have heard this morning
24 from Patel's international counsel.
25 He said to you, oh, my God, there's
[Page 170]
1 another smoking gun. The piece of paper has space
2 at the bottom, there is this blank space, and you
3 have to conclude from that that there was something
4 strange going on, suggesting we forged it.
5 Well, look at the picture. It has the
6 space. That's the document they signed with the
7 space at the bottom, just like C-5B, which is their
8 version of the MOI in Portuguese. And that's the
9 problem with their case. It's based on wild counsel
10 speculation.
11 MS VASANI: Apologies for interrupting,
12 but we're talking about two different documents.
13 You're talking about the Portuguese document, and we
14 are talking about the space on the English document.
15 Two different documents.
16 MR BASOMBRIO: You can make your arguments
17 when you have your chance. I did not interrupt you,
18 and I hope you extend the same courtesy.
19 PRESIDENT: Very good. Let's go on,
20 Mr Basombrio.
21 MR BASOMBRIO: Yes.
22 The point here, the next point, is that
23 the government contracts have to be interpreted
24 under Mozambican law, and it requires that they be
25 in the Portuguese language.
[Page 171]
1 And this supports further the point that
2 the Portuguese versions have to be the controlling
3 versions because they are the ones not only that
4 agree but are in the correct language.
5 Turning to the issue of the direct award,
6 we have heard this morning that the letter from the
7 Council of Ministers was a decision by the Council
8 of Ministers, but that's also not supported in the
9 record.
10 The Council of Ministers does not act
11 through letters. They act through decrees, and
12 that's provided in the constitution in article 142.
13 So that letter cannot be elevated to what Patel
14 wants to elevate it. It wasn't a resolution, to use
15 their word; it was simply some guidance to the MTC
16 that they should give another chance for a week to
17 Patel to see if they could cut a deal with CFM.
18 If it had been an actual decree, it would
19 have conferred the concession. There would be a
20 decree conferring the concession, and like in all
21 other civil jurisdictions, it would be published in
22 the Official Gazette. And this is what their
23 lawyers at SAL & Caldeira would tell you if they
24 were here. That letter is just a suggestion to the
25 MTC to see if they can open that small door.
[Page 172]
1 Now, I'm going to compare the Portuguese
2 versions with Mozambique's English version. As you
3 can see, they are the same with respect to clause 2,
4 the important one.
5 Now, there is one problem here in the
6 translation. Direito de preferência was translated
7 to right of first refusal. Now, we're unclear as to
8 who translated it, but that's a translator error
9 because the PPP law before and after, and the
10 procurement law, uses that term as a term of art to
11 mean the 15 per cent bidding advantage.
12 So whoever translated this probably made a
13 mistake, but that's de minimis.
14 The next slide shows you that both were
15 signed. Ours is signed by Mr Daga, and it's also
16 sealed.
17 Now, what does Mr Daga have to say about
18 that? "I didn't understand what I was signing".
19 Well, in a civil court, in a civil jurisdiction, no
20 judge would accept that. No judge would accept "I
21 did not know what I was signing".
22 And if Patel has won all those awards in
23 gigantic projects around the world, and it's the
24 experienced international company that they claim
25 they are, they cannot come to you and say "Take the
[Page 173]
1 one contract that's inconsistent with the other
2 because I didn't know what I was signing", and the
3 speculation of their counsel trying to cast stones
4 on Mozambique doesn't overcome that.
5 So we turn to slide 43, and this shows you
6 why the PEL English version is the only outlier, and
7 that's clause 2. Now, PEL's English version is
8 totally different from the Portuguese versions.
9 Look at clause 2, section 1. It's one sentence, the
10 Portuguese. Right?
11 If you look at the English version of
12 Patel, it's very long. It's almost five lines. You
13 don't have to understand Portuguese to know that
14 there's a difference, so maybe Mr Daga will tell us
15 that he also didn't read what he was signing,
16 because this is obvious.
17 And if we're talking about space, there's
18 also space at the bottom of Patel's English version,
19 and it actually kicks the language over to the next
20 page.
21 Now, what's the added language? The added
22 language is favourable to Patel, of course, that the
23 government of Mozambique shall issue a concession.
24 That's not found anywhere else.
25 So let's focus on clause number 2. From
[Page 174]
1 their English version, it says PEL will do the PFS
2 and report to a working group. Once the terms under
3 clause 7 are approved, the government shall issue a
4 concession to PEL. What's different between that
5 and all the other clauses? Many things -- excuse
6 me, the other MOI's. None of the other versions
7 referred to any working group. They have no
8 references to assessments of sites, et cetera, no
9 cross reference to clause 7, no reference to
10 awarding a concession, so there are four substantial
11 differences.
12 So going back in the next slide to the
13 language, and this is our smoking gun, this is the
14 language that Patel wants you to enforce. This is
15 how, according to them, they win. Their outlier
16 English version says once the terms under clause 7
17 of this memorandum are approved, the government of
18 Mozambique shall issue a concession of the project
19 in favour of Patel. So let's turn to clause 7, what
20 does it say?
21 "In the event that the above mentioned
22 corridor is found techno commercially unviable for
23 any reason whatsoever, both parties agree to sign a
24 new memorandum to undertake another study of a
25 similar project".
[Page 175]
1 So, in other words, if the project is
2 found to be techno commercially unviable for any
3 reason, the government shall issue the concession of
4 the project to Patel. That's ridiculous. I would
5 laugh, but it's not funny because we're all here
6 spending money because of that.
7 That's the document that they're relying
8 on. It says if clause 7 comes into play, we get the
9 concession. Clause 7 says if the project is not
10 viable, then you get a new MOI. It doesn't say
11 anything about awarding the concession. It makes
12 absolutely no logical sense.
13 Now, here's the problem that the Tribunal
14 has, that you would have to rewrite their version of
15 clause 2 and their version of clause 7 to make it
16 make sense. You would have to rewrite clause 7 to
17 talk about viable projects, not unviable, in order
18 for clause 2 to make sense. Then you could argue,
19 well, if the government determines the project to be
20 viable, then you have to award it to Patel, but
21 right now it doesn't say that. It makes an absurd
22 statement: If it's not viable you award it to
23 Patel, and then at the same time it says you award
24 it to Patel under clause 2, and in clause 7 it says,
25 no, they get a new MOI for another project.
[Page 176]
1 This just doesn't make any sense, and none
2 of their document experts are ever going to be able
3 to make any sense out of this. This is an internal
4 inconsistency within that document, and this is why
5 their English version has to be rejected. As we've
6 indicated, this Tribunal cannot rewrite clause 2.1
7 or replace 2.7.
8 Another reason why you have to side with
9 the Portuguese versions and our English version,
10 which are consistent and don't have any of this
11 silly language, is that Mr Daga cannot really hide
12 behind his lack of understanding of Portuguese. Not
13 only because that makes no sense as an excuse in a
14 civil jurisdiction or in international business, but
15 because they admit that they had Mozambican counsel
16 and a very good one at that. One of the best.
17 And they reviewed the drafts. They were
18 familiar with the old procurement law. They were
19 drafting the new PPP Law, and so you cannot say
20 I don't know what I was signing when you have
21 superstar local lawyers advising you, and those
22 superstar local lawyers have never said anything
23 different from what Mozambique says to this
24 Tribunal, and they're not here.
25 Now, the 12-month exclusivity, let me
[Page 177]
1 touch on that, which is one of the points that
2 I made early on.
3 The exclusivity does not mean the
4 government cannot make the award of the concession
5 to someone else. That's another complete misreading
6 of the MOI. The clause is very clear that it's a
7 12-month exclusivity period during the time in which
8 Patel is doing the work at their cost to submit the
9 PFS. That's the period of exclusivity. It ends in
10 12 months. And after the exclusivity period, the
11 product, the work product, is the PFS.
12 Now, that has to be approved, and they
13 told you the government could have not approved it,
14 they did in this case, but if the government had the
15 option not to approve it, it also doesn't make any
16 sense to talk about exclusivity spilling over onto
17 the decision of the selection of the concessionaire.
18 That's in the future.
19 You cannot be exclusive about something
20 that's going to happen after your period of
21 exclusivity stops.
22 Now, there are many reasons why we can
23 criticise the PFS, but they are right, the
24 government approved it, so, you know, we cannot come
25 here and tell you with a straight face we shouldn't
[Page 178]
1 have approved it. We approved it. But that's not
2 really the point we're making.
3 The point we're making is that -- and they
4 are listed in the next slides -- the PFS did not
5 contain enough to make the decision to award a
6 concession. It only contained enough -- and that's
7 the point of this slide -- it only contained enough
8 to make a decision as to whether to approve the PFS,
9 but the PFS is not a concession. There are a lot of
10 terms that have to be agreed upon, and I don't think
11 there's any dispute that none of those terms were
12 never negotiated, they were never agreed upon.
13 I mean, I'll give you a big one. Price,
14 percentages, who's going to get what. There's just
15 nothing.
16 And so you start seeing the continuing
17 conditional nature of the contract. It also lacks
18 the legal terms for a contract. We needed
19 additional financial information. So there was a
20 lot of things missing.
21 But then it's correct, the MTC approves
22 the PFS. We're not going to back out from that, and
23 we don't have to.
24 So here's what Minister Zucula says. He
25 says you need to exercise expressly your
[Page 179]
1 direito de preferência, A -- that's option A.
