Reproduced from www.worldbank.org/icsid with permission of ICSID.
Claimants' Post-Hearing Brief
September 9, 2022
TABLE OF CONTENTS
I. INTRODUCTION AND EXECUTIVE SUMMARY
II. THE FACTS ESTABLISHED FOLLOWING THE EVIDENTIARY HEARING
A. The Claimants' Investment In México Was A Low-Risk Investment
B. The Claimants Relied On México's Commitments To Support The Claimants' Investment And Not To Subject It To Corruption
C. Pemex Officials Commissioned The Additional Rigs While Oro Negro Operated The Initial Rigs With Great Success
D. After A Report To Pemex's CEO Showed That Oro Negro Paid No Bribes, Pemex Sought To Deprive Oro Negro Of Funds
E. As Oro Negro Experienced Payment Issues With Pemex, Individuals Close to Mexican Officials Offered To "Fix" Those Issues Through Corruption
F. Seamex (And Other Pemex Operators) Received Better Treatment Than Oro Negro And There Is No Commercial Justification For That Treatment--The Only Credible Explanation Is That They Paid to Play
G. In 2017, Mexican Officials Improperly Engaged In Secret Discussions With Oro Negro's Bondholders (Seamex's Owners), Who Sought To Take Over The Oro Negro Rigs
H. Mexican Officials Within Pemex Purported To Terminate The Oro Negro Contracts After Oro Negro Refused To Participate In México's Pay-To- Play System--Not For Any Commercially Or Contractually Justifiable Reason
I. After Termination, Mexican Officials Within Pemex Refused To Comply With Pemex's Obligations Under The Oro Negro Contracts And With Law For No Justifiable Reason
J. México Used Its Police Powers To Allow The Bondholders To Seize The Oro Negro Rigs
K. México Has Abused--And Continues To Abuse--Its Police Powers To Intimidate and Harass the Claimants
III. THE TRIBUNAL'S QUESTIONS: THE LEGAL CONSEQUENCES OF THE ESTABLISHED FACTS
A. México's Arbitrary And Discriminatory Treatment Of The Claimants And Their Investments Breached NAFTA Articles 1105 And 1110--Whether As The Result Of Corruption Or Not (Question 3)
B. Corruption--The Only Explanation For México's Prejudicial Conduct-- Leads To A Separate Breach Of NAFTA Articles 1105 And (Questions Nos. 1 And 2)
1. The Evidentiary Hearing Established That Mexican Officials Sought Bribes From Oro Negro And Retaliated Against Oro Negro When It Refused (Question 2)
2. The Corrupt Acts of Mexican Officials Violated México's NAFTA Obligations (Question 1)
C. These Breaches Are Attributable To México Alone (Question No. 4)
I. INTRODUCTION AND EXECUTIVE SUMMARY
1. This Post-Hearing Brief is submitted on behalf of the Claimants pursuant to paragraph of Procedural Order No. 23.1 In this submission, the Claimants address the four questions posed by the Tribunal on May 18, 2022.2 Those four questions raise three distinct issues:
I. Abuse of Power (Question 3): What is the legal basis of the "abuse of power"
concept and its relevance within the NAFTA?
II. Corruption (Questions 1 and 2): What methodology can or must the Tribunal apply in assessing the existence of a causal link between evidence of corruption and a breach of the NAFTA? And what is the interplay between a transnational public policy against corruption and a breach of the NAFTA?
III. Attribution (Question 4): What is the legal basis for the concept of estoppel and its relevance within the NAFTA proceedings for questions of attribution?
2. These questions track the Claimants' claims on the merits: i.e., that México breached its NAFTA obligations by inter alia arbitrarily and discriminatorily preventing Oro Negro from accessing funds owed to it and thus forcing the company into liquidation, and also by subjecting the Claimants' investment to corruption and bribery. They also track the Claimants' assertions that México is responsible for the acts of its empresa productiva del Estado, Pemex (in addition to the acts of its prosecutors, tax authorities, and judges), and that México is estopped from arguing otherwise.
3. It is clear from the facts established at the Evidentiary Hearing that México breached its obligations under the NAFTA and must bear the consequences of those breaches:
* The Claimants' investment was low-risk. While México has argued throughout this arbitration that the Claimants assumed the risk of fluctuating oil prices, they did not. In exchange for supplying state-of-the-art rigs and experienced staff, Oro Negro received a fixed daily rate and México promised to pay that rate no matter what.
* In investing in Oro Negro, the Claimants relied on three key representations by México: (1) México, which "backed" Pemex, 3 would support the Claimants' investments; (2) México would not subject those investments to corruption; and (3) México would contract up to twelve rigs from Oro Negro. Those commitments, however, were not honored.
* Mexican officials in Pemex, through individuals they used as "operadores", sought bribes from Oro Negro. At the Evidentiary Hearing, México did not challenge Mr. Cañedo's testimony that Oro Negro received numerous solicitations from "operadores" seeking to force Oro Negro to pay bribes to Mexican officials to fix the various problems caused by those officials, including severe and continuous payment delays leading to serious liquidity problems for Oro Negro.
* Mexican officials treated Oro Negro unfavorably after Oro Negro repeatedly refused to engage in the corruption sought by these officials. At the Evidentiary Hearing, México's witnesses were unable to explain (1) the massive payment delays; (2) rig cancellations; and (3) drastic rate reductions to which Pemex subjected Oro Negro. There can only be one explanation: Mexican officials were seeking to force Oro Negro to participate in México's pay-to-play system.
* Seamex received much more favorable treatment than Oro Negro--without any justification. México's witnesses conceded that Oro Negro's main competitor, Seamex, obtained more favorable contracts from Pemex (at the same time that Pemex reneged on its promise to commission three new rigs from Oro Negro) although Seamex's rigs were inferior (as the unchallenged evidence of industry expert Duncan Weir establishes)--but México could not offer any reason why. In fact, Pemex's former CEO, Mr. González Anaya, at the Evidentiary Hearing, conceded that the Seamex contracts, with their more favorable economic terms and their bullet-proof no cancellation features, were an "anomolia."4 The red flags of corruption here in the Seamex-Pemex/México relationship could not be more stark. No doubt, Seamex was willing to participate in México's pay-to- play system.
* Mexican officials in Pemex terminated the Oro Negro Contracts for no justifiable reason and refused to pay Oro Negro any money owed to it. México's witnesses conceded at the Evidentiary Hearing that the justification put forward by Pemex for termination was wrong, that México was not transparent with Oro Negro or its investors for the reasons for the termination, and could not identify any justifiable basis for termination. Nor could they explain why Pemex failed to honor its obligations to make outstanding and unchallenged payments to Oro Negro or comply with court decisions. Clearly, México was seeking to advance the objectives of a more "friendly" supplier (i.e., Seamex). Again, astonishingly, México's own expert tried to justify this utter lack of transparency by "opining" that México did not have an obligation to be transparent with Oro Negro or its investors about the real reasons for the termination
* México's tax, prosecution, and judiciary authorities prevented Oro Negro from accessing its funds on bogus grounds, leading to the taking of the Oro Negro Rigs. A September 2018 decision by a local judge ordering the seizure of over USD 100 million in Oro Negro's funds was based on evidence fabricated by México's tax authorities.
Tellingly, at the Evidentiary Hearing, México's criminal law expert, Mr. Paz, who testified on the supposed validity of the criminal case, was forced to concede that the basis for his conclusion that the decision was valid under Mexican law was flawed