Karkey Karadeniz v. Pakistan

Karkey Karadeniz Elektrik Uretim A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/13/1
Type of case:
Investor-State
Date of introduction:
8 Feb 2013
Status of the case:
Decided in favor of investor
Claimant’s country of origin:
Turkey
Respondent:
Pakistan
Institution:
ICSID (International Centre for Settlement of Investment Disputes)
Applicable treaties:
Pakistan - Turkey BIT (19...

Documents of the case

Yves Derains President
Horacio A. Grigera Naón Appointed by the investor
David A.O. Edward Appointed by the Chairman of the Administrative Council

Lawyers, other representatives, expert(s), tribunal’s secretary

Award

LIST OF ABBREVIATIONS AND DEFINED TERMS
ADB Asian Development Bank
ADB Report Asian Development Bank, Final Report, Pakistan: Rental Power Review (January 2010)
Additional Claims Karkey's claims in this arbitration brought under the MFN clause: (i) fair and equitable treatment; (ii) full protection and security; (iii) prohibition of unreasonable or discriminatory measures; and (iv) the benefit of the umbrella clause.
Advance Payment Guarantee Bank guarantee to be provided by Karkey as security for the Down Payment amounting to US $80 million. Defined at Section 4.5(a) of the Contract
Alican Bey or KPS 1Karadeniz Powership Alican Bey
Bid Karkey's bid document dated 11 July 2008
Pakistan-Turkey BIT, BIT or Treaty Agreement Between the Islamic Republic of Pakistan and the Republic of Turkey Concerning the Reciprocal Promotion and Protection of Investments
Chief Justice Chief Justice of the Supreme Court of Pakistan, Iftikhar Muhammad Chaudhry
COD Commercial Operations Date
Counter-Memorial Pakistan's Counter-Memorial, dated 23 January 2015
Contract or 2009 RSC Amended and Restated Rental Services Contract between Karkey Karadeniz Elektrik Uretim A.S. and Lakhra Power Generation Company Ltd., dated 23 April 2009
DCF Discounted cash flow
December 2008 Contract or 2008 RSC Rental Services Contract between Karkey Karadeniz Elektrik Uretim A.S. and Lakhra Power Generation Company Ltd., dated 5 December 2008
Decision on Provisional Measures Decision on Provisional Measures, dated 16 October 2013
Deed Deed entered into between Karkey, the NAB and Lakhra, dated 7 September 2012
Dogan Bey or KPS 3Karadeniz Powership Dogan Bey
Draft RSC The draft contract appended to the RFP for Package B as Exhibit V

ECC Economic Coordination Committee of the Cabinet of Pakistan
ECL Exit Control List
EIA Environmental Impact Assessment
Equipment The Kaya Bey, the Alican Bey, the Iraq, and the Enis Bey, including all generating equipment and all other power plant equipment. Defined on p. 1 of the Contract
Evaluation Committee The Bid Evaluation Committee, comprised of representatives of the Ministry of Finance, PPIB, PEPCO, and NEPRA
Fatmagül Sultan or KPS 9Karadeniz Powership Fatmagül Sultan
FET Fair and equitable treatment
First Iraq Contract or Iraq I Contract between the Ministry of Electricity of the Republic of Iraq and Karkey Karadeniz Elektrik Uretim A.S., dated December 2008; Amendment dated May 2010 and Addendum dated 29 March 2011
FPLC Fuel Payment Letter of Credit, as defined at Section 4.5(m) of the Contract
FPS Full protection and security
GENCO A State-owned Generation Company
GoP Government of Pakistan
HFO Heavy Fuel Oil
ICSID or Centre International Centre for Settlement of Investment Disputes
ICSID Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings (2006)
ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered in force on 14 October 1966
ILC Articles or ILC Articles on State Responsibility The International Law Commission's Articles on State Responsibility
Iraq and Enis Bey Two support vessels located in Pakistan
Irem Sultan or KPS 6Karadeniz Powership Irem Sultan
IPP Independent Power Producer

Judgment or RPP Judgment Judgment of the Supreme Court of Pakistan in the Rental Power Case, dated 30 March 2012
Karkey Karkey Karadeniz Elektrik Uretim A.S.
Karpak Karpak (Pvt.) Ltd., a wholly-owned subsidiary of Karkey
Karpower Karpower International B.V.
Kaya Bey or KPS 5Karadeniz Powership Kaya Bey
KPS Karadeniz Powership
KEMA KEMA International B.V.
KESC Karachi Electric Supply Company
Korangi Site Project Site located in the Korangi Creek area, near the Korangi Thermal Power Station
KW Kilowatts
kWh Kilowatt hour
Lakhra Lakhra Power Generation Company Ltd.
Lebanon contract Contract between the Republic of Lebanon, Ministry of Energy and Water and Karpower, dated 13 July 2012
LCIA London Court of International Arbitration
LoA The Letter of Award issued to Karkey on 7 November 2008
Mauripur Site Proposed Project Site near the Mauripur Grid Station, Mauripur Substation
Measures Karkey's description of Pakistan's collective alleged breaches of the Treaty, as defined in paragraph 610 of the Karkey's Updated Memorial of 10 October 2014.
Memorial Karkey's Updated Memorial on Jurisdiction and the Merits, dated 10 October 2014
MoWP Ministry of Water & Power of Pakistan
MW Megawatts
NAB National Accountability Bureau
NAO National Accountability Ordinance (1999)

NEPRA National Electric Power Regulatory Authority of Pakistan
NESPAK National Engineering Services Pakistan (PVT) Ltd.
NOC No Objection Certificate issued by the NAB on 11 October 2012
NTDC National Transmission and Despatch Company
Orhan Bey or KPS 7Karadeniz Powership Orhan Bey
PPIB Private Power and Infrastructure Board of Pakistan
PEPCO Pakistan Electric Power Company Limited
PMSA Pakistan Maritime Security Agency
PQA Port Qasim Authority
PPRA Rules Pakistan Public Procurement Rules 2004 (made under the Public Procurement Regulatory Authority Ordinance 2002 (XXII of 2002))
Project The Rental Power Project near Karachi that is the subject of the Contract
Project Schedule or Proposed Project Schedule The Project Schedule Karkey committed to meeting in its Bid
Provisional Measures Decision Decision on Provision Measure in Karkey Karadeniz Elektrik S.A. v. The Islamic Republic of Pakistan (ICSID Case No. ARB/13/1), dated 16 October 2013
Rauf Bey or KPS 4Karadeniz Powership Rauf Bey
Rental Power Case Human Rights Case Nos. 7734-G/2009 & 1003-G/2010, as consolidated with Human Rights Case No. 56712/2010, in the Supreme Court of Pakistan
Reply Karkey's Reply on Jurisdiction and the Merits, dated 5 August 2015
Rejoinder Pakistan's Rejoinder on Jurisdiction and the Merits, dated 29 October 2015
RFA Request for Arbitration in Karkey Karadeniz Elektrik S.A. v. The Islamic Republic of Pakistan (ICSID Case No. ARB/13/1), dated 16 January 2013
RFP Request for Proposal
RPPs Rental Power Projects

Second Iraq Contract or Iraq II Second contract between the Ministry of Electricity of the Republic of Iraq and Karkey Karadeniz Elektrik Uretim A.S., dated 29 March 2011
Site or Project Site The site of the Project, i.e., the mooring location of Karkey's Powerships, near Korangi Thermal Power Station
Sovereign Guarantee Guarantee of the Islamic Republic of Pakistan, dated as of 24 April 2009 (as reissued from time to time)
Supreme Court Supreme Court of Pakistan
Sur-Rejoinder Karkey's Sur-Rejoinder on Counterclaims, dated 21 December 2015
Tower-1 KPS Tower No. 1, a transmission tower built by Karkey for the Project
Vessels Karkey's vessels in Pakistan, i.e., the Kaya Bey, the Alican Bey, the Iraq, and the Enis Bey
WACC Weighted Average Cost of Capital
Walters Walters Power International
WAPDA Water and Power Development Authority of Pakistan
WHT Withholding tax
WPPO WAPDA Power Privatisation Organization

I. INTRODUCTION AND PARTIES

1.
This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Agreement Between the Islamic Republic of Pakistan and the Republic of Turkey concerning the Reciprocal Promotion and Protection of Investments (the "Pakistan-Turkey BIT", "BIT" or "Treaty", see C-001), which entered into force on 3 September 1997, and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the "ICSID Convention"). The dispute relates to power generation equipment.
2.
The Claimant is Karkey Karadeniz Elektrik Uretim A.S. ("Karkey" or the "Claimant"), a power generation company organized under the laws of Turkey with its principal place of business in Istanbul.1
3.
The Respondent is the Islamic Republic of Pakistan ("Pakistan" or the "Respondent").
4.
The Claimant and the Respondent are hereinafter collectively referred to as the "Parties."