2 Option B, "negociar", negotiate, with CFM and form,
3 "constitui", "uma sociedade", a society, to
4 implement the project.
5 So that's exactly what I told you, that
6 under Mozambican law, there are two options and both
7 options, the large door and the little door, were
8 provided to Patel. They could exercise their
9 direito de preferência, and I'm sure their lawyers,
10 SAL & Caldeira, told them that means you get a 15
11 per cent advantage, or they could try to negotiate
12 the little door with CFM. But they needed to form a
13 separate company, which would be the joint venture
14 company, and it would be implemented through that
15 company.
16 So there's nothing here that's
17 inconsistent once you understand how it works. Like
18 we say here, the public tender is the standard
19 process. The other one is the option.
20 Now, I'm not going to get here into why it
21 is that Patel got it right or didn't get it right.
22 It really doesn't matter. It's what they signed.
23 But this is something that we do know, that a right
24 of first refusal is not the proper translation to
25 even the words "direito de preferência".
[Page 180]
1 Direito de preferência means right of
2 preference, that you are going to be preferred. If
3 you get a 15 per cent bidding advantage, you are
4 being preferred over the other bidders. Right of
5 first refusal, the phrase they like to use, is a
6 common law phrase. India is a common law
7 jurisdiction. But that's a totally different
8 concept.
9 It's like two ships passing in the dark.
10 When you talk about right of preference and right of
11 first refusal, it is two ships passing in the dark,
12 and when two ships pass in the dark in the law, you
13 have a failure of meeting of the minds.
14 So you have a meeting of the minds when it
15 comes to direito de preferência but not when it
16 comes to the English versions of the documents.
17 This is an important point. Again you see
18 this is the record that I'm citing that supports my
19 point that the MTC cannot force CFM to do anything,
20 and it should not force CFM to do anything because
21 if the MTC had forced CFM to enter into a contract,
22 and that's what would have happened, all of the
23 bidders in the public tender would have sued or
24 brought claims against Mozambique, saying the MTC
25 misused its position, told CFM what to do, CFM is an
[Page 181]
1 independent company with their own juridical
2 personality, what was the MTC doing telling them to
3 sign with them and not allowing us to submit a
4 public tender? We would be hearing that from all of
5 the other bidders. That's why we didn't do it, and
6 that's why the MTC was right in not doing it.
7 And we see in the next slide that this is
8 what they were told. This is what they were told by
9 Mr Zucula, so now we turn to C-29.
10 So you heard from Mr Vasani: I am shocked
11 that there's no mention of C-29 anywhere in the
12 presentation. Well, we've been talking about it
13 already and you've seen mentions, and here's another
14 mention of C-29, and it's all consistent again with
15 what I told you initially, which is they gave a
16 chance to Patel to try to cut a deal with CFM, and
17 Patel just was, unfortunately, unable to do it.
18 So Patel enters the public tender. It
19 performs poorly. That cannot be debated. With
20 respect to the 15 per cent -- this is an important
21 point on this slide -- they actually, the MTC
22 actually applied the 15 per cent advantage twice in
23 favour of Patel. They applied it in the initial
24 round, and then they applied it again in the final
25 round.
[Page 182]
1 So they got it twice. If the MTC has to
2 be criticised, it's for doing it twice. They should
3 have only done it once.
4 They start an appeal, then they drop it,
5 they send it to the wrong person, the government
6 doesn't hang its hat on that, we answer anyway, but
7 there's a complicated process. Again, they had
8 lawyers, they knew what they had to do, but they
9 failed to provide the appeal papers by the deadline
10 and to file the right appeal, and so that's the end
11 of it. There is no evidence that would allow an
12 international tribunal to interfere with a
13 regulatory bidding scoring situation.
14 Normally when international tribunals
15 interfere is when there's concrete evidence that the
16 math or something was, you know, altered by
17 sovereign authority, that kind of thing. There's
18 absolutely nothing here. Arbitration tribunals on
19 an international basis also require that the
20 investor follow -- the alleged investor or bidder
21 follow the local process, take advantage of the
22 local appeals. They didn't do any of that.
23 So that's the factual record.
24 So let me walk now through the
25 jurisdictional arguments. Then I'm going to talk,
[Page 183]
1 not too long, a little about the merits, the legal
2 grounds, and then when I'm done with that, I'm going
3 to turn the table over to my partner here, Dan
4 Brown, and Dan's going to address the damages.
5 PRESIDENT: Maybe after jurisdiction we
6 make a break.
7 MR BASOMBRIO: Yes, we can do that then,
8 or if you would like we can do it now. Whenever you
9 want. Thank you.
10 So I'm going to go through jurisdiction.
11 We all know that the burden is on Patel. That's
12 standard. The major obstacle that they have is that
13 the MOI is not an investment. They never entered
14 into a concession, and this is a very important
15 point I want to try to make clear, if the Tribunal
16 would allow me.
17 If they had -- I hope you're OK in those
18 fancy chairs. Is your head OK?
19 PRESIDENT: I'm OK.
20 MR BASOMBRIO: All right. Anyway, here's
21 the point I want to make with respect to the concept
22 of investment. If an actual concession had been
23 granted and had been executed, we would not be
24 arguing that there was no investment because, you
25 know, a concession for an infrastructure project is
[Page 184]
1 an investment, but it has to be granted and that's
2 the key. You have to actually receive the
3 concession; then you have an investment.
4 All the pre investment activity, like
5 spending money in the MOI or the PFS or whatever,
6 all of those -- or trekking through the jungle like
7 we heard this morning -- all of those are pre
8 investment activities. You don't get compensated
9 for that, and also that doesn't give you a ground.
10 You've got to have actually received the concession.
11 That's the investment.
12 So what happens if, as Patel argues, well,
13 we should have gotten the concession and we didn't.
14 Well, then you have a breach of contract claim, and
15 that's why we have this ICC arbitration, and that's
16 where Patel has to argue that. That ICC
17 arbitration, by the way, is going
18 forward December 12 to the 16th, this year, in
19 Lisbon because we couldn't get this space.
20 So turning to this slide here [Slide 67]
21 the MOI was not an investment and everything they
22 did related to the MOI was not an investment. It's
23 not an investment under the BIT, and I heard
24 opposing counsel arguing that it was, but it's
25 incorrect, and there's a simple reason why.
[Page 185]
1 Article 1 of the BIT defines "investment"
2 in a very broad way, and then it gives examples,
3 right? And we know -- all of us know -- that
4 normally international tribunals will say well,
5 those examples are not exclusive, right? There
6 could be others. They are just examples.
7 Well, that's normally the case, unless one
8 of the examples is exactly what you're talking
9 about, so like if one of the examples talked about
10 loan documents and it limited what type of loan
11 documents, then if you're fighting over a loan
12 document it's got to be that type of loan document
13 because the drafters have taken the time to be very
14 specific with respect to what category of asset,
15 what kind it must be.
16 And that's what we have here, and this is
17 something that's overlooked this morning, and it's
18 been overlooked by Patel in this arbitration.
19 Article 1(b) section (v) says it has to be
20 "business concessions conferred by law or under
21 contract". There was no business concession
22 conferred by law because law requires a concession
23 agreement in Mozambique that's published in the
24 Official Gazette, and there was no concession
25 conferred by contract for the reasons that we
[Page 186]
1 argued, and it couldn't have been because the law
2 requires, in Mozambique, an actual decree that's
3 published in the Official Gazette.
4 So they are suing claiming that they were
5 entitled to a business concession. The only way you
6 have standing or jurisdiction under the treaty is if
7 it's already been conferred. Here it was never
8 conferred, and so that ends a jurisdictional
9 analysis. They don't fall within the treaty.
10 Now, I'm also going to touch base quickly
11 on the fact that, as we know, in addition you have
12 to conform -- the investment has to conform with
13 general principles of international law.
14 There are two major problems. One is it
15 is clear under the case law that we have cited, like
16 Joy Mining Machinery, that a contingent liability
17 cannot be an investment under international law, and
18 we see this in various of the cases that we have
19 cited, and this is a major obstacle under
20 international law because the MOI, as now you
21 understand it, is contingent. Right? There are
22 again two doors, to use their analogy, the large
23 door, the direct award, if the government approves
24 the PFS, they get their direito de preferência.
25 Let's set aside what that means for a
[Page 187]
1 second. It's contingent. The government has to
2 approve it. The direct award, if they cut a deal --
3 if they cut a deal with CFM -- they get it. It's
4 contingent.
5 So the two potential rights are contingent
6 on things happening, so that MOI is a contingent
7 document and, as such, not an investment. That's
8 dead clear in international law. And they say it.
9 Look at slide 75. They admit that it was
10 subject to conditions, and their lead negotiator,
11 Mr Daga, says the MTC would have discretion to
12 approve the PFS or not. Then he says again in his
13 witness statements, PEL would have a right of first
14 refusal of the concession, which means we could walk
15 away if we were no longer interested.
16 So either side, according to Mr Daga,
17 could walk away. That's conditional, and that kills
18 them on jurisdiction. Now, Mr Daga also uses the
19 word option. Again, we disagree. It's
20 direito de preferência, it's not a right of first
21 refusal option, but let's assume that we went with
22 their English version for a moment. Well, the
23 option also kills them, because an option to walk
24 away is also not an investment, and that's equally
25 established in the international law. An option is
[Page 188]
1 not an investment in the jurisdiction.
