Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Claimant's Reply to Respondent's Counter-Memorial on the Merits (March 24, 2011)
REPLY ON THE MERITS
I. INTRODUCTION AND SUMMARY OF ARGUMENTS
1. In its Counter-Memorial on the Merits, Respondent attempts to shift the focus of this case from Respondent’s breaches of its obligations under CAFTA to a factually unsupported, revisionist (and largely irrelevant) history of Claimant’s performance under the Usufruct Contracts. In order to weave its fictitious narrative, Respondent resorts to obfuscation, mischaracterizations, misrepresentations and disingenuousness throughout its Counter-Memorial. Regarding Claimant’s performance under the Usufruct Contracts, Respondent insists that FVG breached its railway rehabilitation obligations under Contract 402, the right-of-way usufruct contract, but misrepresents what those obligations were and neglects to disclose the fact that FEGUA confirmed by official letter that FVG had its complied with its actual rehabilitation obligations. Respondent places great emphasis on the fact that FVG had not recorded any profit in any year prior to the publication of the Lesivo Resolution (on an accounting basis), but neglects to mention that FVG’s lack of profitability was driven largely by Respondent’s failure to fulfill its own contractual obligations and that, when this is properly taken into account, FVG was profitable on a cash flow basis. Respondent complains about FVG’s failure to obtain sufficient financing and outside investment to rebuild and reopen the South Coast corridor, yet Respondent knows full well that FVG’s inability to obtain such financing and investment was caused by Respondent’s failure to remove squatters from the South Coast right-of-way.
2. Respondent further misrepresents the circumstances and motivations which gave rise to the process which culminated in the publication of the Lesivo Resolution on August 25, 2006. Contrary to Respondent’s contention, the lesivo process was secretly initiated and pursued by Respondent not out of concern about any alleged legal infirmities in the usufruct equipment contracts (Contracts 143/158), which the Government both internally and externally acknowledged were “in effect.” Rather, as confirmed by Respondent’s own witnesses and records, the real story is that the alleged legal defects in Contracts 143/158 – which Respondent caused and could have easily resolved on its own without any need for “negotiation” with FVG – were utilized by Respondent as a mere pretext to issue the Lesivo Resolution, which Respondent then proceeded to use as a means to try to coerce FVG to renegotiate and surrender its rights under the Usufruct Contracts. The Government’s non-negotiable demands to FVG in exchange for withdrawing the Lesivo Resolution included, inter alia, (i) requiring FVG to put up a $50 million investment to re-open the entire South Coast corridor or surrender its rights to “other [interested] investors” such as Ramón Campollo; (ii) relieving the Government of its contractual obligations to remove squatters and make payments to the Railway Trust Fund; (iii) requiring FVG to drop its local breach of contract arbitrations against FEGUA; (v) increasing the canon fee payments to the Government under he Usufruct Contracts; and (iv) forcing FVG to surrender certain railway equipment that had been granted in usufruct. Indeed, Respondent’s witnesses in this case freely admit the Government’s bad faith motivation behind the Lesivo Resolution. Moreover, the Government’s “take it or leave it” settlement proposals both before and after the publication of the Lesivo Resolution and its deliberate strategy to keep the Lesivo Resolution secret from Claimant completely bear out this conclusion.