II. PROCEDURAL HISTORY

A. Registration of the Request for Arbitration

5.
On 16 January 2013, ICSID received a request for arbitration submitted by Karkey Karadeniz Elektrik Uretim A.S. against the Islamic Republic of Pakistan together with Exhibits C-001 to C-012 ("Request" or "RFA"), which included a request for provisional measures ("Provisional Measures Request") made pursuant to Article 47 of the ICSID Convention and Rule 39(1) of the ICSID Rules of Procedure for Arbitration Proceedings ("ICSID Arbitration Rules").
6.
On 8 February 2013, the Secretary-General of ICSID ("Secretary-General") registered the Request, as supplemented by the Claimant's letter of 6 February 2013, in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an Arbitral Tribunal as soon as possible in accordance with Rule 7(d) of the Centre's Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.

B. Tribunal Constitution

7.
On 29 April 2013, in the absence of an agreement between the Parties, the Claimant elected to submit the arbitration to a tribunal of three arbitrators as provided in Article 37(2)(b) of the ICSID Convention.
8.
On 30 April 2013, Dr. Horacio A. Grigera Naón, a national of Argentina, accepted his appointment by the Claimant.
9.
On 9 May 2013, the Claimant requested that the Chairman of the Administrative Council appoint the remaining arbitrators, pursuant to Article 38 of the ICSID Convention and ICSID Arbitration Rule 4.
10.
On 19 June 2013, Sir David A.O. Edward, a British national, accepted his appointment by the Chairman of the ICSID Administrative Council, in accordance with Article 38 of the ICSID Convention, as arbitrator.2
11.
On 25 July 2013, Mr. Yves Derains, a national of France, accepted his appointment by the Chairman of the ICSID Administrative Council, in accordance with Article 38 of the ICSID Convention, as President of the Tribunal.
12.
On 25 July 2013, the Secretary-General, in accordance with Rule 6(1) of the ICSID Arbitration Rules notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms. Geraldine Fischer, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal. Ms. Ana Paula Montans was subsequently appointed as the Assistant to the Tribunal.3

C. The Written and Oral Procedure

(1) The Claimant's Request for Provisional Measures

13.
On 8 February 2013, together with the Notice of Registration, the Secretary-General set out the following briefing schedule for the Claimant's Request for Provisional Measures ("Provisional Measures Request"):

• The Claimant was to submit its full briefing on its Request for Provisional Measures by 11 March 2013;

• The Respondent was to present its observations on the request for Provisional Measures by 10 April 2013;

• The Claimant was to file its reply by 24 April 2013; and

• The Respondent was to file its rejoinder by 8 May 2013.

14.
On 11 March 2013, in accordance with the Secretary-General's briefing schedule, the Claimant submitted its Observations on its Request for Provisional Measures together with Exhibits C-013 to C-089, Legal Authorities CA-001 to CA-036, Mr. Yasin El Suudi's Witness Statement dated 11 March 2013 and Mr. David Nickerson's Expert Report dated 11 March 2013.
15.
On 24 April 2013, the Claimant submitted a further letter in support of its Provisional Measures Request.
16.
The Respondent did not file any of the submissions provided for in the Secretary-General's briefing schedule.
17.
On 2 August 2013, shortly after the Tribunal was constituted, the Tribunal invited the Respondent again to present its observations on the Claimant's Provisional Measures Request. The Tribunal, furthermore, informed the Parties that the First Session and Hearing on Provisional Measures would take place at the seat of the Centre on 16 September 2013.
18.
On 21 August 2013, the Tribunal granted the Respondent's request for an extension to submit its observations on the Provisional Measures Request until 29 September 2013 and confirmed that the First Session and Hearing on Provisional Measures would still take place as scheduled, on 16 September 2013.
19.
On 16 September 2013, the Tribunal held a First Session with the Parties in Washington, D.C. and heard the Parties arguments on the Provisional Measures Request. In addition to the Members of the Tribunal and the Secretary of the Tribunal, the following individuals were present at the First Session:

For the Claimant :

Mr. Paolo Di Rosa Arnold & Porter LLP

Mr. Lawrence Schneider Arnold & Porter LLP

Ms. Maria Chedid Arnold & Porter LLP

Mr. José Antonio Rivas Arnold & Porter LLP

Mr. Alejandro Leáñez Arnold & Porter LLP

Ms. Ana Sofia Martinez Arnold & Porter LLP

Ms. Amy Endicott Arnold & Porter LLP

Mr. Kelby Ballena Arnold & Porter LLP

Mr. Syed Ahmad Hassan Shah Hassan Kaunain Nafees

Mr. Orhan Remzi Karadeniz Karkey Karadeniz Elektrik Uretim A.S.

Ms. Ayse Nazli Dereli Oba Karkey Karadeniz Elektrik Uretim A.S.

For the Respondent :

Mr. Michael Polonsky Berwin Leighton Paisner LLP

Ms. Carol Mulcahy Berwin Leighton Paisner LLP

20.
During the First Session, the Parties confirmed that the Members of the Tribunal had been validly appointed. It was agreed, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006 ("ICSID Arbitration Rules"), the procedural language would be English and the place of the proceedings would be the seat of the Centre, unless the Parties and the Tribunal agreed on another location.
21.
On 30 September 2013, the Tribunal issued Procedural Order No. 1, regarding procedural matters.
22.
On 30 September 2013, in response to the Tribunal's 16 September 2013 instructions, the Respondent submitted its Observations in Response to the Claimant's Request for Provisional Measures, which was accompanied by Exhibits R-001 to R-028 and Legal Authorities RA-001 to RA-037.
23.
On 8 October 2013, a second hearing on provisional measures took place in Washington, D.C. In addition to the Members of the Tribunal and the Secretary of the Tribunal, present at the hearing were:

For the Claimant :

Mr. Paolo Di Rosa Arnold & Porter LLP

Mr. Lawrence Schneider Arnold & Porter LLP

Ms. Maria Chedid Arnold & Porter LLP

Mr. Anton Ware Arnold & Porter LLP

Mr. José Antonio Rivas Arnold & Porter LLP

Ms. Amy Endicott Arnold & Porter LLP

Mr. Kelby Ballena Arnold & Porter LLP

Ms. Ana Sofia Martinez Arnold & Porter LLP

Mr. Syed Ahmad Hassan Shah Hassan Kaunain Nafees

Mr. Orhan Remzi Karadeniz Karkey Karadeniz Elektrik Uretim A.S.

Ms. Ayse Nazli Dereli Oba Karkey Karadeniz Elektrik Uretim A.S.

For the Respondent:

Mr. Stuart Isaacs QC Berwin Leighton Paisner LLP

Mr. Michael Polonsky Berwin Leighton Paisner LLP

Mr. Zahid Ebrahim Ebrahim Hosain

The following persons were examined:

Karkey Karadeniz Elektrik

Mr. Yasin El Suudi (Witness) Uretim A.S.

Mr. David Nickerson (Expert) Power Barge Corporation

24.
At the 8 October 2013 hearing, the Claimant introduced several new exhibits, and the Respondent submitted a "Memorandum to the Tribunal in relation to the basis for the detention of the Vessels" ("Memorandum"). The Claimant subsequently withdrew the new exhibits that were presented at the hearing.4
25.
On 10 October 2013, the Tribunal decided not to admit the Memorandum as it should have been included in the Respondent's observations of 30 September 2013.
26.
On 16 October 2013, the Tribunal issued its Decision on the Claimant's Request for Provisional Measures ("Decision on Provisional Measures"). The Tribunal's Decision states at paragraph 187:

1. The State of Pakistan shall take all steps necessary to allow the vessel, Karadeniz Powership Kaya Bey ('the vessel'), to depart into international waters and reach, before 1 November 2013, the dry dock in Dubai for inspection and repairs as determined by the Bureau Veritas (or other equivalent agency) to maintain the vessel's flag-registry and class certification.

2. To that effect, the State of Pakistan shall, in particular:

a. Cause Lakhra Power Generation Company Limited to take all steps necessary to obtain the temporary suspension of the order of the High Court of Sindh at Karachi dated 29 of May 2013 in the Admiralty Suit No. 07 of 2013, which arrested the vessel, as long as the Arbitral Tribunal shall not have informed the State of Pakistan that the suspension is no longer necessary for the purposes of enabling the vessel to obtain the vessel's flag-registry and class certification.

b. Grant the Claimant all authorizations and clearance required for the vessel's departure including:

i. Clearance Certificates from Pakistan Customs;

ii. Clearance of crew members of the vessel by the immigration authorities at Port Qasim;

iii. Clearance from NAB, to be forwarded to all relevant authorities, including the Pakistan Maritime Security Agency, Ministry of Defense, Ministry of Ports and Shipping, Ministry of Water and Power and others necessary under the law and procedure of Pakistan; and

iv. Clearance and facilitation from Lakhra, as Lakhra is the 'importer for record' in terms of the Amended Contract.

c. Take any other action necessary or required to allow the vessel to depart lawfully into international waters.

