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SHEARMAN & STERLING

OMEGA ENGINEERING LLC AND MR. OSCAR RIVERA

v.

THE REPUBLIC OF PANAMA

OPENING SUBMISSION OF THE REPUBLIC OF PANAMA

[Page 2]

CLAIMANTS

Sources: Omega US Net Earnings: 2013 (C-0389), p. 7; 2012 (QE-104), p. 7; 2011 & 2010 (QE-102), p. 7.
Omega Panama Net Earnings: 2013 & 2012 (C-0136), p. 5; 2011 (C-0137), p. 5; 2010 (C-0311), p.8.

[Page 3]

CLAIMANTS

Omegas’ Bid History in Panama

Number of Bids

*: Excludes commercial project bids Omega made “at the beginning” and lost (Lopez 1 ¶ 19; Compass Lexecon 1 ¶¶ 38-39).
Source: First Expert Report of Daniel Flores, Figure 9.

[Page 4]

JURISDICTION: CORRUPTION

Judicial Authority Contract

An advance payment of 15% of the total contract value shall be made at the moment of the receiving the respective Notice to Proceed, which shall be progressively discounted from the bills submitted and shall be calculated based on the same percentage of the advance payment.

Source: C-0048 ¶5 and p. 11.

[Page 5]

JURISDICTION: CORRUPTION

Payment 1 from Judiciary to Sarelan Corp., S.A.

Judicial Authority
April 3, 2013:
$2,393,316.59
Payment to Omega
Engineering Inc.

↓

Omega Engineering, Inc.
April 25, 2013:
$250,000
Payment to PR
Solutions, S.A.

↓

PR Solutions, S.A.
April 25, 2013:
$250,000
Payment to Reyna
y Asociados

↓

Reyna y Asociados
May 3, 2013:
$125,000
Payment to
Sarelan Corp.,
S.A.

↓

Sarelan Corp., S.A.
May 3, 2013

Source: R-0114.1.

[Page 6]

JURISDICTION: CORRUPTION

the request of Justice Alejandro Moncada Luna. Even Mr. Alejandro Moncada Luna told me of the existence of the corporation that Mr. Rodríguez Guardia had created for him. As for Sarelan Corporation, I am aware of its existence because Mr. Alejandro Moncada Luna, being a Court Justice, asked me to help him process its establishment and he asked me to support him by listing one of my family members as its president and legal representative, since his intention was to use it to establish an estate for his minor son, José Alejandro Moncada Luna Marín. For this reason, I began the process to draft the corporate Articles of Incorporation and send them to Notary Two by email in order for formalization into a public document. This was completed and it was later submitted to the Public Registry for recording. Its initial directors were Xenia González as President, was established was replaced by Tatiana Marín, the mother of minor José Alejandro Moncada mentioned above. I was to coordinate by email with the office of Mr. Luis Adolfo Corro for the issuance of a Sarelan Corporation share certificate for 100% of the shares to Alejandro Moncada Luna. We also know the Luxol, S.A. corporation because Mr. Alejandro Moncada Luna also asked

Source: RP-0010, p. 3 and 4

[Page 7]

JURISDICTION: CORRUPTION

Payment 2 from Judiciary to Sarelan Corp., S.A.

Judicial Authority
July 10, 2013:
$587,844.93
Payment to
Omega
Engineering Inc.

↓

Omega Engineering Inc.
July 12, 2013:
$250,00
Payment to PR
Solutions, S.A.

↓

PR Solutions, S.A.
July 16, 2013:
$250,000
Payment to Reyna
y Asociados

↓

Reyna y Asociados
July 17, 2013: $75,000
July 18, 2013: $75,000
Payment to
Sarelan
Corp., S.A.

↓

Sarelan Corp., S.A.
July 17, 2013

Source: R-0114.12.