2 PROFESSOR TAWIL: Mr Basombrio, can I ask
3 you a clarification again?
4 MR BASOMBRIO: Yes.
5 PROFESSOR TAWIL: In slide 73 you say the
6 MOI also allowed PEL to pursue a direct award
7 through CFM but PEL was never able to reach
8 agreement with CFM.
9 Can you explain how would the first
10 refusal work there?
11 MR BASOMBRIO: The MOI allowed PEL to
12 pursue a direct award through CFM, but PEL was never
13 able to reach agreement. And your question is what,
14 Mr Tawil?
15 PROFESSOR TAWIL: Yes. The issue of the
16 first refusal, because you have seen the first
17 refusal is related to a tender, so I would like to
18 understand --
19 MR BASOMBRIO: OK. Yes, let me try to
20 address that.
21 So we're saying there is no right of first
22 refusal. We're saying that's a common law concept
23 that exists in India, and they were looking through
24 those glasses at the MOI. The MOI says
25 direito de preferência. Direito de preferência
[Page 189]
1 means what it says, right of preference, or margem
2 de preferência, margin of preference.
3 Under Mozambican law that means a scoring
4 advantage. 5 to 15 per cent. They're talking about
5 something totally different.
6 PROFESSOR TAWIL: I understand, and I must
7 say that in general terms I agree, that that's how
8 it works on PPP. The issue is how do you put this
9 with the issue of the direct award to CFM?
10 MR BASOMBRIO: OK. Let me try to answer.
11 What I've said is that there's that large
12 door, to use their analogy, and the small door. The
13 exception, the small door, would be a direct award,
14 so in order to get that key they need to cut a deal
15 with CFM, and as I cited from Mr Zucula's letter,
16 they would have to reach agreement, form a joint
17 venture company, and then that joint venture company
18 puts in the proposal, it's accepted by the
19 government, and then the Council of Ministers,
20 through a formal decree, would have to approve it.
21 So there's a very complicated process, but
22 there is no such thing as option on their side.
23 They don't get to make that decision themselves.
24 They can say we can try to go down that road, but
25 then they've got to meet conditions.
[Page 190]
1 PROFESSOR TAWIL: I understand. But
2 direito de preferência in that case would not be a
3 scoring advantage?
4 MR BASOMBRIO: Direito de preferência
5 doesn't apply when you have a direct award. When
6 you have a direct award -- let me explain why.
7 A direito de preferência gives you a
8 scoring advantage because you have other bidders
9 that you're competing against. It only applies when
10 you have a public tender. It doesn't apply when you
11 have a direct award.
12 PROFESSOR TAWIL: OK, thank you.
13 PRESIDENT: So now this opens an avenue of
14 questions.
15 So your position is there were like two
16 possible outcomes. One would be a direct awarding
17 of the contract but to a joint venture which was to
18 be created with the national railway company and
19 would be then a public-private company and there
20 would be no tender, first route.
21 Second route, there would be a tender, and
22 in that tender there would be a
23 direito de preferência which you say is a
24 15 per cent advantage in the calculation of the
25 points you deserve.
[Page 191]
1 Did I understand that correctly?
2 MR BASOMBRIO: It's all stated correctly
3 with one exception, if I may correct.
4 PRESIDENT: Of course.
5 MR BASOMBRIO: Reverse the order.
6 PRESIDENT: OK.
7 MR BASOMBRIO: Right? The public tender
8 is the hugely preferred option, and the direct award
9 is the exception.
10 Going back to the idea of whether there
11 was an investment, Patel also refers to all their
12 pre investment activities and expenditures. I told
13 you in my introduction that that doesn't qualify as
14 an investment, and that is also very clear in the
15 law. The Mihaly v Sri Lanka case that I cite here
16 is on point. It says that pre investment activities
17 are typical of modern day commercial activity in
18 large projects and this is something that's borne by
19 the investor. This is something that's not
20 recovered, and here is the important point of Mihaly
21 at the bottom of slide 82.
22 Whatever recourse the Claimant may have at
23 its disposal to pursue its claim arising out of a
24 commercial, financial, or other type of dispute,
25 that's what they have to pursue.
[Page 192]
1 And so that's what Mihaly confirms, how it
2 confirms what I said earlier on, which is if their
3 claim is under the MOI we should have gotten the
4 concession, then that's a commercial claim. That's
5 not an investment claim. And that's what happened
6 in Mihaly. The Claimant did not succeed.
7 And there's another case that we have
8 cited, Zhinvali against Georgia, which holds exactly
9 the same, and this one's right on point and that's
10 why I'm citing it, because it's talking about
11 expenditures that were made during the exclusivity
12 period were not an investment.
13 So everything that you have heard, all the
14 heavy detail this morning about everything they were
15 doing in Mozambique allegedly, none of that is an
16 investment because it was all done during the
17 exclusivity period.
18 So there's a lack of jurisdiction for all
19 those reasons. I'm going to go very fast here but
20 it's important to know we're not even close to
21 satisfying Salini. There was no contribution of
22 money or anything else to the government of
23 Mozambique. If you understand that the PFS was
24 their responsibility and that's how it's done and
25 they got to pay for it, you can't at the same time
[Page 193]
1 say well, that counts as an investment, as a
2 contribution.
3 The duration temporal time limit doesn't
4 exist. There was none. Investment risk is
5 completely absent. In a concession the investment
6 risk is you think you're going to make a profit, you
7 don't, your costs are higher, maybe the price of
8 coal tanks like it did -- that's the type of
9 investment risk. You don't have any. And Nova
10 Scotia tells you that when you prepare a PFS and do
11 that kind of work, that's a commercial risk. That's
12 not an investment risk.
13 All economic activity includes that type
14 of risk. There was no contribution to development
15 because, unlike Salini, in that case Salini
16 constructed something and then the government said
17 stop. Here, they constructed nothing and the
18 investment was not in accordance with the PPP Law.
19 We'll talk about bona fides later, but you
20 can't talk about bona fides if you never made an
21 investment. I guess you never get that.
22 The last key point about PSEG Global and
23 Mihaly is that they recognise -- when you're talking
24 about concessions, if the concession was not
25 actually awarded, there's no investment, and PEL was
[Page 194]
1 not an investor because it never made an investment.
2 Now, this is a very important point that
3 I do want to slow down on and address.
4 You've heard today in the opening
5 statement that PEL spent all these assets, you heard
6 it, allegedly in doing all this, and that's their
7 investment.
8 Well, we sent three very specific requests
9 for documents where we tried to get at the point of
10 whether an actual alleged investment, how they see
11 it, was ever really made.
12 Request number 10, we asked for documents
13 that show all costs incurred by PEL with respect to
14 the Preliminary Study, the one before the MOI,
15 including time cards, invoices, any records.
16 Their response was we have nothing. So
17 then we asked them, in Request No 38, OK, well, give
18 us the time cards, your cost records, information
19 about personnel involved, expenses related -- that
20 were actually incurred by PEL in preparing the PFS,
21 the prefeasibility study. Their response was we
22 have nothing.
23 So then we said OK if you don't have any
24 of that, give us all of the documents that show what
25 you spent or what you contributed to the PGS
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1 consortium in preparing the public tender submission
2 and they said we have nothing.
3 Now, sitting across the aisle I was
4 dodging a lot of bullets this morning regarding
5 Mr Vasani's accusations or suggestions of
6 impropriety about documents missing. Well, where
7 are these documents? Where are their evidence --
8 this is their evidence of the alleged investment.
9 Where is it? They knew they were going to bring
10 these claims because they've been threatening them
11 for ever. You could draw an inference, and you
12 should, that there's a spoliation of evidence
13 problem here. They don't have any record of any
14 expenditure at all, and you cannot establish an
15 investment without any record.
16 And I will tell you, Mr Vasani likes to
17 speculate so I will speculate this one time. You
18 know why they didn't produce anything? Because it
19 would show a de minimis effort. It would show a
20 de minimis expenditure. And that's not me saying
21 it. That's our expert Betar saying it. Betar said
22 there's no way they could have spent any real money
23 on any of this when you look at the PFS. It's just
24 not.
25 You know, to people who are not engineers
[Page 196]
1 like the members of the Tribunal, to me, you know,
2 you read all the jargon in the PFS and you say oh,
3 wow, I'm impressed, and you heard a lot of that
4 jargon today, but an engineer tells you, no, this
5 was just mostly lifted unfortunately from the
6 internet, from existing documents, there's no way
7 they spent any real money, and this is why you have
8 never heard what they spent. They don't want to
9 tell you, because it was probably about a million
10 and a half at most, even assuming it was that, and
11 it would make -- the reason why these documents have
12 disappeared, it would make their $150 million claim
13 completely absurd. That's why they have not given
14 these documents to their experts, their multiple
15 damages experts; that's why they didn't give them to
16 us; and that's why their answer is it's all missing.
17 We lost -- we don't have anything.
18 But in any event, and this is the last
19 point on who's the investor, the real party in
20 interest is not Patel. The real party in interest,
21 if you're going to say that the tender should be
22 scored in a different way, it's the PGS consortium,
23 and this is extremely clear. And I'm citing just
24 one of the cases, ACP Axos.
25 It holds if you participate in a
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1 consortium, it's the consortium that has the right.
2 It held Axos alone cannot avail itself of the
3 rights, if any, belonging to the consortium formed
4 by Axos and Najafi in that case. They lack
5 standing, they cannot be an investor, they cannot
6 pull it away from the consortium.