3. Claimant shall proceed diligently and as rapidly as reasonably possible to obtain the necessary certificates referred to, as stated above.

4. Claimant shall: (i) inform the Tribunal of the date of departure of the vessel from Pakistan, its date of arrival in Dubai, and (ii) keep the Tribunal informed of the progress of the dry docking inspection and repair and of the flag-registry and class certification process.

5. Claimant should be prepared to promptly comply with such further orders as the Tribunal may consider necessary for the return of the vessel to safe anchorage in Karachi.

6. All other requests not granted herein are dismissed.

7. The Tribunal will decide on the costs related to the Request at a later stage of the arbitral proceedings.5

27.
Between 30 October and 9 December 2013, the Parties exchanged correspondence regarding the Respondent's failure to implement the Tribunal's Decision on Provisional Measures. On 25 November 2013, the Tribunal noted that the Respondent had not complied with its Decision on Provisional Measures and explained that, "unless it is immediately complied with, the Tribunal [would] draw all the consequences of that breach under International law." On 11 December 2013, the Tribunal sent a further letter to the Parties to the same effect.
28.
On 14 May 2014, the Respondent informed the Tribunal that the Sindh High Court had ordered the release of the Karadeniz Powership Kaya Bey ("Kaya Bey"). The Claimant confirmed on 29 May 2014 that the Kaya Bey had arrived in Dubai on 21 May 2014 and that the dry-dock inspection would begin on 2 June 2014.
29.
On 8 July 2014, the Claimant submitted an application to modify the Decision on Provisional Measures of 16 October 2013, together with Exhibits C-405 to C-411. In the application, the Claimant requested that the Tribunal modify the Decision on Provisional Measures to provide that the Kaya Bey "need not return to Pakistan once inspection and repairs in Dubai are complete."
30.
By letter of 25 July 2014, the Respondent filed its response to the Claimant's application to modify the Decision on Provisional Measures, and stated that it neither consented to nor opposed the application for the permanent release of the Kaya Bey.
31.
On 1 August 2014, the Tribunal issued its Procedural Order No. 4, which: (i) modified the Tribunal's Decision on Provisional Measures such that the return of the Kaya Bey was no longer mandatory; (ii) permitted the Claimant the opportunity to modify its Memorial on Jurisdiction and the Merits of 13 January 2014 in order to take into account the permanent release of the Kaya Bey ; and (iii) confirmed that the Respondent would have an opportunity to inspect the Kaya Bey in order to evaluate the damages claimed by Karkey in this respect, before any additional repair was carried out.

(2) The Written Phase on Jurisdiction and the Merits

32.
On 31 January 2014, the Claimant filed its Memorial on Jurisdiction and the Merits, which was corrected on 4 February 2014,6 with the following documents:

• Exhibits C-131 to C-387;

• Legal Authorities CA-053 to CA-171;

• Witness Statement of Orhan Remzi Karadeniz dated 31 January 2014;

• Witness Statement of Ibrahim Selami Colak dated 30 January 2014;

• Second Witness Statement of Yasin El Suudi dated 31 January 2014.

• Second Expert Report of David Nickerson dated 29 January 2014;

• Expert Report of Brent C. Kaczmarek, CFA dated 31 January 2014 (with annexes); and

• Expert Report of Sami Zafar dated 31 January 2014.

33.
On 3 February 2014, the Tribunal was advised that Berwin Leighton Paisner LLP ceased to act on behalf of Pakistan, and shortly thereafter ICSID was notified that Allen & Overy was representing the Respondent.
34.
On 26 February 2014, the Tribunal issued Procedural Order No. 2 concerning the confidentiality of documents ("Confidentiality Order") further to the Claimant's request.
35.
On 28 February 2014, counsel for the Respondent notified the Tribunal that it had two more objections to the Tribunal's jurisdiction, in addition to the objections previously raised by the Respondent during the Provisional Measures proceeding.
36.
On 17 March 2014, the Respondent submitted its Notice of Jurisdictional Objections and Request for Bifurcation, which was accompanied by Legal Authorities RA-038 to RA-052.
37.
On 11 April 2014, the Claimant filed its Response to the Respondent's Notice of Jurisdictional Objections and Request for Bifurcation, which was accompanied by Exhibits C-388 to C-390 and Legal Authorities CA-172 to CA-189.
38.
On 14 April 2014, the Respondent requested an opportunity to respond to the Claimant's Opposition to Bifurcation, which was opposed by the Claimant in its letter of 16 April 2014. On 17 April 2015, the Tribunal denied the Respondent's request for an additional round of submissions in relation to the Request for Bifurcation. On 13 May 2014, the Tribunal issued its Decision on the Respondent's Request for Bifurcation dismissing the Respondent's Request for Bifurcation in relation to all of its jurisdictional objections.
39.
Following correspondence related to the dry-dock inspection of the Kaya Bey, on 6 June 2014, the Respondent submitted an application "seeking the urgent assistance of the Tribunal confirming its right to appoint an industry expert and to allow that expert to conduct an inspection of the Kaya Bey while at dry dock in Dubai." The application was accompanied by:

• Exhibits R-044 to R-053; and

• Legal Authorities RA-053 to RA-057.

The Respondent indicated that it had appointed Mr. David Waller of Waller Marine as its industry expert in these proceedings.

40.
On 9 June 2014, the Claimant filed its Opposition to the Respondent's 6 June 2014 application that was accompanied by:

• Exhibits C-391 to C-393; and

• Legal Authority CA-172.

41.
On 12 June 2014, the Tribunal issued its Procedural Order No. 3, which decided that the Respondent did not have an urgent need to inspect the Kaya Bey and directed the Claimant to file its response to the Respondent's Application for an Order Confirming Mr. Waller as an Expert.
42.
On 13 June 2014, a conference call was held between the Parties and the Tribunal to discuss the procedural calendar.
43.
On 17 June 2014, in accordance with Procedural Order No. 3, the Claimant submitted its Opposition to the Respondent's Application for an Order Confirming Mr. Waller as an Expert, which was accompanied by:

• Exhibits C-394 to C-399;

• Legal Authorities CA-173 to CA-179;

• Second Witness Statement of Orhan Remzi Karadeniz dated 17 June 2014; and

• Statement of David Nickerson regarding Waller Marine dated 17 June 2014.

44.
On 27 June 2014, the Respondent filed a Response to Karkey's Opposition to Pakistan's Industry Expert, which was accompanied by:

• Exhibits R-057 to R-068; and

• Expert Report of David Waller dated 27 June 2014.

45.
On 3 July 2014, the Claimant filed its Rejoinder to the Respondent's Application for an Order Confirming Mr. Waller as an expert, which was accompanied by:

• Exhibits C-400 to C-404;

• Rejoinder Witness Statement of Orhan Remzi Karadeniz regarding Waller Marine dated 3 July 2014; and

• Rejoinder Statement of David Nickerson regarding Waller Marine dated 3 July 2014.

46.
On 18 August 2014, the Tribunal issued Procedural Order No. 5, which fixed the procedural calendar for the Parties' written submissions (including the resubmission of the Claimant's Memorial in accordance with Procedural Order No. 4), a document production phase and the Hearing on Jurisdiction and Merits.
47.
On 28 August 2014, the Tribunal issued its Procedural Order No. 6 that: (i) confirmed the Respondent's ability to appoint Mr. Waller as its industry expert, subject to certain restrictions, including a requirement that the Parties agree on additional confidentiality obligations to be signed by Mr. Waller; and (ii) instructed the Parties to agree on the terms of the inspection of the Kaya Bey by Mr. Waller and his team.
48.
On 11 September 2014, the Parties informed the Tribunal that they had agreed to commence the inspection of the Kaya Bey in Dubai on 17 September 2014, but an agreement on the terms of a confidentiality agreement to be signed by Mr. Waller had not been reached. The Claimant therefore requested that the Tribunal order Mr. Waller to adopt its confidentiality agreement.
49.
On 16 September 2014, the Tribunal issued Procedural Order No. 7, which contained additional confidentiality obligations to be executed in connection with the inspection of the Kaya Bey.
50.
On 10 October 2014, the Claimant filed its updated Memorial ("Memorial") in accordance with Procedural Order Nos. 4 and 5, which was accompanied by:

• Legal Authorities CA-001 to CA-206 (updated);7

• Witness Statement of Orhan Remzi Karadeniz (updated) dated 10 October 2014;

• Witness Statement of Ibrahim Selami Colak dated 30 January 2014;

• Second Witness Statement of Yasin El Suudi dated 31 January 2014;

• Expert Report of Brent C. Kaczmarek (updated) dated 10 October 2014, and Exhibits NAV-001 to NAV-202;

• Second Expert Report and Third Expert Report of David Nickerson, dated 29 January 2014 and 10 October 2014 and Exhibits DN-001 to DN-081; and

• Expert Report of Sami Zafar dated 31 January 2014.