[Page 8]

JURISDICTION: CORRUPTION

[R-0064]

PLEA BARGAIN

At 6:00 P.M. on February 23, 2015, ALEJANDRO MONCADA LUNA CARVAJAL, male, Panamanian, of legal age, with personal ID Card No. [Redacted],

1. ALEJANDRO MONCADA LUNA CARVAJAL pleads GUILTY to the crime of unjust enrichment defined in Article 351 of the Criminal Code and the crime of perjury in public documents defined in Article 366 of the aforementioned Code.
2. The agreed sentence is sixty (60) months in prison as a primary penalty, with the accessory penalties of disqualification from holding public office for the same period of time and the confiscation of Apartment No. 26 in the Ocean Sky Condominium (Property 95734, Doc. 1659483) registered to the company Corporación Celestial, S.A. and Apartment No. 16 in the Santorini Condominium (Property 455589, Digital Registry Document 2540971, Entry 1) registered to Corporación Alpil, S.A.

Source: R-0064.

[Page 9]

JURISDICTION: CORRUPTION

Tonosi Contract

Evidently backdating

(a) A LA PROMITENTE VENDEDORA:
Dirección domiciliaria: [Redacted]
Ciudad de Panamá
República de Panamá
Apartado Postal [Redacted], zona [Redacted]
República de Panamá
Teléfono: (507) [Redacted]
Fax: (507) [Redacted]
Atención: [Redacted]

b. [Redacted] DOLLARS AND 00/100 CENTS, payable within sixty (60) busine[ss] payment date. Signatures Not Notarized

c. The sum of FIVE HUNDRED THOUSAND UNITED STATES DOL[LARS] ($750,000.00), legal tender of the United States of America, pay[able upon] duly recorded with the No Proof of Authority contain[ing the] sale contract whereby the PROMISSORY SELLER transfers [the PROPERTY to the] PROMISSORY BUYER.
In order to guarantee pa[yment] Not a Public Deed describe[d in Clause FOUR] PROMISSORY BUYER shall make the payment of the balance th[rough an Irrevocable Letter] of Credit issued by a licensed local bank acceptable to the PRO[MISSORY SELLER, to be] delivered by the PROMISSORY BUYER to the PROMISSORY SEL[LER within ten (10) days] after this agreement is signed.

Source: C-0078-resubmitted-2.

[Page 10]

JURISDICTION: CORRUPTION

Ana Graciela Email

[C-0557]

From: Ana Graciela Medina
Date: Wed, 24 Apr 2013 04:18:35 +0000
To: Frankie Lopez
Subject: [Redacted]

[Redacted]

From: Ana Graciela Medina [mailto:[email protected]]
Sent: Thursday, April 25, 2013 11:49 AM
To: Frankie Lopez
Subject: [Redacted]

[Redacted]

Subject: [Redacted]
Date: Thursday, April 25, 2013 at 2:35:38 PM Eastern Daylight Time
From: Frankie Lopez
To: [Redacted]
Attachments: [Redacted]

[Redacted] it to the [Redacted]

On 04/22/2013, at 04:24 PM, Frankie Lopez wrote:
[Redacted]

Frankie J. López, PE
OMEGA ENGINEERING
Contractors • Engineers • Developers
O. 507.380.0250 | C. [Redacted]
F. 507.380.0252
[email protected]
www.omega-corp.net

Plaza Banco General, Piso 19
Calle Aquilino de la Guardia
Bella Vista, Ciudad de Panamá

Ana Graciela Medina. | Icaza, González-Ruiz & Alemán | Tel.: (507) 205-6000 | Fax: (507) [Redacted]
Email: [email protected] | www.icazalaw.com | P.O. Box 0823-02435 Panama, Republic of Panama

[Redacted]

Sent: Wednesday, April 24, 2013 10:52 a.m.
By: A[Redacted]
Subjec[t]: [Redacted]

Source: C-0557.

[Page 11]

JURISDICTION: CORRUPTION

IGRA Invoice

[C-0558]

US$ 950.00

850.00

US$ 850.00

Source: C-0558.