7 Now, why isn't the consortium here?
8 There's a very simple reason. Because one of the
9 consortium members, SPI, is a Mozambican national.
10 This is not disputed, and so it would destroy their
11 ability to pursue a claim under the BIT because that
12 nationality of a partnership, a consortium, is
13 assessed by looking at the nationality of all of its
14 members, and one of the members was Mozambican. And
15 I would be arguing in front of you there's no
16 jurisdiction because of that.
17 Well, you cannot avoid that argument and
18 that situation by suing only on behalf of the
19 foreign consortium member. That's an abuse of the
20 arbitration process and another reason why there's
21 no jurisdiction.
22 I'm not going to spend a lot of time on
23 ratione materiae. We've already talked about why
24 the MOI is not an investment. But I do want to
25 touch briefly on the issue of sovereign power. It
[Page 198]
1 is very clear that breaches, like the Tribunal said
2 in the Abaclat case, "breaches obligations arising
3 by the sole virtue of such contract" are not an
4 investment treaty violation. When you look here,
5 that's all we have. The government was acting as a
6 commercial actor, and let me explain that, if I may.
7 Let's talk about something all of us in
8 this room are very familiar with, which is when we
9 get hired as attorneys, a client can put out an RFP
10 and ask different law firms to submit bids. That's
11 like a public tender. A client also can go to their
12 long time counsel, avoid an RFP and have direct
13 negotiations to hire that law firm, so these two
14 mechanisms exist in the commercial world. They're
15 just called public tender and direct award in the
16 government world, but the exercise of those
17 mechanisms and the decisions by the government
18 within those mechanisms are not sovereign decisions.
19 They are commercial decisions. Just like a client
20 can decide to waive the RFP and hire a lawyer
21 directly, a government can decide to do that, and
22 conversely the same is true.
23 And so when we talk about well, the
24 Council of Ministers made this decision or not, we
25 can dispute what was said in C-29, et cetera, but
[Page 199]
1 that doesn't change the nature of that decision,
2 which was a mere commercial decision, and that lack
3 of sovereign act kills their case.
4 A sovereign act would be if the government
5 took an action that changed the equilibrium of the
6 MOI. For example, if the government changed the law
7 and said we will no longer provide
8 direito de preferência, that's a sovereign act that
9 changed the equilibrium of the MOI. There's
10 absolutely nothing like that, and so you have to end
11 up in slide 101 what Toto Construzioni tells us:
12 "Mere non-performance of a contract obligation does
13 not by itself fall within the scope of the State's
14 undertakings under the Treaty".
15 There's one point that I don't want to
16 lose in the many arguments that the Tribunal is
17 going to have to review which is the sunset clause
18 in the BIT. It is interesting that India, not
19 Mozambique, India decided to terminate the treaty.
20 As you may know, India has exited from most of its
21 treaties.
22 Now, this is substantial because Patel is
23 an Indian company. This means the Indian government
24 has made the decision that it doesn't care whether
25 its nationals, like Patel, have protection or not
[Page 200]
1 under international law, and they repudiated their
2 contracts, including with Mozambique.
3 Now, India said this becomes effective
4 21 March 2020. There's a sunset clause, though,
5 that says that it applies in respect of investments
6 made or acquired before the date of termination, so
7 it's very specific, the sunset clause. Again, like
8 article 1, consistent with the definition of an
9 investment, it says the investment has to be made or
10 acquired.
11 So that confirms that the only concession
12 that works is one that's actually made or acquired.
13 That didn't happen here, and because it didn't
14 happen before the sunset clause expired, that's your
15 easy answer. There's no treaty any more.
16 Now, let me talk about blacklisting here.
17 Blacklisting obviously is a problem under the
18 international concept that you have to act in good
19 faith, and, as a tribunal, your job is to decide,
20 well, how important was the blacklisting, and does
21 that convince me that it's enough to say, you know,
22 I'm just going to dismiss it -- I'm not here -- as
23 inadmissible, which is extraordinary relief. We
24 agree.
25 So what do we have here, and I'm going to
[Page 201]
re-emphasise what I said in my summary introduction.
You have -- and I don't have to go through it again -- you have the India Supreme Court issuing a judgment that says that PEL is not commercially reliable and trustworthy, that PEL has been engaged in a dereliction and unwholesome practices and upholding their blacklisting -- and the word "blacklisting" is used multiple times so that's not me making that term up -- and they affirm -- you have a second judgment, they're affirming the judgment of the Delhi High Court and it says Patel "had no qualms in ditching the project at the 9th hour. They withdrew at the last minute" and the High Court says Patel's conduct "was, to say the least, unbusinessmanlike. Any prudent businessman would naturally have taken the decision taken by the NHAI to blacklist Patel".
So you have two courts, including the Supreme Court, not of some far away jurisdiction, the Supreme Court of their own country where they're based.
Now, if Patel is the large company, prominent contractor that Mr Vasani indicated this morning, that makes this even more significant.
That would be like the United States Supreme Court
[Page 202]
saying that Coca-Cola or Honeywell or Boeing or Ford Motor Company is not commercially reliable or trustworthy.
Imagine what it would take for the US Supreme Court to say that. They never have. And I could not find any example where any Supreme Court has said anything like this about any of their own national companies. So you can not belittle this. It's important. And the reason, the lynchpin, why it is important and why it renders their claim inadmissible is because of the nature of what happened.
It was an infrastructure project, a transportation project in India. We have the same in Mozambique. They put in a bid. They won. Then they backed out of it and they refused to accept it. That would be of great concern to the Mozambican government. And you've been told unequivocally that if they had known, that would be the end of it. That was concealed.
So what do they say? They don't dispute any of that. What they really say is the timeline, so let me spend a minute here on the timeline. This is what happens.
PEL submits its Preliminary Study. That's
[Page 203]
before the MOI. The MOI is signed on 6 May 2011 with one-year exclusivity. PEL is notified of the blacklisting by NHAI on May 20, 14 days later, within the period of exclusivity. The blacklisting goes into effect on May 20, 2011 to May 19, 2012.
Delhi High Court issues its judgment on August 2nd. All of this happens before PEL submits the PFS to the MTC on May 2nd, and so it is within the relevant time period. The MTC had not yet made its decision to accept the prefeasibility study, and by that time not only has Patel been blacklisted, but they have gone to court and they have lost, and there's a judgment of the Delhi High Court condemning them and upholding the blacklisting.
So what happens then? The PFS is submitted on May 2nd. On May 11, nine days later, the Supreme Court of India issues its judgment. Patel still doesn't disclose anything. And then the MTC approves the PFS over a month later.
So everything happens. The blacklisting, the lower court decision, the Supreme Court decision -- it all happens within the period of exclusivity before the MTC makes its decision. That is why this is important. That is why this renders
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this claim inadmissible.
You know, we all know the cases, and far less things have rendered claims inadmissible. Sometimes people in control of companies will move assets, and that changes, you know, the risk ratios and that's held to be inadmissible. Sometimes companies try to create jurisdiction by changing their location. That's held to be inadmissible.
This is bad faith. We've been accused of levying accusations lightly. There's nothing lightly about this. An MOI was signed. It requires transparency not only from the government but from the potential investor. It requires good faith not only from the government but from the potential investor. And while in your period of exclusivity, before the government makes a decision to approve your PFS, all of these things happen and you say nothing? That requires that their claim be rendered inadmissible.
And you have heard what happened from Mr Banerji, our Indian law legal expert who was the prosecutor on the case. He was the additional Solicitor General in India.
So keep in mind, please, that's not just a legal opinion. It's also a factual statement
[Page 205]
because he's telling you what happened there. Now, if Patel disputed what happened and disputed what Mr Banerji says, they could have gotten, like I said, their lawyers who represented them to present their own witness statement, and I would get to cross-examine that lawyer over here in the next few days. But you know why that chair is empty? The same reason why that chair is empty with respect to their Mozambican lawyer, because both of them would say what we're telling you and would damn their case. That's why they're not here.
Clearly this was material. It continues. It continues all the way through the public tender. They sent a letter on 5 October 2012 telling the MTC you should give us a direct award because we are trustworthy, when the Supreme Court has just said in a judgment, no, you're not.
I want to talk a second about laches, because I think this is an important point. You've heard from both sides that there are some documents that cannot be found any more. This is the typical case where you would invoke laches. This claim could have been brought before if they wanted to bring it. They didn't bring it. There are proof issues, for example we have been unable to find our
[Page 206]
English version. All of their evidence of cost and damages is gone. This is something that has to be considered.
So the final point on the merits would be related to the fact that PEL has no right to a direct award to a concession to protect under the treaty, and I don't have to reiterate this, we've already talked about it, and how what they actually got was the direito de preferência.
So let's turn quickly here to the treaty claims.
PRESIDENT: Once you are --
MR BASOMBRIO: We can take the break.
PRESIDENT: Can I put two questions to you before?
MR BASOMBRIO: Yes.
PRESIDENT: One refers to the direito de preferência, and I think you referred to the 2010 regulation approved by Mozambique for state contracts, which is RLA-3. Can we have a look at that, if I understood you correctly?
That is in your presentation, I made a note, page 24. In page 24 there is this cross reference to the 2010 procurement law. Do you see that?
[Page 207]
MR BASOMBRIO: One second.
Yes.
PRESIDENT: Yes.
MR BASOMBRIO: Yes.