51.
On 23 January 2015, the Respondent filed its Objections to Jurisdiction and Counter-Memorial ("Counter-Memorial"), which was accompanied by:

• Exhibits R-054 to R-337;

• Legal Authorities RA-058 to RA-188;

• Witness Statement of Faizullah Dahri dated 22 January 2015;

• Witness Statement of Muhammad Zargham Eshaq Khan dated 21 January 2015;

• Expert Report of Justice (R) Fazal Karim dated 21 January 2015;

• Expert Report of Philip Haberman dated 23 January 2015 and Exhibits HAB-001 to HAB-046; and

• Second Expert Report of David Waller dated 19 January 2015 and Exhibits WMI-001 to WMI-008.

52.
On 24 April 2015, the Tribunal issued Procedural Order No. 8 which contained its decision on the Parties' requests for the production of documents.
53.
On 10 July 2015, the Tribunal issued Procedural Order No. 9 ordering the Claimant to produce a Settlement Agreement to the Respondent, which was designated as confidential pursuant to the Confidentiality Order.
54.
On 5 August 2015, the Claimant filed its Reply on Jurisdiction and the Merits ("Reply"), which was accompanied by:

• Exhibits C-221 (revised) and C-430 to C-672;

• Legal Authorities CA-214 to CA-333;

• Second Witness Statement of Ibrahim Selami Colak dated 3 August 2015;

• Third Witness Statement of Yasin El Suudi dated 3 August 2015;

• Third Witness Statement of Orhan Remzi Karadeniz dated 3 August 2015;

• Expert Report of Jerome Grand d'Esnon dated 3 August 2015 and Exhibits JG-1 to JG-21;

• Second Expert Report of Brent C. Kaczmarek (Navigant) dated 4 August 2015 and Exhibits NAV-99 and NAV-203 to NAV-246;

• Fourth Expert Report of David Nickerson dated 3 August 2015 and Exhibits DN-35 to DN-37; and

• Second Expert Report of Sami Zafar dated August 4, 2015 and Exhibits Z-1 to Z-99.

55.
On 31 August 2015, the Tribunal issued Procedural Order No. 10 regarding document production.
56.
On 9 September 2015, the Tribunal issued Procedural Order No. 11 ordering the Respondent to produce to the Claimant full, un-redacted copies of certain exhibits.
57.
On 29 October 2015, the Respondent filed its Rejoinder on Jurisdiction and the Merits ("Rejoinder"), which was accompanied by:

• Exhibits R-338 to R-419;8

• Legal Authorities RA-077 (resubmitted) and RA-189 to RA-287;

• Witness Statement of Zarar Aslam dated 17 September 2015;

• Second Witness Statement of Faizullah Dahri dated 29 October 2015;

• Second Witness Statement of Muhammad Zargham Eshaq Khan dated 27 October 2015;

• Second Expert Report of Justice (R) Fazal Karim dated 29 October 2015;

• Second Expert Report of Philip Haberman dated 29 October 2015 and Exhibits HAB-047 to HAB-113; and

• Third Expert Report of David Waller dated 29 October 2015 and Exhibits WMI-009 to WMI-035.

58.
On 11 December 2015, the Respondent submitted an application seeking disclosure of certain documents (or categories of documents), which should have been disclosed by the Claimant ("New Evidence") that go to the issue of corruption. The Respondent averred that Pakistan and its counsel had seen certain documents (evidencing a scheme by Karkey) and received information in this regard, but that the evidence sought was only in the Claimant's possession.
59.
Following the Tribunal's 14 December 2015 invitation, on 18 December 2015, the Claimant submitted its comments on the Respondent's application and noted that it had complied with its disclosure obligations, preserved all evidence and not engaged in any scheme to improperly secure the Pakistan project.
60.
On 21 December 2015, the Claimant filed its Sur-Rejoinder on Counterclaims ("Sur-Rejoinder"), which was accompanied by:

• Exhibit C-693; and

• Legal Authorities CA-338 to CA-347.

61.
On 24 December 2015, the Respondent submitted a letter responding to the Claimant's 18 December 2015 observations, requesting that the Tribunal order the production of the New Evidence. The Respondent's letter was accompanied by the Witness Statement of Mr. Mark Levy dated 24 December 2015 and the Witness Statement of Mr. Shahid Rafi dated 22 December 2015 and Exhibits R-423 to R-425.
62.
On 30 December 2015, the Claimant submitted its Rejoinder to Pakistan's Application of 11 December 2015 together with the Fourth Witness Statement of Mr. Orhan Remzi Karadeniz dated 30 December 2015.
63.
On 12 January 2016, the Tribunal issued Procedural Order No. 12, which instructed that argument on the production of the New Evidence would be heard at the hearing and that no further written representations on this topic would be accepted in advance of the hearing.

D. The Hearing on Jurisdiction and the Merits

64.
On 5 February 2016, the Tribunal held a pre-hearing organizational meeting with the Parties by telephone conference.
65.
On 10 February 2016, the Tribunal issued Procedural Order No. 13 concerning the organization of the hearing. On 17 February 2016, the Tribunal issued a document summarizing the Parties' agreements and the Tribunal's decisions concerning the Organization of the Hearing.
66.
Further to the Parties' prior agreement, on 22 February 2016 each of the Parties filed new Exhibits with the approval of the opposing Party. In addition, each Party requested that the Tribunal admit certain additional documents that had been objected to by the opposing Party.
67.
A hearing on Jurisdiction and Merits took place at the International Dispute Resolution Centre in London from 29 February to 12 March 20169 (the "Hearing" or "Evidentiary Hearing"). In addition to the Members of the Tribunal and Ms. Celeste Mowatt, the Acting Secretary of the Tribunal, present at the hearing were:

For the Claimant:

Mr. Paolo Di Rosa Arnold & Porter LLP

Mr. Lawrence Schneider Arnold & Porter LLP

Mr. Anton A. Ware Arnold & Porter LLP

Ms. Amy Endicott Arnold & Porter LLP

Mr. John Muse-Fisher Arnold & Porter LLP

Mr. David Reed Arnold & Porter (UK) LLP

Mr. Monty Taylor Arnold & Porter (UK) LLP

Ms. Bridie McAsey Arnold & Porter (UK) LLP

Mr. Bart Wasiak Arnold & Porter (UK) LLP

Ms. Maria Chedid Baker & McKenzie

Mr. Nicholas Kennedy Baker & McKenzie

Mr. Carson Thomas Baker & McKenzie

Ms. Nadine Ramaswamy Baker & McKenzie

Ms. Hesa Alaseeri Baker & McKenzie

Mr. Ahmad Hassan Shah Hassan Kaunain Nafees Legal Practitioners and Advisers

Mr. Kelby Ballena Arnold & Porter LLP

Ms. Aimee Reilert Arnold & Porter LLP

Ms. Dara Wachsman Arnold & Porter (UK) LLP

Mr. Arthur Dedels Arnold & Porter (UK) LLP

Ms. Sila Uysal Arnold & Porter (UK) LLP

Mr. Scott Johnson Legal Images, on behalf of Arnold & Porter LLP

Mr. Orhan Karadeniz Karkey Karadeniz Elektrik Uretim A.S.

Mr. Yasin El Suudi Karkey Karadeniz Elektrik Uretim A.S.

Mr. Ibrahim Colak Karkey Karadeniz Elektrik Uretim A.S.

Ms. Nazli Dereli Oba Karkey Karadeniz Elektrik Uretim A.S.

Mr. Jerome Grand d'Esnon Carbonnier Lamaze Rasle & Associés

Mr. Brent Kaczmarek Navigant Consulting

Mr. Garrett Rush Navigant Consulting

Mr. Gabriel Perkinson Navigant Consulting

Mr. David Nickerson Power Barge Corp.

Mr. Sami Zafar Sami Zafar & Co.

For the Respondent:

Ms. Judith Gill QC Allen & Overy LLP

Mr. Mark Levy Allen & Overy LLP

Ms. Kate Davies Allen & Overy LLP

Mr. Matthew Hodgson Allen & Overy LLP

Mr. James Neill Allen & Overy LLP

Ms. Louise Fisher Allen & Overy LLP

Mr. Guled Yusuf Allen & Overy LLP

Ms. Elizabeth Staves Allen & Overy LLP

Mr. Alastair Campbell Allen & Overy LLP

Ms. Olga Owczarek Allen & Overy LLP

Mr. Jack Busby Allen & Overy LLP

Mr. Anshu Wijeyeratne Allen & Overy LLP

Mr. Khawaja Muhammad Asif Minister of Water and Power and Minister of Defense of Pakistan

Mr. Salman Aslam Butt Attorney General of Pakistan

Mr. Dilnawaz Cheema Assistant to the Attorney General of Pakistan

Justice (R) Fazal Karim Former Judge of the Lahore High Court and former Judge of the Supreme Court of Pakistan

Mr. David Waller Waller Marine, Inc.

