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Your excellencies, if I may please the court?

I will be presenting the defense on the substantive issues of this dispute


namely the merits and the admissibility of our counter-claim. I will be speaking for 14 minutes.

We submit further that:

– THE ENACTMENT OF PRESIDENTIAL DECREE NO. 2424, ITS IMPLEMENTATION, AND OTHER
RELATED ACTS OF THE RESPONDENT IS AN EXERCISE OF POLICE POWER.
– THE COUNTECLAIM IS ADMISSBLE AND SHOULD BE AWARDED BY THIS ARBITRAL
TRIBUNAL

The State has the responsibility to protect its subjects in all aspects including and especially the preservation of the
environment. This is best achieved through police power. The state's power to regulate is the most fundamental of all
its inherent powers as to enforce the mandate of the State to protect general welfare.

In the course of events that lead to the enactment of KEA and thereafter, PD2424, Respondent was only acting within
its regulatory powers. The act of revoking Claimant's licenses and the prohibition of the mining of Lindoro was in
pursuance of immediately taking an action to mitigate or stop the harmful effects of mining to Respondent's territory
which in effect, causes diseases to its inhabitants. The State is not precluded from acting on this problem especially
because of the level of its gravity.

PD 2424 is not an act of expropriation. Under generally accepted principles of international law, Expropriation is
the taking of private property for public use with the payment of compensation. For expropriation to be constituted
there must be seizure of the property and such property be converted for public use. In this case, there is interference
with claimant's properties through the revocation and prohibition of their licenses to operate mining but there is
clearly no taking of property because the properties remain in possession of Claimant's. Moreover, the properties are
not and will not be converted for the use of the state as it remains under claimant's possession and is never intended to
be used with exclusion of the claimant for the state's benefit.

Compensation was not necessary because the act was not expropriation. In fact the act was one of non-compensable
regulation. A non-compensable regulation is one where the state takes necessary measure to ensure public protection
where an adverse effect is made to another party due to the regulation.

PD 2424 is a valid exercise of Respondent's police power. As discussed in the case of TOO v. GREATER
MODESTO, it was held that:

A State is not responsible for loss of property or for other economic disadvantage resulting from bona fide general
taxation or any other action that is commonly accepted as within the police power of States, provided it is not
discriminatory and is not designed to cause the alien to abandon the property to the State or to sell it at a distress
price…”

Additionally, the tribunal also enunciated in the case of LAUDER v. CZECH REPUBLIC, that:

“….Parties to [the Bilateral] Treaty are not liable for economic injury that is the consequence of bona fide regulation
within the accepted police powers of the State”

Respondent was acting with in its inherent powers when it interfered with Claimant's use of their property under a
bona fide public purpose and a transcendental matter at that, which is the protection of its environment. Respondent's
environment is deteriorating due to the harmful effect of Lindoro mining which is evident in the contamination of its
largest and most important water source, the Rhea River. This is aggravated by the fact that its inhabitants are affected
with disease that is caused by the use of the contaminated water supply. As stated in the facts, there was a significant
increase in the number of Cardiovascular Vascular Diseases in inhabitants near the Rhea River ever since the Lindoro
mining operation commenced.

The interference caused by PD 2424 is inherent and necessary to the exercise of Respondent's belligerent right. A
state is given the power to enforce laws in response to changing economic circumstances or changing political,
economic or social considerations. Such is an assumption of risk involved when an investor makes an investment to a
another state, even if they are regarded with reasonable expectation of return on investment. This is why the BIT has
Article 10 where it allows for a party to enforce any measure necessary to protect life, ensure compliance with
domestic law that is not inconsistent with this Agreement nor with rules and principles of international law, or
conserve living and non-living resources provided that it is not discriminatory or a disguised restriction on
international investments.

Even if assuming that Claimant is a covered party of the BIT, Respondent still duly complied with the non-
discriminatory requirement. The only mining operation in respondent's territory is the one operated by Claimant and it
is the only activity with that has a significant link to the environmental degradation experienced by respondent. As a
general principle, an act is discriminatory if it applies differently to the others of the same class and if the act is not
germane to the purpose of the law. This is definitely not the case in this dispute as the act only relevantly applies to
Claimant as the sole mining operation in the territory.

Due process was afforded to Claimant. Claimant submits that they were not afforded the proper platform to be
heard and refute Respondent's acts. This an incorrect premise. In fact, Claimant had every right to refute the series of
studies claiming the link between Lindoro Mining and environmental degradation conducted by numerous
institiutions both inside and outside Kronos. They did not however, release any of their studies proving otherwise. The
data was largely based on the inspections carried out since 2011 by the Ministry for Agriculture, Forestry and Land
(and most recently by the Ministry for Environmental Matters itself).

The fast enactment of KEA was also justifiable considering that Claimant has been operating under minimal to no
regulation at all for the past decade. It was transcendentally necessary for Respondent to immediately create a law that
will effectively assist in the enforcement of its mandate and responsibility to respond to its major problems which is
its environmental quality and protection.

With all this, we submit for the merits that Respondent, in passing PD 2424, was acting in response with its
responsibility to protect its subjects under proportional means and altogether affording due process to Claimant,
henceforth, it is not a form of expropriation, but a valid exercise of Police Power.

The act of Respndent was proportional to the violations committed by Claimant. PD 2424 was justifiably
proportional to the violation of respondent in its obligations to follow environmental regulations of the respondent
state. The act was duly responsive to the need to put a stop to the increasing environmental degradation caused by
mining activities in the territory.