PRESIDENT: Can I kindly ask you to go to RLA-3? And you are referring to article 26.
MR BASOMBRIO: Yes, clause 3.
PRESIDENT: This is, if I'm not mistaken, and you correct me, this is the general regulation for State contracts which was in force when the MOI was signed.
MR BASOMBRIO: Yes.
PRESIDENT: That is.
Can I take you, because I was slightly puzzled by your cross reference to 26.
MR BASOMBRIO: OK.
PRESIDENT: Because 26, I have it in Portuguese but I think it must be in English somewhere. It's headed Domestic Competitors.
I hope the translation is -- I would translate it as Domestic Competitors.
And your cross reference was to paragraph 4 -- no, sorry, 3. Article 26, paragraph 3. You see it? You have it in page 24 of your presentation.
[Page 208]
MR BASOMBRIO: One minute. We're pulling it up.
PRESIDENT: Of course. I wonder if we can get it on the screen?
MR BASOMBRIO: Yes.
PRESIDENT: Maybe if I'm making too complicated questions now, we leave them for the Mozambican law experts, because I was just puzzled that the cross reference was here to the preference which domestic entities have in public tenders.
And for construction contracts it seemed to be 10 per cent, not 15 per cent. I don't know if you have an explanation or --
MR BASOMBRIO: I think that is a question for the experts, but you may be correct, yes.
PRESIDENT: OK. So --
MR BASOMBRIO: But the point is that that's how -- it was in existence. The concept existed, and then it got refined with the subsequent PPP Law.
PRESIDENT: Yes. But the subsequent PPP Law, if I am not mistaken, is enacted after the MOI. Isn't that correct?
MR BASOMBRIO: Yes, it's enacted after, but what we have noted is that, as opposing counsel
[Page 209]
indicated this morning, both sides understood that, once it would be enacted, those would be the rules of the game.
PRESIDENT: Very good.
And then I have a second question which I promise has nothing to do with Mozambican law. It's really only on the facts.
I would like you to confirm to me certain dates, and if I understand correctly from this morning, the 8th of March 2013 was the deadline for tender, for presentation of bids in the tender, and I derived that from C-234. Do you agree with me? Because it's important. I'm not making -- because that is like a couple of weeks before C-29, the document you referred to, which is the 10th decision of the Council of Ministers, which is then apparently two weeks before the 12th session of the Council of Ministers, which is C-34.
Do you remember that? I wanted to get clear in my mind how that timeline developed, what was first, what came afterwards, because I'm slightly lost there, and maybe I can get your help.
MR BASOMBRIO: And I appreciate the question but what I would like to do is I would like to confirm my understanding before I give you an
[Page 210]
answer, because you consider it to be important.
PRESIDENT: Yes. Why don't we -- maybe Claimants can also give it -- could we get the timeline between March and April 2013, what was exactly happening with the public tender, when it was announced, when you had to present the bids, when PEL presented its bid, when the 10th and the 12th session of the Council of Ministers, which seemed to happen -- each session seems to happen each week, is what I derived.
If we could get a little bit of clarification tomorrow, that would be helpful.
MR BASOMBRIO: Yes, of course. You want that tomorrow?
PRESIDENT: Yes, because today it will be -- tomorrow, yes. Before we start with the witnesses would be helpful.
MR BASOMBRIO: Mr President, would it be possible for me to get an indication of how much time we have left?
PRESIDENT: Yes, because some time is of course on the Tribunal.
MR BASOMBRIO: Right, for the questions.
PRESIDENT: And we will now break. Do we have a time check?
[Page 211]
MS JALLES: Yes. You have used 1 hour and 32 based on the assumption that the Tribunal's question and the answers to those questions counts on Tribunal time as per paragraph 18 of Procedural Order No 5.
MR BASOMBRIO: So we have how much time left, please?
MS JALLES: So you have a little less than one hour. 58 minutes.
PRESIDENT: So we now have to break. Yes? Of course, Ms Vasani?
MS VASANI: Just one point of clarification on that. At C-380 there's a chronology that sets out every document and the timeline, so that might be useful.
PRESIDENT: Give me one second. I have to look at this.
MS VASANI: Sure.
PRESIDENT: And let's see if that helps to finalise my doubts.
MS VASANI: It's on page 16 of that document.
PRESIDENT: OK. Thank you. Thank you for -- yes, so it's probably -- could you have a look at it tomorrow, and tomorrow you tell me if you
[Page 212]
agree with this timeline, which is very helpful. Thank you very much. It seems to be very detailed, and I think it helps to understand my worries.
So maybe on the basis of that, you just double check that.
MR BASOMBRIO: We'll double check. We're happy to.
PRESIDENT: And if that's correct, then you just say "We agree with C-380".
Very good. So we have to break now. It's 16.52. Shall we come back at 18 -- no 17.05. You will have to get used that I confuse the time.
MR BASOMBRIO: Could we do 17.10? Is that OK?
PRESIDENT: Of course. Ten past.
(Short break from 4.53 pm to 5.13 pm)
PRESIDENT: We resume the hearing, and the Republic of Mozambique has the floor.
MS BEVILACQUA: Could you bring the Respondent's PowerPoint up on the screen, please?
(Pause)
MR BASOMBRIO: We're ready, if everyone is.
What I would like to do is I would like to discuss each of the substantive treaty claims, the
[Page 213]
law in light of the evidence, and then after that my colleague is going to discuss damages.
We're going to start with slide 116 on the table.
So the first claim by Patel, they claim that there was an expropriation. Here the law is clear that in the facts that you have heard, there could have been no expropriation.
I'm going to read from Waste Management, the decision, the language in that decision which I believe is dispositive of the expropriation claim, whether it be direct or indirect expropriation.
That's in this slide. Waste Management said, "The Tribunal concludes that it is one thing to expropriate a right under a contract and another to fail to comply with the contract. Non compliance by a government with its contractual obligations is not the same as, or equivalent or tantamount to, an expropriation. In the present case the Claimant did not lose its contractual rights, which it was free to pursue before the contractually chosen forum".
That's the law. And Waste Management said it, and a lot of other tribunals have repeated it, so let's break it down.
Non-compliance with the contract is not
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enough. It doesn't matter if the non-compliance was by the MTC, by the Council of Ministers, by the President of Mozambique -- it doesn't matter. It's not the actor, it's the act, and the act is non-compliance.
And the only thing you have heard today from Patel's opening statement is that there was an alleged non-compliance according to their reading of the MOI and their version. Even if you take all that to be true, it's just a non-compliance with contract. That's not an expropriation.
The second question is are they free to pursue their contractual rights somewhere else, and do they still have those rights to pursue?
Well, I don't think they're going to tell you that they don't have those rights to pursue because they would have no case, and you heard today that they believe they have those rights to pursue.
So the third issue is, third factor, is there a contractually chosen forum to pursue those rights? Yes, the ICC again. There's no debate about Waste Management, that decision; there are no tribunals that really take any serious issue with what was said. This is just not an expropriation case.
[Page 215]
So I think you could very easily get rid of that claim. Oxus Gold PLC puts the final nail on that coffin. "A right to formal negotiations cannot be subject to expropriation". That's all they claimed to have, that they had a right to negotiate a concession. That can also not be expropriated. Why? Because that means that you would have to guarantee a particular result.
To do something to a certain standard, like that Tribunal said, would be converting an obligation to negotiate into an obligation to achieve a particular result. That's their entire case.
I'm going to repeat it. That's their entire case. They're saying under the MOI the government had an obligation to achieve a particular result. That is not an expropriation, that's a contract claim, and so the fundamental flaw is just that, and this has been reiterated also by Impregilo versus Argentina. "Only measures taken by Pakistan in the exercise of its sovereign power and not decisions taken in the implementation or performance of the Contracts, may be considered as measures having an effect equivalent to expropriation".
So there was no expropriation here. I
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think we can move from that.
The real issue is the fair and equitable standard. You know, is this an FET case or not.
I want to know first that it's a very high standard. So if a claimant says, well, you know, the government could have been better to me, they could have been clearer, you know, maybe they changed their mind, none of those things amounts to an FET violation. It has to be something substantial.
Saying the government had a contractual obligation, they told us they were going to do something, they agreed and then they flipped their mind, they decided to do something else, that's not a violation of an FET standard. That's a breach of contract. And that's all you have. Their stated silver bullet is the decision, according to them. We say it's not a decision, it was just guidance.
The letter, whatever you want to call it, from the Council of Ministers, even if everything they say is true, that the Council of Ministers said give them the direct award and then changed its mind, that is not an FET violation. That is a contractual issue. Because that decision on its own means nothing. It only becomes arguable if you tie it to the MOI.
[Page 217]
There's nothing wrong in the Council of Ministers saying let's go with A and, no -- oh, we changed our mind, let's go with B.
That's their story. There's nothing wrong with that. The only way that becomes in their theory arguendo wrongful is if you tie it to the MOI, and that makes it necessarily a contractual choice and a commercial choice, so the FET standard doesn't even begin to apply, especially when you take into account the high measure of deference that's provided to governments, and that is confirmed in the Myers v Canada case.
In terms of the FET you have to always identify what's the legitimate expectation, because you don't want to frustrate a legitimate expectation, and we would submit here, as I have explained, and you will hear from Mr Zucula and from Mr Chaúque, that Patel was just mistaken with respect to their expectations.