[Page 12]

JURISDICTION: CONTRACTUAL DISPUTE RESOLUTION PROVISIONS

2. In the event of an investment dispute between a Party and a national or company of the other Party with respect to an investment of such national or company in the territory of the first Party, the parties to the dispute shall initially seek to resolve it by consultation and negotiation. The parties may, upon the initiative of either of them and as a part of their consultation and negotiation, agree to rely upon non-binding, third-party procedures, such as the fact-finding facility available under the Rules of the Additional Facility ("Additional Facility") of the International Centre for the Settlement of Investment Disputes ("Centre"). If the dispute cannot be resolved through consultation and negotiation, then the dispute shall be submitted for settlement in accordance with the applicable dispute- settlement procedures upon which they have previously agreed. Such procedures may provide for recourse to international arbitration using a forum such as the Inter-American Commercial Arbitration Commission. With respect to expropriation by either Party, any dispute-settlement procedures specified in an investment agreement between such Party and such national or company shall remain binding and shall be enforceable in accordance with, inter alia, the terms of the investment agreement, relevant provisions of the domestic laws of such Party and treaties and other international agreements regarding enforcement of arbitral awards to which such Party has adhered.

Source: Treaty between the United States of America and the Republic of Panama Concerning the Treatment and Protection of Investment, at Art. VII (2).

[Page 13]

JURISDICTION: CONTRACTUAL DISPUTE RESOLUTION PROVISIONS

THIRTEENTH: THE CONTRACTOR shall be liable for the damages caused to THE MUNICIPALITY or third parties based on the actions or omissions due to fault or negligence and any legal action shall be filed with the Panamanian Courts.
As a consequence, THE CONTRACTOR releases THE MUNICIPALITY and its representative of all actions arising from the performance of this contract, as established in the specifications provided.

SIXTY-SEVENTH: Any dispute arising from this Contract shall be resolved through the Panamanian courts.

The decision of the parties to submit to arbitration shall be for purposes of resolving any dispute arising from this Contract, any Complementary Agreement or any Addendum.

Source: C-0028 resubmitted, Cl. 75, C-0042 resubmitted, Cl. 42, C-0056 resubmitted, Cl. 13.

[Page 14]

JURISDICTION: THE CLAIMANTS HAVE ASSERTED COMMERCIAL CLAIMS

Each of the Claimants’ Claims is Predicated on Alleged Breaches of Contract

Expropriation

• “But once the Varela Administration took charge, each of the Government entities with which the Omega Consortium had contracted breached their respective obligations almost simultaneously” (Memorial, ¶ 147)

Fair and Equitable Treatment

• “An important and legitimate expectation for any foreign investor is that a State will comply with its contractual commitments.” (Memorial, ¶ 147)

Full Protection and Security

• “The contractual right to payment for the work performed under the Contracts was one of the cornerstones of financial security that Claimants enjoyed in Panama.” (Memorial para 183)
• Panama “withheld payment through the Comptroller General and unjustifiably terminated a number of the contracts through its government agencies.” (Id.)

Umbrella Clause

• Respondent’s breaches of its obligations under the Contracts also amount to a breach of the “umbrella clauses” found in the BIT and TPA. (Memorial, ¶ 188)

[Page 15]

JURISDICTION: THE CLAIMANTS HAVE ASSERTED COMMERCIAL CLAIMS

The Claimants Allege that their Commercial Problems Were Politically Motivated

3. Everything changed during and following the Panamanian presidential election of 2014, wherein two former allies turned political rivals, former President Ricardo Martinelli and current President Juan Carlos Varela, vied for power. When Mr. Varela assumed the office of the Presidency in July 2014, the new Government promptly targeted Mr. Rivera and the Omega Consortium, whose contracts had each been awarded during the previous Administration, with a number of hostile measures. Outstanding invoices from the Omega Consortium went completely unpaid, Respondent failed to provide required permits and change orders, it declared default on their largest contract, and wrongfully terminated or abandoned the others. In the midst of this pattern of targeted measures, the Government zeroed in on Mr. Rivera and Omega Panama with baseless criminal investigations, and launched a highly-public campaign aimed at sullying their international reputation.

Source: Claimants’ Memorial, ¶ 3.