Mr. Philip Haberman Haberman Ilett LLP

Ms. Liz Perks Haberman Ilett LLP

Ms. Kate Lillyman Haberman Ilett LLP

Mr. Faizullah Dahri Finance Director of Lakhra Power Generation Company Limited

Mr. Muhammad Zargham Eshaq Khan Joint Secretary of the Government of Pakistan's Ministry of Water and Power

Mr. Shahid Rafi Former Secretary to the Government of Pakistan's Ministry of Water and Power

68.
The following persons were examined:

On behalf of the Claimant:

Mr. Orhan Karadeniz Karkey Karadeniz Elektrik Uretim A.S.

Mr. Yasin El Suudi Karkey Karadeniz Elektrik Uretim A.S.

Mr. Ibrahim Colak Karkey Karadeniz Elektrik Uretim A.S.

Mr. Brent Kaczmarek Navigant Consulting

Mr. David Nickerson Power Barge Corp.

Mr. Sami Zafar Sami Zafar & Co.

On behalf of the Respondent:

Justice (R) Fazal Karim Former Judge of the Lahore High Court and former Judge of the Supreme Court of Pakistan

Mr. David Waller Waller Marine, Inc.

Mr. Philip Haberman Haberman Ilett LLP

Mr. Faizullah Dahri Finance Director of Lakhra Power Generation Company Limited

Mr. Muhammad Zargham Eshaq Khan Joint Secretary of the Government of Pakistan's Ministry of Water and Power

Mr. Zarar Aslam10 Former Additional Secretary to the Government of Pakistan's Ministry of Water and Power

Mr. Shahid Rafi Former Secretary to the Government of Pakistan's Ministry of Water and Power

69.
During the hearing on 1 March 2016, the Respondent filed an application requesting various orders in support of its 11 December 2015 application concerning the New Evidence. The Parties presented arguments on the Respondent's requests concerning the New Evidence and arguments on the Parties' requests of 22 February 2016 for the admission of new documents. These requests were decided by the Tribunal following the Parties' opening arguments. During the Hearing, the Claimant was permitted leave to file Exhibits C-737 and C-738.
70.
On 17 March 2016, the Tribunal issued Procedural Order No. 14 concerning the procedural calendar.
71.
The Parties filed simultaneous Post-Hearing Briefs on 29 April 2016. As previously agreed by the Claimant and confirmed by the Tribunal, the Respondent's Post-Hearing Brief was accompanied by Legal Authority RA-291.
72.
On 25 May 2016, the Parties filed their Submissions on Costs. The Claimant's submission was accompanied by the declarations of Ms. Maria Chedid at Baker & McKenzie LLP, Mr. Paolo Di Rosa at Arnold & Porter LLP, Mr. Syed Ahmad Hassan Shah at Hassan Kaunain Nafees Legal Practitioners & Advisers, Mr. Peter Knight at Bird & Bird LLP, and Ms. Ayse Nazli Dereli Oba, the Legal Director of Karkey, and by Legal Authorities CA-025 (revised) and CA-349 to CA-359.
73.
On 8 June 2016, the Parties filed their observations on the other Party's submission on costs. The Claimant's submission was accompanied by Legal Authorities CA-360 to CA-363.
74.
On 6 June 2017, the Tribunal declared the proceedings closed in accordance with Rule 38(1) of the ICSID Arbitration Rules.

III. FACTUAL BACKGROUND

75.
Between 2006 and 2007, Pakistan faced one of the worst energy crises in its history with the country, being without electricity at times from twelve to sixteen hours daily.11
76.
In order to overcome the power crisis, in 2006 the Government of Pakistan ("GoP") adopted the policy of power generation through Rental Power Projects ("RPPs") as a fast track solution.12
77.
In late 2007 and early 2008, Karkey began developing powership fleets for rental power projects. Karkey developed its powership fleet in two phases. It began construction and engineering work on the Phase I Powership in early 2008. The Phase I Powerships are:

i. Karadeniz Powership Dogan Bey (the "Dogan Bey" or "KPS 3"), which is a self-propelled Powership of handymax size (188 meters long and 37 meters wide), housing 12 installed medium speed diesel engines, with a combined power generation capacity of 126 MW;

ii. Karadeniz Powership Rauf Bey (the "Rauf Bey" or "KPS 4"), a self-propelled Powership of panamax size (242 meters long and 32 meters wide), housing 15 installed medium speed diesel engines, with a combined power generation capacity of 179 WM;

iii. Karadeniz Powership Kaya Bey (the "Kaya Bey" or "KPS 5"), a self-propelled Powership of panamax size (242 meters long and 32 meters wide), housing 19 installed medium speed diesel engines, with a combined power generation capacity of more than 216 MW.

iv. Karadeniz Powership Alican Bey (the "Alican Bey" or "KPS 1"), a non-self-propelled power barge, 91 meters long and 30 meters wide, housing 10 installed medium speed diesel engines, with a combined power generation capacity of more than 104 MW.13

78.
In order to implement its Phase II plan, Karkey acquired five additional ship hulls in 2010 and 2011. In October 2011, Karkey deployed the first of its Phase II Powerships, the Karadeniz Powership Irem Sultan ("Irem Sultan" or "KPS 6") a self-propelled ship housing six installed medium speed diesel engines, with a combined power generation capacity of 108.6 MW.14
79.
Karkey was not able to deploy the second of its Phase II Powerships until February 2013 — the Karadeniz Powership Fatmagül Sultan ("Fatmagül Sultan" or "KPS 9"), a large power barge housing, with a combined power generation capacity of 203 MW.
80.
Karkey deployed the third of its Phase II Powerships, the Karadeniz Powership Orhan Bey ("Orhan Bey" or "KPS 7"), in September 2013. The Orhan Bey has the same design as the Fatmagül Sultan and has a power generation capacity of only approximately 135 MW. Karkey has four other Phase II Powerships (KPS 10, KPS 11, KPS 12, and KPS 2), the construction of which was delayed.
81.
In May 2009, the Private Power and Infrastructure Board of Pakistan ("PPIB") published an Invitation for Bids for 1,200 MW fast-track private power projects in local and international newspapers (the "Invitation for Bids").15 An Information Brochure was also released onto the PPIB website and made available at Government offices.16 The Invitation for Bids comprised two packages, i.e. Package A and Package B.
82.
Parties that were interested in submitting a bid were required to pay US$100 to register as a bidder for each package and US$2,000 to purchase a Request for Proposal (a "RFP") for each project.17 In total, 42 RFPs were issued to prospective bidders - 29 RFPs for Package A and 13 RFPs for Package B.18
83.
The RFP for Package B is a lengthy document containing information for bidders, including, inter alia :

i. An "important notice" regarding the need for bidders' own due diligence (Disclaimers);

ii. The basis on which bids would be "rejected" and the requirements for them to be considered "responsive";

iii. Instructions to bidders; and

iv. A number of exhibits, including a pro forma letter of award and a draft rental services contract (a "Draft RSC").19

84.
By letter of 4 June 2008, Karkey wrote to PPIB expressing its intention to register as a Package B bidder.20 According to the Claimant, Mr. Raja Babar Ali Zulqarnain was engaged as Karkey's local representative in Pakistan shortly thereafter.
85.
On 12 June 2008, the Ministry of Water and Power (the "MoWP") published a corrigendum to the Invitation Bids in local and international newspapers. The corrigendum increased the generation capacity that was solicited for bidding for Package B Projects from 200 MW to 500 MW.21
86.
On 14 July 2008, Karkey submitted its bid to PPIB ("Bid").22 Karkey represented in Proforma X of its Bid documents that commercial operations could be achieved 180 days (six months) from issuance of the letter of award (the "Project Schedule"):23

Activity Period
1 Assumption: Issuance of LOA 0
2 Finalizing of Rental Services Contract 20 days
3 Construction Start 60 days
4 Testing 165 days
5 Commercial Operation 180 days

87.
Karkey's Bid identified certain "Additional Technical Information" about 'KARADENIZ POWER SHIP' (the "Additional Information"). The Additional Information explained that the "Barge Facility" to be provided "consists of two barges" and associated onshore facilities, as follows:

- one with 10 Sülzer engines (referred to as "Karadeniz Power Ship-1" or "KPS-1"); and