They conflate together direito de preferência with direct award. I hope by now I've been able to explain that they are two really different things. If you get a direct award, you're not going to get a bidding advantage because there's no one to bid against. You're not going to
[Page 218]
get a right of preference as it's understood in Mozambican law; you're just going to negotiate a direct award.
So if their expectation was that you get a direct award by getting the direito de preferência, it was wrong. It doesn't matter that before the new PPP Law it was 10 per cent, then it became 15 per cent, that before it was generally given to local bidders and then it got expanded to local and international bidders -- those are things that don't really change the bottom line, which is it has a specific meaning in Mozambican law, and it's clear they didn't understand it. They were thinking of the common law right of first refusal, which is something totally different, and so you can't establish the first factor required in an FET analysis of the legitimacy of the expectation under local law.
And of course you have to look at what was specifically undertaken and if you look at the Portuguese versions of the MOI, what was specifically undertaken in article 2 was to provide the direito de preferência.
If you look at their version, their English version, what was undertaken was to hand
[Page 219]
them an unviable project.
Good faith is also another factor to think about. I don't think that based on what you have heard, and you will hear it confirmed from our fact witnesses, the Tribunal could conclude that the MTC did not reasonably construe Mozambican law.
You also need to have some sort of sovereign act. Like we've stated, there was no impairment of their rights. They are here still trying to assert those rights, and they could assert them before the ICC.
This is an interesting case, and that's why I cited it here. It's the F-W Oil Interests case. It's very analogous. In that case the Claimant was the winning bidder in a public tender and was "awarded the tender 'subject to the negotiation and execution of a mutually agreeable operating agreement'".
So they were ahead of Patel. They won, and they were told you're going to get the tender, but the Tribunal observed that "a contract to negotiate, even when supported by consideration, is not regarded as a contract known to law -- it is too uncertain to have any binding force; and no court can estimate the damages for breach of such an
[Page 220]
agreement".
And that's also a major problem with FET here. Even if the Tribunal at the end of the day on an FET basis could have some criticism about the way Mozambique did things, which you shouldn't but if you did, this would be one of those cases where maybe argue -- the Tribunal will hold arguendo things could have been done a little clearer, but there are no damages that can be proven because it's just an agreement to agree, and this case is the law on that.
So in sum, on the FET, a concession can only be granted by a duly executed concession agreement in accordance with Mozambican law. Any other holding by this Tribunal would turn public concession practice on its head and would open up a Pandora's box that would allow every disappointed bidder, like Patel, or any interested party that has signed an MOU, LOI or MOI, to flood the gates of investment treaty arbitration with baseless claims like this one, about what could have been if a concession had been granted that never was. This would create devastating uncertainty in public procurement, and that's a very important point that the Tribunal should keep in mind as we go through
[Page 221]
the witnesses and experts this week, and it would discourage governments from utilising preliminary agreements like MOUs, LOIs, and MOIs.
The last claim is the most favoured nations clause. We've presented our arguments in the papers as to why you cannot incorporate those provisions of the Netherlands-Mozambique BIT. I'm not going to repeat that here. I will just close my portion of this presentation by saying that, even if it was incorporated, Mozambique did not breach its obligations under the MOI and acted reasonably, and so that would fail as well.
With that, I'm going to turn it to Mr Dan Brown to talk about damages, if that's OK with the Panel.
PRESIDENT: Mr Brown, you have the floor.
MR BROWN: Thank you, Mr President. It seems it falls to me at the end of the day to talk about numbers, so I do want to just make clear a couple of things first, that we are talking in that area here where we would only be assuming that the MOI actually would require a concession or a negotiation of a concession in an instance in which the MOI does not require that or is not enforceable. Of course a not legally binding contract, that value
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is obviously zero.
The other thing I will say is in fact the direito de preferência was already received by Patel, and so there is no effort by Patel to value sort of a missing 15 per cent scoring advantage either.
And then to follow up on Mr Basombrio's point a moment ago, obviously an investor cannot recover damages for an expropriation right it never had, so that would be zero as well. What we're really focusing on here is that, if there was something to the damages claims, let's focus on whether or not those are properly brought here.
If we ignore the fact that the MOI is not a concession, the damages claims here are still baseless, and that's fundamentally true for several reasons. I'm going to focus first on the 2012 financials that were actually discussed briefly today. I know that there was some discussion about those 2012 financials, and I want to make sure we set the stage just a little bit more for those.
In the PFS that Patel provided to Mozambique Patel estimated that the rail and port project would cost $3.1 billion, but in the PFS Patel did not provide any numbers about the revenues
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that would support spending on such a project. Mozambique asked Patel for financials, and they were provided on May 15th of 2012. Those financials are at Exhibit C-8 in the record.
When those financials were provided, they were provided on two pages of an Excel spreadsheet, and that's it. Those finances were used by Patel to make a very important statement here, and we've put it on this slide here. It's part of C-8 on pages 1 and 2. It's the cover letter to that.
It says at the bottom of that page, "This model is based on certain assumptions and considering these assumptions it gives a clear idea that even in the worst case scenario also it is financially viable" -- meaning that the project is financially viable -- "even without considering the multiple growths".
I know Patel has focused on the words "worst case scenario", and I'll get to that in a moment but the real concern --
Am I going too fast? I'm so sorry. Thank you for letting me know.
The statement that's of most importance on this page is the fact that Patel claimed that the project was financially viable, and this was before
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the PFS was approved by Mozambique. The problem, however, as our Dr Flores will explain, is that Patel's own projections in that C-8 document show that the project was not viable.
In order to see why that is so, I want to take a few moments with C-8. C-8 had several assumptions in it, one of which was that the rail length would be 516 kilometres, that there would be a tonnage capacity of 25 million tons per year, and then importantly, that the port and rail efficiency of the project was assumed in the document to be 100 percent, meaning that the annual tonnage would be 25 million tons.
There were also assumptions about how much debt percentage would be had at 80 per cent, about the equity required at $623 million, the debt rate at 7 per cent, and the project debt at $2.492 billion. Patel had proposed that CFM would have a 20 per cent equity in the project, and the project, it was assumed, would take six years to build.
So if you'll bear with me for just a moment, the first page of the financials then looks like this. That document is fairly inscrutable as we sit here looking at it, but let's break out just
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a few other things.
In this document it demonstrates that the opening cash balance would be $623 million, that's in year one, and that's the equity contribution. By the end of year two, the equity contribution is all spent.
Meanwhile, the capex, the spend on building the project, is going to take place over years one through six until that $2.492 billion is being spent. Meanwhile, you'll see that the revenue lines that are also on this page do not have any revenues in them.
You'll see that the tonnage that was to be handled in Patel's 2012 projections ramped up in year 7 through 11, so that by year 11 there is that 25 million tons per annual.
And the result of all of this, the fact that the spend was early on, the fact that the revenues would not come in right away, would be that the debt balance was also calculated by Patel, and the debt balance, that closing balance in year 10, was $3.8 billion. The easiest way to look at this, frankly, is the fact that the debt pay-down period that Patel reported on these 2012 financials for the project was 22 years.
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The problem that is ignored entirely by Patel's May 2012 financials is the risk and time created on this project. When you spend $623 million in year one and year two, and then you incur debt of $2.4 billion and take 22 years to pay it back, the question is is that financially viable.
And Patel, instead of a worst case scenario, was doing those calculations assuming if the port was built on time, if there were no cost overruns, if the coal companies massively increased production over what was currently there, if the rail and ports were utilised 100 percent, and if debt only cost 7 per cent.
Dr Flores will explain that these numbers actually demonstrate that the project has no value. As he says, Patel should have used projected cash flows to calculate the net present value of the project. That is a necessary analysis for assessing the financial viability of the multi-year infrastructure project.
You'll be grateful to know I'm not going to go into anything about discount rates today, other than to say that Dr Flores calculated that any discount rate higher than 7 per cent applied to Patel's 2012 financials would create a zero value.
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Versant's or Secretariat's discount rate applied in its projections is actually 19.56 per cent at the start of the project, well above 7 per cent, meaning that if you apply Secretariat's discount rate to Patel's 2012 financials, the project has no value as it was projected in 2012.
Patel only offers excuses. They do say it was worst case but, as we just looked at, certainly you can't characterise all of the numbers in these financials as worst case. 100 percent utilisation is not worst case. 25 million tons of coal is not worst case. There's no concession fee at all in these financials, there's no taxes at all in these financials, and there is no cost overruns projected in these financials.
The other thing that Patel claims is that, frankly, this was an early document. That in 2012 the economics wouldn't have been entirely known yet. We pointed out the problems with the 2012 financials and in Patel's reply in this matter it said "given that there was no concession agreement available at the time this preliminary projection was prepared, the terms of the concession were also unknown".
And then importantly they said, "A detailed financial evaluation would be required as
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part of a bankable feasibility study to demonstrate the project's potential economic viability".
So here's what happened. In May of 2012 Patel said that the project is financially viable. In August of 2021 Patel said we need another study to know whether there was potential economic viability. It's this blatant contradiction that makes it so relevant that the blacklisting had been occurring at just this same time.
I won't go back into too much detail on that, but I will say that rather than labelling, blacklisting or debarring, one of the things that was said about the actions of Patel in that instance were that Patel itself had expressed its inability to confirm its acceptance on the ground that its bid was found not commercially viable on second look.