[Page 16]

JURISDICTION: THE CLAIMANTS HAVE ASSERTED COMMERCIAL CLAIMS

The Criminal Investigation Into Mr. Rivera and Omega Panama Do Not Change the Commercial Nature of the Claimants’ Claims

37. I understand that Mr. Rivera has said that he was the target of three investigations and that he was found innocent or not culpable in each of them. As the person in charge of conducting those investigations, I can attest that his statement is not true. As discussed above, the first investigation, before the National Assembly, was focused only on Justice Moncada Luna. Mr. Rivera and Omega Engineering came to our attention solely because of their status as a contractor and vendor to the Judiciary. We had no specific interest in Mr. Rivera or Omega Engineering until we found the two payments described above.

38. As the National Assembly did not have the authority to investigate and prosecute Mr. Rivera or Omega Engineering it referred that investigation to the Public Prosecutor. There, as I have described and as is consistent with standard Panamanian criminal procedure, two different divisions of the Public Prosecutor’s office opened related investigations.

39. At no time did the National Assembly, the Public Prosecutor’s office, or a court find that Mr. Rivera and Omega Engineering were not guilty of the charges being investigated.

Source: Villalba 1, ¶ 37.

[Page 17]

PANAMA’S ACTIONS DO NOT VIOLATE SUBSTANTIVE PROTECTIONS UNDER THE BIT

Expropriation

• Panama’s actions do not constitute a “taking”
• Claimants have failed to establish that Panama breached its contractual obligations
• Claimants’ contract claims involve commercial actions taken by various ministries in their commercial capacity – regardless of which administration was in office

[Page 18]

PANAMA’S ACTIONS DO NOT VIOLATE SUBSTANTIVE PROTECTIONS UNDER THE BIT

Fair and Equitable Treatment

• The BIT and TPA link the FET standard to customary international law norms
• The concept of “legitimate expectations” does not apply to FET claims under the BIT and TPA
• Even if legitimate expectations could be considered, Claimants have not established any legally cognizable expectations that were violated

[Page 19]

PANAMA’S ACTIONS DO NOT VIOLATE SUBSTANTIVE PROTECTIONS UNDER THE BIT

Full Protection and Security

• Protects against the government’s failure to take reasonable measures to protect an investor and investment against physical harm
• Does not apply to legal or regulatory protections
• Does not prevent the exercise of legitimate police powers
• Claimants investments were not subjected to physical harm
• The criminal investigation of Mr. Rivera and Omega Panama was reasonable and grounded in substantial probable cause

[Page 20]

PANAMA’S ACTIONS DO NOT VIOLATE SUBSTANTIVE PROTECTIONS UNDER THE BIT

Umbrella Clause

• Umbrella clauses do not automatically protect against breaches of contract by a government
• TPA does not contain an umbrella clause
• If the umbrella clause is applied to contract breaches, compensation is limited to contract remedies

[Page 21]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Source: Compass Lexecon 2, Table XVI; Quadrant 2, Figure 1.

[Page 22]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Source: Compass Lexecon 2, Table XVI; Quadrant 2, Figure 1.

[Page 23]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

The Claimants Purport to Value Omega Panama as a Going Concern

a. Losses on existing contracts estimated at US$ 8.7 million as of December 23, 2014. These losses relate to unpaid billings and future payments that Omega Engineering Inc. (“Omega Panama”) and Omega U.S. (together the “Omega Consortium”) would have collected (but it will not) on eight contracts that were awarded by the Republic of Panama between 2010 and 2013.

b. Losses on new contracts estimated at US$ 46.7 million as of December 23, 2014. These losses relate to Omega Panama’s capacity to generate new contracts, based on the historical performance of the company, as well as on the observed and expected evolution of public sector investment in infrastructure in Panama.

Source: Second Compass Lexecon Report, ¶ 2(a),(b).

[Page 24]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

The Claimants Purport to Value Omega Panama as a Going Concern

54. Therefore, in order to compensate Claimants for the losses suffered as a result of the Measures, the value of Claimants’ interest in Omega Panama should be calculated using the FMV standard. Namely the value that a willing buyer and a willing seller would have given to Omega Panama in a hypothetical transaction as of December 2014. This value cannot be zero as claimed by Dr. Flores, but US$ 51.22 million as concluded in our analysis.