- the other with 12 MAN engines (referred to as "Karadeniz Power Ship-2" or "KPS-2").24

88.
Other details were also provided including information on the design basis, diesel engine generator, cooling water system, steam generation system, fuel oil system, instrumentation and controls and substructures (i.e. the barges themselves) of the "Barge Facility".
89.
On 27 August 2008, Karkey confirmed in writing to the Managing Director of PPIB (Mr. Fayyaz Elahi) that: "[a]s it stands today, we are ready to launch the project as we have already made the necessary investments so that we can meet the Proposed Project Schedule".25
90.
On 28 August 2008, the Committee constituted by the Cabinet to address all matters relating to the Package A and B fast-track power generation projects met (the "Committee"). That meeting was attended by (among others) Mr. Ashraf and Mr. Qureshi (from the MoWP), and Mr. Elahi (Managing Director of the PPIB), who confirmed to the Committee that the two Package B bidders who were declared responsive - i.e. Walters and Karkey - could meet the Target COD "of February 2009".26
91.
On 10 September 2008, the Economic Coordination Committee of the Cabinet of Pakistan ("ECC") approved Karkey and Walters as qualified to receive a letter of award.27
92.
Two days after the ECC approval, Mr. Fayyaz Elahi (PPIB) confirmed to Karkey that its bid to set up a barge-mounted rental power project near Karachi had been approved "as per [the] following details", including that the Site would be Karachi and that "Commercial Operation Date from issuance of LOA" would be 180 days as promised in Karkey's Bid.28
93.
On 7 November 2008, the Letter of Award ("LoA") was issued to Karkey.29
94.
In November 2008, the Legal Division of the PPIB noted in an inter-office memorandum sent to Mr. Zuberi of the PPIB that Karkey and Walters "during negotiations proposed substantial amendments and modifications to the standard terms and conditions of the Rental Services Contract which are likely to affect the risk allocation between [the parties] and is deviation of Rental Services Contract negotiated, agreed and executed in other rental power projects undertaken by PEPCO."30
95.
On 5 December 2008, Karkey signed a contract with Lakhra Power Generation Company Ltd. ("Lakhra") for the provision of 231.8 MW of barge-mounted rental power ("2008 RSC").31 It is undisputed that Lakhra was unable to secure a letter of credit as contemplated in the Draft RSC, which prompted the Parties to revisit that provision. The Advance Payment was increased from 7% (as in the Draft RSC appended to the RFP) to 14.16% on 5 December 2008, immediately before the signing of the 2008 RSC.32
96.
As summarized under Pakistan's position below, Pakistan submits that the 2008 RSC was procured in breach of Pakistani law. In a nutshell, the alleged breaches arose because of material changes introduced to the contract after Karkey was issued with the Letter of Award, in alleged breach of Rule 40 of Pakistan Public Procurement Rules ("PPRA Rules").33
97.
On 12 December 2008, Mr. Jamil (Lakhra) wrote to the General Manager of WAPDA Power Privatisation Organization ("WPPO") (copied to the Managing Directors of the Pakistan Electric Power Company Limited ("PEPCO") and the PPIB (Mr. Khan and Mr. Zuberi), amongst others), setting out its concerns that the 2008 RSC had been signed with "material changes under the instructions of Managing Director PEPCO", which included the increase in the Advance Payment, and requested the ECC approval.34
98.
On 18 December 2008, WPPO re-directed the enquiry to Mr. Zuberi (PPIB) and stated "Chief Executive Office GENCO IV... requires ECC approval for the said changes in the Contract which may please be obtained and conveyed to [the] concerned office [...]"35
99.
The following day, Mr. Zuberi (PPIB) responded to WPPO that ECC approval was unnecessary on the basis that the ECC had not approved the terms of the Draft RSC in the first place. Instead, he stated that the PEPCO Board should be the entity approving the changes.36 PEPCO in turn, noted that "[Lakhra] may obtain approval from their own BOD for the changes to the draft RSC. In turn [Lakhra] BOD may seek approval from PEPCO BOD for their comfort".37
100.
On 7 February 2009, the Lakhra Board (chaired by Mr. Fazal Ahmed Khan) granted ex post facto approval to the 2008 RSC subject to the concurrence of the Legal Advisor of PEPCO and approval of PEPCO.38
101.
On 23 April 2009, Lakhra and Karkey subsequently signed a new contract ("2009 RSC" or "Contract") together with provision for a Sovereign Guarantee. The 2009 RSC replaced the 2008 RSC in its entirety, and provides, inter alia, that:

WHEREAS, the PARTIES entered into a Rental Services Contract on 5th December 2008, in terms whereof the BUYER [Lakhra] contracted with the SELLER [Karkey] to provide Rental Services in relation to a 231.8MW ('Rental Services Contract'). The Rental Services Contract did not come to effect and no obligations or rights accrued to either PARTY there under.

WHEREAS, the Parties are now desirous of amending and restating the Rental Services Contract.39

102.
Under the 2009 RSC, Karkey was required to achieve the commercial operations date ("COD") within six months from the latest of the date of the Letter of Award, Advance Payment (referred to in the 2009 RSC as the "Down Payment") and execution of the Sovereign Guarantee (defined as the "Target COD").40
103.
Clause 4.5 of the 2009 RSC provided (and was satisfied as follows) inter alia:

(a) The Sovereign Guarantee:

i. Within 30 days of the date on which the 2009 RSC was signed, Lakhra was to procure and deliver to Karkey a guarantee issued by Pakistan, securing the payment of all Monthly Rental Services Fees and Termination Charges ("Sovereign Guarantee").41

ii. The Sovereign Guarantee was executed by the Managing Director of the PPIB on behalf of the President of Pakistan, for and on behalf of Pakistan, on 24 April 2009.42

(b) The Advance Payment Guarantee:

i. Within 10 business days of the date of execution of the Sovereign Guarantee, Karkey was to submit a bank guarantee to Lakhra, securing the payment of US$80 million (14.16% of the Lump Sum Contract Price) (the "Advance Payment") for performance of Karkey's obligations under the 2009 RSC ("Advance Payment Guarantee").

ii. The Advance Payment Guarantee - issued by Citibank N.A. (acting through its place of business in Lahore) - was an on-demand guarantee for payment "not exceeding" US$80 million, should Karkey default any of its obligations under the 2009 RSC.

iii. The Advance Payment Guarantee was delivered to Lakhra on 6 May 2009.43

(c) The Advance Payment

i. Following submission of the Advance Payment Guarantee, Lakhra was to release the Advance Payment to Karkey within five days.

ii. Pursuant to an invoice issued by Karkey on 11 May 2009, the National Bank of Pakistan released the Advance Payment (less the 6% withholding tax44) to Karkey on Lakhra's behalf on 12 May 2009.45