And, members of the Tribunal, that looks very familiar, because in this case, in these financials, Patel presented a loose PFS with unsupported financials, and then, when they're now being looked at those, they wind up saying actually you can't rely on those early financials, even though Patel itself said the project was financially viable, in order to get the approval of the PFS.
The 2012 financials are telling for
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another reason, too. You've heard it a couple of times today, but TML, the winning bidder on this project, has not undertaken any project remotely resembling what Patel had proposed. The project had been fundamentally reduced to small ports that load products onto trucks.
If there were millions of dollars of profit to be made on TML's project, TML would be there to build it. If there were millions of dollars of tax revenue to be gained by Mozambique to build this project, Mozambique would be there to build it. The project is not being built, and that's the best proof that the project is not viable.
That should be the end of the story on our damages, but it's not. There are no less than eight sets of damages numbers that exist in the record of this case from Patel, and I'm going to hazard a guess that my time will not permit me to necessarily talk about each and every one of them, but let me try to take some issues on at a high level, if I may.
First of all, the damages theories themselves range from $15.6 million to $156 million, perhaps by coincidence, a factor of 10. It is
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Patel's burden to demonstrate its damages in a non speculative manner, and I would submit to this Tribunal that a damage range amongst two experts of $15.6 million to $156 million is demonstrating the speculation involved in their damages all by itself.
Versant, now Secretariat, had five opportunities to state the damages, and they used a DCF analysis for all of them. We've talked about it a little bit before, but the DCF analysis is impermissible in a case such as this one where the project was never operative and there was no concession. If future profits were merely possible and not probable, an award on future profits cannot be made. But they started with a DCF analysis that was at $115.3 million, and, as I said, I will not go through each and every detail but I can show you here pretty easily that Dr Flores did look at the DCF analysis, at the discounted cash flow analysis, and he looked at the variables, the assumptions that were being made, and determined that multiple assumptions in that DCF analysis reduced Patel's damages to zero, and also that other assumptions reduced Patel's damages by 50, 25, 31, 58 per cent. Lots of variability, which demonstrates the speculation involved.
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Dr Flores concluded, "The severity of the impact that reasonable corrections produce on Versant's analysis unambiguously shows that Versant's DCF valuation cannot be reasonably relied upon to quantify damages in this case and should be rejected".
Even more problematically, Versant's original ex post valuation ignored that critical information. The project had not been built. But, undeterred, Versant looked for another DCF analysis. They actually increased their DCF analysis to 156 million, and that's the only number that you've heard today.
Versant purports to redo its DCF analysis based upon what you've heard about briefly as the 2017 TML feasibility study. The feasibility study is wrong on which to base a DCF analysis for several reasons.
There are substantial differences between the TML project as it was proposed and the Patel project as it was proposed that mean that the TML study would be incomparable in all events.
However, and perhaps easier and more importantly, the TML study was in 2017, five years ago, and the idea as it was speculated today that
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any investor would be picking up the 2017 feasibility study to make an investment today is inaccurate.
In addition to all of that, it still remains the case that TML put a feasibility study together, and then in fact has not done the project, which calls into question the feasibility study in the first place.
I'm going to skip slide 162 in the interests of time, but those are the differences between the two projects. In fact, I think we will skip ahead then to one other comment that Dr Flores makes on slide 164.
He does want to address, and he will address, the fact that when you have a feasibility study, the purpose of that study is to offer rosy prospects toward the financiers of that project, and often financiers will do their own studies. But to suggest that a feasibility study from 2017 that was designed to present a rosy picture should be relied upon is certainly not true.
And just like the first ex post DCF damages analysis, Dr Flores analysed Versant's second DCF ex post analysis and saw many of the same flaws in the assumptions and inputs into that
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evaluation, and identified those for you.
Patel also indicated that they wanted an ex ante analysis. Ex ante of course -- you may well be familiar with it but just to set the stage for a moment -- ex post of course looking at today's information; ex ante looking at information as it existed immediately before the breach, or the alleged breach.
Patel actually put together an ex ante damages analysis at $78 million, about half of which was interest. There's already something upside down about the ex ante analysis compared to the ex post analysis because we know the project is not being built and, yet, the ex post analysis is three times as much as the ex ante analysis.
In any event, the ex ante analysis ignores the fact that there were already 2012 financial projections, and those 2012 financial projections had already demonstrated a non viable project. That, in fact, would have been the best information of an ex ante analysis at the time.
There are other things that were improper as well, but in the interest of time I will skip over slide 169. Some of the -- I will just say just very briefly that some of the things that were
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assumed in the ex ante analysis that were unreasonable were tariff prices, were cost of operation assumptions that were different from what Patel had put together in its own 2012 financials, and that it did not account for those cost overruns.
Perhaps realising the weakness of those DCF analyses, you heard this morning about the idea of a loss of chance theory. Patel actually presented two numbers in that regard but, frankly, both those numbers are simply multiplying 90 per cent times DCF analyses.
And, as Dr Flores says, "Any probability adjustment applied to Versant's speculative and incorrect damages calculations would result in an incorrect and speculative assessment of damages".
To say it a little more differently here, but simply, if you use a made-up 90 per cent number and you multiply it times a speculative DCF analysis, you have a made-up speculative damages analysis.
Then we turn for a moment to Patel's 6th -- and frankly it ends up being their 7th and 8th damages analyses as well.
For whatever reason, as the panel may recall, after the five efforts that Versant had at
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the crack here, then Patel actually hired a different damages analyst from Ankura. And Ankura, for reasons that are not entirely clear, actually expressly acknowledged that he had not reviewed the expert reports prepared by Versant underpinning their assessments and adopting the cash flow analysis.
Ankura does, instead, what Patel has referred to as a negotiation damages, and I know there was some discussion about UK law and whether the concern was UK law or whether the concern was law of other jurisdictions.
The concern, in fact, is none of those things specifically. It is what the UK courts, though, have said about trying to use negotiation damages, and the Morris-Garner case says it as well as any could. "Difficulties [in proof of damages] do not justify the abandonment of any attempt to measure loss ... it is also necessary to recognise that the assessment of a hypothetical release fee is itself a difficult and uncertain exercise ... Such imaginary negotiations have become increasingly elaborate, and a host of questions can emerge as to the basis on which they should be hypothesised ...The artificiality of the exercise can be a
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further problem".
Now, when the court described that there would be complexity in the negotiations, you may recall this morning a slide actually from the opening from Patel in which there were just all sorts of factors that were listed in terms of what they referred to as data points or information that would be considered as part of a negotiation damages. Well, to be clear for a moment,
Mr Dearman, the gentleman from Ankura, has got this theory. He himself concedes it's not possible to attribute a specific monetary value to these data points that he has, and it would depend, as he agrees, on the negotiating position of each of Patel and Mozambique. But he attempts to create some data points based upon things like corporate profits, and something he calls derisking, and something he refers to as an engineering consultancy fee.
I'm going to focus for a moment before trying to get into any of the detail, because I know I will run out of time if I do all of the detail, I'm going to focus on some of the really big problems with the negotiation damages issue in the first place.
Number one, it doesn't match Patel's
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theory of the case at all. Patel's theory, as wrong as we believe it to be, is that Patel claims it was supposed to have been awarded or negotiated an MOI -- or sorry, a concession under the MOI.
Well, Patel does not allege that it was guaranteed corporate profits from MOI, but even so, Ankura, Mr Dearman, goes and takes a look at financials from Patel, slices them up about six ways, and then decides that the corporate profits from projects in India and other places -- but none in Mozambique -- which just roll up into the corporate profits of Patel would somehow be relevant to not just Patel's negotiating but even Mozambique's negotiating as to why they would agree to a certain release fee. It's all speculation.
Even Patel does not allege it was guaranteed an engineering consultancy fee, but in fact Patel and its expert Ankura try to describe a flat rate engineering consultancy fee, and our expert from Betar will tell you that in Mozambique it's unheard of. They don't use flat rate engineering consultancy fees in Mozambique. So to suggest that there would be a flat rate engineering consultancy fee in Mozambique would again be sheer speculation.
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Engineers can be paid on any of many different ways of remuneration and to pick one over the other simply for the simplicity of a calculation is completely inappropriate.
In all events, the flaws only further highlight Patel's inaccuracies and speculation.
On slide 179, just by way of a quick highlight for the benefit of everyone, you can see that by the time Ankura is done with the analysis of what he refers to as corporate profits, there are six more data points on the damages theory.
Then Mr Dearman goes into a derisking analysis, and the derisking analysis actually is -- frankly it's sort of complicated to explain, but let me try to say it this way for a moment.
If we turn to slide 181 for just a moment, the theory goes something like this, that there are certain engineering documents that refer to how far along progressed an engineering project is. Either Class 5, which would be infancy, or Class 4 which would be a little more. OK? It actually goes from 5 at the infancy and then 1 when it's essentially complete.
And the guidelines that Mr Dearman had relied upon, with the help of a gentleman by the
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name of Comer, had claimed that not only could Mr Comer identify that the project here because of the PFS had actually been moved along that scale toward a more mature project, but that he could use those same guidelines to actually attribute specific ranges of derisking to that.
What I mean by that is when you see the PFS you see a project with a cost of $3.1 billion. Mr Comer has suggested that when you move from a Class 5 project to a Class 4 project, you might be able to assume -- incorrectly, by the way, because that is not the way the guidelines work, but that you might be able to assume that the project might have cost overruns at a Class 5 basis that would make the project potentially worth as much as $6.2 billion of costs, whereas at a Class 4 project you'd have a project that's only worth something like, you know, $4.6 billion, and that the answer is that, because that range of costs had narrowed, Mr Dearman hypothesises that there's somehow benefit to that.