Source: Second Compass Lexecon Report, ¶ 54.

[Page 25]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

The Claimants Purport to Value Omega Panama as a Going Concern

2. The Compensation Claimed for Potential Future Contracts Is Supported and Accurate

481. The first Compass Lexecon report calculated Claimants’ losses concerning on future contracts at US$ 46.75 million as of 23 December 2014.¹³³⁶ Claimants’ experts have now updated that value to US$ 42.53 million in their second report.¹³³⁷ Respondent, on the other hand, assigns no value at all to losses on future contracts. Key to the issue is Omega Panama’s ability to generate valuable business into the future. It is uncontested that Omega Panama was able to win 10 competitive public works bids in the five years leading to the Date of Valuation and that it won a

Source: Claimants’ Reply on the Merits, ¶ 481.

[Page 26]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon Does Not Value Omega Panama

44. Second, the evidence shows that Omega Panama had a track record, as well as competitive advantages, that would have allowed it to continue to win public sector contracts in Panama beyond 2014 in the absence of the Measures. In fact, during its participation in the Panamanian market for public works, Omega Panama competed in 42 bids for public infrastructure tenders, winning 10 of them.⁴⁰ Moreover, Omega Panama showed competitive advantages due to its financial capacity, bonding capacity, and experience in construction works.⁴¹ As a consequence, and contrary to Dr. Flores’ opinions, the operation and performance of Omega Panama cannot be easily replicated by a new entrant.

Source: Second Compass Lexecon Report, ¶ 44.

[Page 27]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon Does Not Value Omega Panama

b. Omega Panama

32. Following the early success of PR Solutions’ Tocumen Airport project, Mr. Rivera and his team were ready to use the Omega brand to bid for and complete larger public works projects in Panama.⁵³ While it carried the Omega name, Omega Panama was a newly registered company without its own track record. This created an issue for Omega Panama when bidding, and ultimately, from mid-2010, all bids for large public projects in Panama were made through a consortium consisting of Omega Panama and Omega U.S. (together the “Omega Consortium,” as noted above).

34. Thanks to Omega U.S.’s bonding capacity, solid financials, track record, project portfolio, and other specifications customarily used by project owners to evaluate bid proposals, this arrangement allowed Mr. Rivera to bid for larger Panamanian projects. Mr. Rivera’s ultimate objective was to replicate this strategy in other jurisdictions by expanding Omega U.S.’s presence until it became a regional, and ultimately a global, competitor.⁵⁴

Source: Memorial, ¶ 32, 34.

[Page 28]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon Does Not Value Omega Panama

44. Second, the evidence shows that Omega Panama had a track record, as well as competitive advantages, that would have allowed it to continue to win public sector contracts in Panama beyond 2014 in the absence of the Measures. In fact, during its participation in the Panamanian market for public works, Omega Panama competed in 42 bids for public infrastructure tenders, winning 10 of them.⁴⁰ Moreover, Omega Panama showed competitive advantages due to its financial capacity, bonding capacity, and experience in construction works.⁴¹ As a consequence, and contrary to Dr. Flores’ opinions, the operation and performance of Omega Panama cannot be easily replicated by a new entrant.

Source: Second Compass Lexecon Report, ¶ 44.

[Page 29]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon Does Not Value Omega Panama

Source: Second Quadrant Economics Report (C-053) p. 7.

[Page 30]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon’s Future Contract Valuation is Grossly Overstated

[Page 31]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Source: Compass Lexecon 2, Table XVI; Quadrant 2, Figure 1.

[Page 32]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Compass Lexecon Overstates the Compensation Due on Existing Contract Claims

[Page 33]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

Source: Compass Lexecon 2, Table XVI; Quadrant 2, Figure 1.

[Page 34]

THE CLAIMANTS’ QUANTUM CLAIMS ARE UNSUPPORTED

The Claimants’ Moral Damages Fails for Three Principal Reasons

[Page 35]

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