While State's are generally required to enforce with the least restrictive measures in enforcing its police powers, it is
inherently subjected to the circumstances and the level of issue that needs a action to. We submit that any other form
of less restrictive interference by Respondent as to avoid the current effects to Claimant was no longer feasible
because the damage caused by their operation is increasing by the day. The act was fitting as time was an essential
factor to consider in the enactment of the decree, The Decree was swift in the revocation and prohibition of mining
activities as the more the activities continued, the more damage it caused to the environment hence the cost of
reparation also becomes more expensive. The state had the power and it acted well within the ambit of its power.

As a matter of fact, Claimant, before the enactment of KEA, has been operating and extensively profiting under no if
not lax environmental regulation. Respondent was only limited to conducting inspections but never had the teeth to
enforce proper environmental standards to Claimant's activities. They assumed the risk that by operating a mining site
in Respondent's territory had harmful environmental consequences and that the Host state may enforce necessary
measures as solution to such problem. Hence, the act of Respondent was only in response to the growing need to
protect its environment and its inhabitant.

Now, moving to our last submission, I will now discuss the admissibility and our prayer to award a counter-claim for
Respondent.
The Arbitral Tribunal has jurisdiction over Respondent's counter-claim. The SCC duly provides for the
procedural requirement for the admission of a counter-claim and Respondent has duly complied with the same.
Moreover, our Arbitration Agreement did not prohibit the same and Respondent is not precluded from submitting a
claim.

But more importantly, we submit that this tribunal has jurisdiction over our Counter-claim even if we invoked that this
is not an investment dispute because of the following grounds:

– The dispute arises out of one and the same act where both parties claim injury therto
– And that the tribunal has the competence to go beyond the corners of the contract where damage is clearly
sustained in the administerance of justice.

First, There must be connexivity between the primary claim and the counter claim. It must be indivisible and
interdependent so the court may acquire jurisdiction. It is not necessary that they arise out of the same contract so long
as there is a connexion between the two. In the present case, there is a close connection between the primary claim
and the counter-claim. While claimant's basis of their claim is the BIT, where we submitted that Claimant was not a
covered or a party to, the counter-claim arises out of the mining activities that claimant is seeking grievance in this
case. The crux of the matter is that the environmental damage suffered by Respondent is intimately related to the acts
of Claimant which is essentially the subject of the primary claim.

There is a close connection between the primary claim of Claimant and the Counter-claim by Respondent as both arise
from the mining operation of Claimant in Respondent’s territory. Although the contract invoked by Claimant is
different from the contract involved by Respondent, the BIT and the Concession Agreement respectively, the claim is
indivisible and interdependent. Even if the primary claim is not an investment dispute, the counter-claim should still
be under the jurisdiction of the Tribunal because it necessarily arises from the act that Claimant is praying to be
admitted in this Honorable Tribunal.

More importantly, we submit that this tribunal has the competence to take cognizance that extends beyond the contract
from which the principal claim arose and apply in a wider range of circumstances. As pronounced in the case of
KLOCKNER v. CAMEROON. In the case, the tribunal took cognizance over the counter-claim even if it arises out of
a different contract and not from the investment dispute because of the intimate relationship between the primary
claim and the counter-claim.

For the merits of the Counter-claim, we submit that:

Claimant should be subjected to the STRICT LIABILITY regime as held in the case of Burlington v. Ecuador where
an operator of an ABNORMALLY DANGEROUS ACTIVITY bear strict liability for environmental harm. Under this
regime, the State must only prove the existence of an economic activity in the relevant area entailing serious risks to
the environment and a negative impact on the environment of the type that comes with such perilous economic
activity. Strict liability is imposed on defendants whose activities are abnormally dangerous. These activities generally
involve those economic activities that have inherently harmful effect to a party or the environment such as mining, oil
exploration and exploition of even Space exploration.

Claimant's business essentially falls within the ambit of an abnormally dangerous activity. We submit that the presence
of contaminating chemicals in the Rhea River and the increasing number of persons affected with environmentally
related diseases is an evidence enough that there is environmental harm caused by claimant's operation in the
Respondent's territory.

This is also in consonance with the POLLUTER PAYS principle. Where a developer or an operator is to bear the cost
of pollution control and remediation and is also well adopted both in the BIT and the CONCESSION AGREEMENT.

Hence, We submit therefore that Claimant should pay USD150,000,000for the its breach of environmental protection
of Respondent's territory.
The Study indicated that the Rhea river might be decontaminated with high-technology 450 treatments, a cost
preliminarily estimated to be USD 75,000,000. This procedure is the sole option left to adequately restore the Rhea
River, preventing further damages to the river itself, to Respondent’s environment and to the local population.

In addition to these costs, Respondent has incurred USD 25,000,000 in the past 12 months to supply clean water to the
population that was dependent on water from the Rhea River in the surroundings of the Site and will continue to incur
comparable costs for at least five years (until the Rhea River can be decontaminated). The health costs for treating the
population directly affected by the contamination of the Rhea River is also expected to run into tens of millions of
USD. Kronos will also incur additional costs compensating those whose health has been damaged (or their surviving
dependants) for lost earning ability, pain and suffering.

Your excellencies, we emphasize the Respondent is a developing country that has very limited financial capability an
resources to address the damage caused by Claimant's operations in their territory. It is also essential for this State to
take hold and protect its environmen as the primary source of non-renewable resources necessary for its growth and
development.

With this, the Respondent respectfully prays for this Arbitral Tribunal to:
a. Declare it lacks jurisdiction over the dispute on the grounds that the Claimant is not an investor under the BIT;
b. Declare that the Claimant’s requests are not admissible;
c. Declare that the Claimant’s claims be entirely rejected; and
d. That this tribunal admit Respondent's counterclaim.