To be very perfectly clear, Mr Larry Dysert, our expert, was actually one of the authors of the guidelines that Mr Comer relies upon.
Mr Dysert actually looks at what Mr Comer does with
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those analyses -- we're on page 184 of the slides now, thank you -- and he says, look, you're not actually allowed to use them that way, and the very guidelines that we're talking about demonstrate that, and I'm going to skip two more because the easiest -- there's a lot of text here and I apologise, but the easiest one is on 187.
It says that under the guidelines that Mr Comer was relying upon "It is worth repeating that accuracy range does not determine the class, nor does the class determine the accuracy. Accuracy can only be determined through a quantitative risk analysis".
Now, in the PFS, which we'll get a chance to look at this week, there is no risk register. There is no specific quantitative risk analysis because we're not there yet, but for Mr Comer and Mr Dearman to suggest that they can quantify risk in an outrageous amount of risk that's been derisked in the form of $1.5 billion because of an alleged move in a class is completely incorrect.
In addition, if we go to slide 189 for a moment, in fact if one analyses what the PFS actually says, the project does not move at all based upon the PFS. What happens is Mr Comer takes
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1 a look at the PFS, and he's got a beautiful grid
2 that he puts into his report that tries to analyse
3 at various points in the PFS, some of the things
4 that are supposed to be in the report, did they get
5 into the report yet. And if you have a Class 5
6 report you'll have some things in your report, and
7 if you have a Class 4 report you'll have some things
8 in your report.
9 What happens here is that he gives credit
10 for some of those things because they're mentioned,
11 not because they're done, and he ignores others that
12 should be done that are not done but, most
13 importantly, Mr Dysert will tell you that in fact
14 that these classes are not meant to be used as a
15 continuum. A project will either be a Class 5
16 project, or if all of the things were done that were
17 supposed to be done to make the project a Class 4
18 project, then the project would be a Class 4
19 project.
20 What Mr Comer does is try to suggest that
21 the project has moved from Class 5 to the lower end
22 of Class 4, as he puts it, and that's not actually
23 an assessment that's made using the guidelines that
24 are there. Mr Dysert, who wrote the guidelines, can
25 help make very clear what it is those guidelines are
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1 allowed to do.
2 But, most importantly, the answer is the
3 guidelines were never meant to try to quantify
4 damages. Having said that, what Mr Dearman does
5 with Mr Comer's analysis is create still more data
6 points by multiplying some of this derisking
7 analysis times a variety of -- frankly literally he
8 just stepped up the ladder -- 5 per cent,
9 10 per cent, 15 per cent, 20 per cent, just to give
10 more data points to consider as part of the
11 analysis. It is completely inappropriate, it is
12 entirely speculative, and we will demonstrate
13 through the course of the week.
14 The only thing -- we're on slide 191 and
15 I appreciate everyone's willingness as I try to go
16 through these a bit -- the only thing that this
17 derisking analysis does is it actually disproves
18 Patel's theory of the case.
19 Patel claims that its award of the
20 concession was a virtual certainty, even though
21 everyone would agree there were still negotiations
22 that hadn't happened with CFM, and no one knows what
23 that concession would have looked like by the time
24 we were done.
25 If Comer is to be believed, however, about
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1 how these guidelines work, then even after the PFS,
2 even after the PFS had been submitted to Mozambique,
3 this $3.1 billion project was still subject to cost
4 overruns of as much as 50 per cent or another
5 $1.5 billion going forward.
6 Dr Flores had calculated earlier in the
7 ex ante analysis that any cost overrun greater than
8 12 per cent reduces Patel's ex ante damages to zero
9 under a DCF analysis, and any cost overrun greater
10 than 22 per cent on Patel's ex post damages reduces
11 those damages to zero. Both of those are all by
12 themselves, meaning that if Comer is to be believed,
13 and it's still reasonably statistically likely that
14 there will be cost overruns of as much as 50
15 per cent, there are no damages, and, indeed, that's
16 what makes a DCF analysis speculative in the first
17 place when a project has no operating history and,
18 in fact, it hasn't got off the drawing board yet.
19 At the time of the PFS, quite simply, even
20 Comer's analysis helps demonstrate the same thing
21 that the 2012 financials demonstrated, that the
22 project was not yet viable, it was not remotely put
23 together in a detailed enough fashion to be viable,
24 and when you ran the actual net present value on the
25 cash flows of that project, it was not viable.
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1 There's one more set of data points in
2 this imaginary negotiation. I mentioned it briefly
3 so I won't stay on it long. But Mr Dearman supposes
4 that there could be an engineering consultancy with
5 a flat fee. He uses South African guidelines that
6 are not applicable in Mozambique to do that, and
7 that is not appropriate.
8 In addition, frankly the idea that there
9 was an engineering consultancy is completely the
10 opposite of what the actual agreement that Patel
11 claims existed was. If Patel claims, albeit
12 wrongly, to be entitled to a direct award of
13 concession, then the value of that right depends on
14 building a concession, doing it successfully,
15 realising the profits, and then being paid back in
16 22 years. Instead, what Mr Comer and Mr Dearman
17 have done is create just a right to a percentage fee
18 based upon costs and an engineering consultancy that
19 never existed as any part of this case.
20 In all events, at the end of those things
21 after the 8th damages theory, this is what our array
22 of damages looks like.
23 It is, to borrow a word from this morning,
24 a plethora, but, more importantly, Claimants have
25 the burden of proof of the merits of their claims,
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1 including the alleged damages. Putting 20
2 possibilities as damage claims or data points on a
3 paper and then saying pick one is not satisfying the
4 burden of proof.
5 The only non speculative damages, if any
6 damages were to be awarded, I will say would have
7 been sunk costs. What I heard this morning said
8 that sunk costs are not provable in this case. That
9 means there isn't a damage for this Tribunal to
10 award.
11 Patel refused or failed to submit any
12 evidence about those costs so that, if there had
13 been any breach, if this Tribunal were to find any
14 breach, there would still be no damages to be
15 awarded.
16 So quite respectfully, and I appreciate
17 your time and attention at the end of the day here
18 on what is sort of a dense thicket here, the relief
19 that Mozambique seeks in these proceedings based
20 upon the foregoing, dismissing Patel's claims as
21 inadmissible or alternatively declining
22 jurisdiction, sustaining Mozambique's objections to
23 jurisdiction, in the alternative dismissing Patel's
24 case on the merits and, as I've just mentioned,
25 awarding no damages, ordering Patel and its
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1 litigation funder to pay Mozambique's attorneys'
2 fees and all costs and expenses, and granting
3 Mozambique such further or other relief as the
4 Tribunal shall deem appropriate.
5 On behalf of the Republic of Mozambique,
6 we appreciate your time.
7 PRESIDENT: Thank you. Thank you,
8 Mr Brown.
9 Does this finalise your presentation?
10 MR BROWN: It does, yes. Thank you.
11 PRESIDENT: Very good. Can we get a time
12 check from the secretary?
13 MS JALLES: Respondent used two hours and
14 25 minutes.
15 PRESIDENT: Thank you. Very good.
16 So we have two further issues to discuss
17 now. One is Dr Flores and the other are some
18 documents. Let's try to be as quick as possible.
19 Dr Flores cannot come on Friday?
20 MS BEVILACQUA: That is correct,
21 Mr President. Dr Flores is not available on Friday.
22 PRESIDENT: But he is available on
23 Saturday in the morning?
24 MS BEVILACQUA: Yes, he is, and he will be
25 able to be here in person on Saturday.
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1 PRESIDENT: In the morning?
2 MS BEVILACQUA: In the morning.
3 PRESIDENT: Very good. Can we get an
4 e-mail from him confirming that he's not available
5 on Friday?
6 MS BEVILACQUA: Yes, certainly.
7 PRESIDENT: And let's do the following.
8 I mean, to simplify things it would be better if he
9 was here on Friday but he is not here, and these
10 things happen and we must all be flexible, and it
11 can happen to all of us.
12 So we have been deliberating on this and
13 will do the following. Namely, we'll probably end
14 Friday rather early because -- except if we have
15 some slide in hours but let's assume that we
16 finalise with the quantum expert from Claimant, and
17 then at that very moment, so when we close,
18 Dr Flores should send his presentation to the
19 secretary. Only to the secretary.
20 And then next day he should then stick to
21 his presentation so that we set off the perceived or
22 real advantage of having some more time between the
23 presentation of one expert and the other, and we
24 sort it that way because, yes, we have to be
25 flexible, and it may happen to other witnesses in
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1 these days.
2 The second point is there was a huge
3 list -- I look at it and it's very long -- a very
4 long list of documents which you want to submit, and
5 that's really very, very, very, very late. I mean,
6 we cannot go -- it's too many documents in a file
7 which is extremely extensive already.
8 We could only see -- so there is no way we
9 can now go through the list of four pages of
10 documents. Is there really -- because I -- this is
11 now off the record, Diana.
12 I think we can close the record for the
13 day. It has been a very long day for our court
14 reporters. Let's close -- if you agree let's close
15 the court reporters, and I think we can also close
16 the interpretation. Thank you very much for our
17 interpreters, it must have been a very long day, and
18 also for our court reporters.
19 (The hearing was adjourned at 6.12 pm)
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