104.
On 24 July 2009, Mr. Ashraf (the MoWP Minister and Chairman of the PPIB) received a letter from the Pakistan chapter of the international anti-corruption agency, Transparency International ("TI"), requesting that he "review the awards of RPP, which in TI Pakistan's opinion were not complying with the PPRA Public Procurement Rules 2004", to which Mr. Ashraf did not respond.46 Transparency International also requested copies of various documents relating to the RPP programme, including the RPP contracts, the tender documents, evaluation reports and evidence of compliance with Rules 7 and 35 of the PPRA Rules.47
105.
In September 2009, the Pakistani parliamentarian, Mr. Makhdoom Syed Faisal Saleh Hayat, wrote an open letter to the Chief Justice of the Supreme Court of Pakistan, Iftikhar Muhammad Chaudhry ("Chief Justice" or "Chief Justice Chaudhry"), stating that he "had raised the issue of corruption in the award of RPPs before every forum, including the National Assembly of Pakistan, but his voice was not attended to".48 Chief Justice Chaudhry opened a case the following day, 9 September 2009, directing Mr. Hayat to furnish evidence in support of his allegations of Government corruption in connection with the RPPs.49
106.
On 26 September 2009, Mr. Hayat produced a nine-page letter highlighting a number of areas of concern and making allegations that certain individuals involved in the RPP programme were receiving "kick-backs".50 On 7 October 2009, the Chief Justice ordered the Chairman of the Water and Power Development Authority of Pakistan ("WAPDA") to respond thereto.51
107.
In November 2009, WAPDA submitted comments on behalf of PEPCO and requested that the Court dismiss the case.52 The Chief Justice decided to press forward, ordering that notices be issued to various Ministries to appear and defend the Government's rental power policy. Exercising his prerogative as Chief Justice, Mr. Chaudhry constituted a bench of three Supreme Court justices to hear the case, which he consolidated with another case, also styled as a "human rights" case, relating to electricity prices (together, the "Rental Power Case").53
108.
Pursuant to the Court's orders, the Ministry of Water & Power submitted a reply to Mr. Hayat's petition on behalf of the executive branch of Pakistan.54
109.
On 25 November 2009, the Federal Bureau of Revenue ("FBR") ordered the Lahore tax office to refund Karkey the 6% withholding tax from the US$80 million Advance Payment which had been deducted.55
110.
On 8 December 2009 Lakhra and Karkey entered into Amendment No. 1 to the 2009 RSC, which recorded the substitution of the Project Site from Mauripur to Korangi and further extended the deadline for the Target COD to 7 April 2010.56
111.
On 2 January 2010, Karkey established a wholly-owned Pakistani subsidiary, Karpak (Pvt.) Ltd. ("Karpak"), to handle activities related to the Powership project in Pakistan. With the express prior consent of the PPIB. Karkey subsequently assigned to Karpak certain rights and obligations under the Contract relating to operation and maintenance of the Powerships and fuel purchase operations.57
112.
In January 2010, the Asian Development Bank ("ADB") published the findings of its independent third-party audit of the RPP programme ("ADB Report"). The ADB Report concluded that there had been "many inconsistencies"58 in the RPP contracts, noting that changes to the RFP had "diluted the transparency, competition and equal treatment that an ICB [International Competitive Bidding] process is intended to ensure",59 and that a re-tendering "could have resulted in better response and more competitive bids".60
113.
On 20 January 2010, Transparency International again wrote to Mr. Ashraf (the MoWP Minister and chairman of the PPIB), noting that previously requested documents had not been provided and highlighting the findings of the ADB Report.61
114.
On 30 January 2010, Transparency International wrote to Chief Justice Chaudhry, echoing the concerns expressed by Mr. Hayat in September 2009 and enclosing one of its previous letters to Mr. Ashraf.62 Transparency International urged Chief Justice Chaudhry to take suo motu notice of the RPP case and "save the country from the biggest corruption fraud in the history of Pakistan".63
115.
There is no dispute that Karkey failed to achieve the Target COD of 7 April 2010.
116.
In September 2010, more than a year after the Supreme Court's suo motu proceedings had commenced, the Supreme Court ordered PEPCO to issue notice of the proceedings to the CEOs of all the RPP sponsors. After receiving such a notice, Karkey entered an appearance through counsel on 4 October 2010, as an interested non-party to the case.64
117.
In December 2010, Mr. Brohi (Lakhra's CEO) issued a work order to KEMA International B.V. ("KEMA"), a Dutch company, as an independent engineer to certify the equipment and witness, review and certify the results of the Operational Tests for the 231.8 MW Karkey Rental Power Project, Korangi, Karachi.65
118.
The Equipment was assessed via KEMA's site inspections of the Kaya Bey, the Alican Bey and the work platform and fuel storage barge on 22 December 2010, 15 March 2011 and 8 April 2011.66
119.
On 8 April 2011, KEMA issued the Certificate of Acceptance of the Equipment,67 and on 9 April 2011, it issued the Certificate of Guaranteed Electrical Output.68 The Reliability Run Test, which was to demonstrate "uninterrupted reliable operation of the Equipment at the Guaranteed Electrical Output for two (2) two hours without overloading the individual equipment beyond its safe operating limits"69 was not completed.70 KEMA concluded in its report dated 5 May 2011 that "the requirements of successful reliability run test were not met."71
120.
On 12 April 2011, the Commercial Operation Achievement Certificate was issued by Lakhra, notifying Karkey that COD would occur the following day, as follows:

Upon successful completion of the two hours operational test on 9th April 2011, in which Net Electrical output remained more than Guaranteed Electrical output [231.8 MW], this is to certify that commercial operation of 231.8 MW Karkey Rental Power plant is achieved, as per provisions of clause 4.4 of RSC. The undersign as per clause 3.1 (m) of RSC hereby issues the 'COMMERCIAL OPERATION ACHIEVMENT CERTIFICATE'.

Now it is notified that, as per clause 4.4 of RSC Commercial operation date shall occur at 00:01 AM on 13th day of April 2011.72

121.
Following achievement of COD on 13 April 2011, Karkey wrote to Lakhra stating that pursuant to Section 4.5(m) of the Contract, Lakhra had until 23 April 2011 to establish the Fuel Payment Letter of Credit ("FPLC"), after which time Karkey would no longer continue financing fuel purchases out of its own funds.73 Karkey reiterated this message on 21 April 2011, stating that it would have to discontinue electricity generation if the FPLC was not established by 23 April, and noting also that the Fuel Payment Invoices for January and February 2011 remained unpaid and were overdue.74
122.
By 23 April 2011, Lakhra had still not established the FPLC, and still not paid the outstanding Fuel Payment Invoices. On 24 April 2011, Karkey ceased electricity generation.75
123.
On 6 May 2011, Karkey re-commenced power generation using Karkey's own funds to purchase fuel as an alleged gesture of goodwill and in hopes of saving the Project.76
124.
On 8 February 2012, Karkey served on Lakhra a Final Notice of Default for failure to establish the FPLC.77
125.
On 30 March 2012, Karkey served Lakhra a "Notice of Termination effective immediately" regarding the 2009 RSC. In such Notice, Karkey requested payment of the following amounts:78

- US$161,856,018 as termination charges pursuant to Clause 4.6(d);

- US$12,000,000 as mobilization and transport charges to return the Equipment to SELLER's designated depot as per Clause 4.6(b); and of

- All receivables including but not limited all Monthly Rental Services Fees and all Monthly Operation and Maintenance Services Fees and fuel invoices to date as per the 2009 RSC.

126.
On the same date, after more than two years of proceedings, the Supreme Court rendered its judgment in the Rental Power Case ("RPP Judgment", "30 March 2012 Judgment" or "Judgment"), concluding that the RPP contracts of 2008 had been procured in breach of the PPRA Rules. Accordingly, the Judgment declared void ab initio all RPP contracts (including the 2009 RSC), ordered that they be rescinded and ordered an investigation by the National Accountability Bureau ("NAB") into possible corruption by the RPP sponsors and by various public officials.79 It is undisputed that the Supreme Court made no explicit finding of corruption anywhere in the Judgment, nor any specific finding of corruption against, or involving, Karkey.80
127.
Pursuant to the Supreme Court's directions, the NAB began an inquiry into the RPP programme immediately following the 30 March 2012 Judgment.
128.
On 2 April 2012, on the basis of Section 23(1)81 of the National Accountability Ordinance ("NAO"), the NAB notified the relevant authorities, including the Pakistan Maritime Security Agency ("PMSA"), that an investigation into Karkey had been launched under the NAO and that Section 23(1) NAO was therefore operative.82 At the same time, certain individuals connected to the RPP Programme (including Mr. Karadeniz) were placed on the Exit Control List (a list of persons prohibited from departing from Pakistan),83 and Karkey's bank accounts were frozen.84
129.
Between 30 March and 2 April 2012, the state-owned National Transmission & Despatch Company Ltd. and Lakhra, respectively, instructed Karkey to cease electricity dispatch from the Powerships. At the same time, Karachi Electric Supply Company ("KESC") stopped supplying lifeline power to the Powerships, leaving the crew on the Vessels without power.85
130.
On 3 April 2012, Karkey received a notification issued by Port Qasim Authority stating that, further to the inquiry initiated by NAB, a "caution" had been placed on the Vessels under NAO Section 23. Purportedly relying on such "caution", the Pakistani port authorities directed that the Vessels not be moved from their moored position until the completion of the NAB inquiry and/or clearance from NAB.86
131.
Karkey's Kaya Bey Vessel remained forcibly idle from April 2012 through May 2014, when Pakistan complied with this Arbitral Tribunal's Decision on Provisional Measures dated 16 October 2013 to allow the Vessel to depart Pakistani waters. For the Alican Bey Vessel and the two support Vessels (the Iraq and the Enis Bey), the detention that began in April 2012 continues to the present day.
132.
For the entire period of this detention, because Pakistan cut off lifeline power to the Powerships, the Vessels were (and still are) without power needed for operation and maintenance.
133.
On 24 April 2012, the MoWP, on behalf of Pakistan, PEPCO, NEPRA, and the former Ministry of Finance, filed a Civil Review Petition87 before the Supreme Court in order to try to reverse the RPP Judgment. These proceedings remain pending.
134.
On 24 April 2012, and purportedly pursuant to the RPP Judgment, NAB demanded that Karkey appear at NAB Headquarters and that, within 48 hours, it pay an alleged outstanding amount of US$183.5 million to the Chairman of the NAB.88 NAB's demand for payment of US$183.5 million was reiterated on 9 May 2012.89
135.
On 19 May 2012, Karkey delivered to Pakistan a notice of dispute under the BIT.90
136.
On 7 September 2012, NAB, Lakhra and Karkey entered into a "Deed", which provided for payment by Karkey of US$17.2 million and declared that the parties had reached a resolution of all the matters arising from the Contract, the Judgment, and the NAB inquiry.91 The Deed, which was signed by the Director General NAB, also declared that "KARKEY has no liability, and there remains no basis or evidence for proceeding(s) by NAB or any of the other Parties or GoP entities against KARKEY and/or its project/investment and that NAB has completed and closed its enquiry in respect of KARKEY" and that, upon payment of the agreed amount, NAB would remove the "caution" against the Vessels (which had been detained since 2 April 2012); would rescind the freezing order against Karkey's bank accounts; and would allow free passage of Karkey's assets and personnel by withdrawing the forcible detention it had imposed on them.92
137.
In accordance with the Deed, Karkey tendered payment of the agreed US$17.2 million through the Embassy of the Republic of Turkey in Islamabad, which acted as an escrow agent and duly notified the Foreign Office of Pakistan.93
138.
On 11 October 2012, NAB issued a "No Objection Certificate" ("NOC") declaring that it was satisfied that Karkey had reconciled and agreed account with Lakhra, and that Karkey had no liability under the NAO.94 The same document stated that NAB had "completed and closed inquiry" in respect of Karkey.95
139.
On 11 October 2012, pursuant to the terms of the Deed and the No Objection Certificate, NAB lifted the caution on Karkey's Vessels.96 The Vessels, however, remained detained and under the control of the GoP pending compliance with the directions of NAB.
140.
On 1 November 2012, Mr. Hayat, the Parliamentarian acting as the petitioner in the Rental Power Case, wrote a letter to the Chief Justice Chaudhry requesting that the Supreme Court prevent NAB from allowing Karkey's Vessels to sail outside of Pakistan before recovering the "full amount" Karkey purportedly owned, which Mr. Hayat claimed to be US$227 million.97
141.
On 2 November 2012, NAB reactivated the "caution" on Karkey's Vessels, on the basis of NAO Section 23. NAB once again instructed the port authority and PMSA to prevent the Vessels from departing Pakistani territorial waters.98
142.
By order dated 26 November 2012, the Supreme Court directed NAB to recover from Karkey US$120 million, which according to the Court was the amount "re-calculated" by NAB at the Court's direction and in coordination with Petitioner Hayat, subject to "all just and legal exceptions".99
143.
On 29 November 2012, NAB notified Karpak that, pursuant to the Supreme Court's direction, Karkey was required to pay US$120 million to NAB within seven days.100
144.
Karpak informed NAB that it had no authority to accept service of process on behalf of Karkey. Therefore, on 3 December 2012, NAB notified Karkey that pursuant to the Supreme Court's directions, Karkey was required to make a payment - this time for US$128 million - to the GoP, via NAB, and that it was for this reason that the Vessels "have been detained as security for payment".101
145.
On 11 January 2013, the Supreme Court in a written order directed NAB to pursue criminal liability and to arrest persons involved in the RPPs.102
146.
On 16 January 2013, Karkey filed its Request for Arbitration in this case.
147.
On 27 January 2013, the NAB Chairman (Mr. Bokhari) wrote to the President of the Pakistan, inter alia, as follows:

The clear line between the recognized authority of the Supreme Court to monitor NAB investigations to the limited extent of ensuring fair investigation, and itself becoming involved in guiding investigations, appears to be becoming breached as a norm as the elections near. Contempt notices, verbal orders that differ from written orders, and insufficient time to prepare numerous progress reports, are placing extreme pressure on NAB personnel who appear before the Honorable Judges. There is even a danger that NAB personnel could lose their independence and are unable to carry out their investigations in an independent manner due to the pressure being exerted on them by the Honorable Supreme Court to proceed along lines which seem to be desired by the SC [Supreme Court]. In revealing this pressure, to safeguard their jobs, and so as not to displease the Honorable Court, there is danger of unfair investigation being resorted to [...]. I fear that in the current direction that the Honorable Supreme Court appears to be taking, I will not be able to perform my independent statutory role […].103

148.
On 31 January 2013, the Supreme Court issued a Contempt of Court order accusing the Chairman of NAB of "causing interference with and obstruction in the process of the Court and […] the administration of justice".104
149.
On 23 May 2013, Lakhra filed an admiralty suit against Karkey in the Sindh High Court seeking recovery of US$128 million plus interest allegedly owed by Karkey.105 At the same time, Lakhra made an ex parte application for an interim order for the arrest of Karkey's Vessels as "security" for the alleged claim, and seeking a further order that, if Karkey were to fail to pay such amount, Karkey's Vessels would be sold and the proceeds paid to Lakhra.106 On 29 May 2013, the Singh High Court issued an arrest order for Karkey's Vessels.107
150.
On 16 October 2013, this Arbitral Tribunal issued its Provisional Measures Decision, in which the Tribunal ordered the State of Pakistan, inter alia, to

'take all steps necessary to allow the vessel, Karadeniz Powership Kaya Bey […], to depart into international waters and reach, before 1 November 2013, the dry dock in Dubai for inspection and repairs as determined by the Bureau Veritas (or other equivalent agency) to maintain the vessel's flag-registry and class certification', and to that effect, to '[c]ause Lakhra […] to take all steps necessary to obtain the temporary suspension of the order of the High Court of Sindh at Karachi dated 29 May 2013 in the Admiralty Suit No. 07 of 2013, which arrested the vessel [Kaya Bey].'108

151.
Lakhra made an application to the Sindh High Court seeking a temporary modification of the arrest order it had procured, to allow the Kaya Bey to sail to Dubai for dry dock inspection and repairs, which Lakhra filed on 26 October 2013.109
152.
The Sindh High Court issued a notice to NAB, a non-party to the proceedings, to appear and state its position with respect to Lakhra's application.110 NAB appeared in the admiralty proceeding to oppose Lakhra's application for modification of the order unless Karkey were to post a bank guarantee in favour of the Chairman of NAB in the amount of US$128 million.111
153.
On 30 October 2013, a new admiralty lawsuit was filed against Karkey before the Sindh High Court, this time by Karkey's Pakistani shipping agent, Bulk Shipping & Trading Limited ("Bulk Shipping"). In its petition, Bulk Shipping made an ex parte application for the immediate arrest of all four of Karkey's Vessels on account of a purported claim of unpaid docking charges in the amount of approximately US$1.1 million. Bulk Shipping further claimed that it had suffered "mental agony torture and loss of health, loss of business and loss of reputation, which has been caused to the Plaintiff [ Bulk Shipping] being an agent of the Defendant [Karkey]" and claimed approximately US$949,000 as damages.112
154.
On 5 November 2013, the Singh High Court granted Bulk Shipping's application and ordered the arrest of all four Karkey Vessels.113
155.
By Order dated 23 December 2013, the Sindh High Court declined to grant Lakhra's application for temporary modification of the arrest order.114
156.
On 6 January 2014, Lakhra appealed the decision of the Sindh High Court.
157.
On 7 May 2014, the Sindh High Court Appellate Bench Division issued an order permitting the release of the Kaya Bey.115
158.
On 15 May 2014, the Singh High Court indicated that it would lift its arrest of Karkey's Vessels upon submission by Karkey of a pay order for the amount Karkey allegedly owed to Bulk Shipping (approximately US$1,137,234). Karkey furnished the required pay order to the Sindh High Court.116 Noting receipt of the pay order, the Sindh High Court revoked the arrest of Karkey's four detained Vessels in the Bulk Shipping case on 15 May 2014.117 The proceedings in the Sindh High Court are still ongoing.
159.
On 1 August 2014, upon a request by Karkey and absent any objection from Pakistan, the Tribunal modified its Decision on Provisional Measures to relieve Karkey of any obligation to return the Kaya Bey to Pakistan following completion of it dry-docking inspection and repairs in Dubai.
160.
The Kaya Bey departed Dubai in the first week of October 2014 and has since arrived in Basra, Iraq.118

IV. SUMMARY OF THE PARTIES' CLAIMS AND REQUESTS FOR RELIEF

161.
The following provides an overview of the Parties' respective claims and defences. This summary has been prepared to set in context the decisions made by the Tribunal in this Award, and is not an exhaustive description of the arguments presented during this arbitration through the written and oral submissions of the Parties. The fact that a particular submission is not expressly referenced below should not be taken as any indication that it has not been considered by the Tribunal.

A. The Claimant's Position

(1) Jurisdiction

a. The Supreme Court Judgment does not Deprive the Tribunal of Jurisdiction

162.
The Claimant submits that the Supreme Court's holding that the contracts are void ab initio and must be rescinded have no impact whatsoever on the jurisdiction of this Tribunal. Such decision came in any event after the Contract had already been performed and terminated by Karkey.119
163.
According to the Claimant, the Tribunal is required to assess the scope of Pakistan's consent to arbitration under international law. Accordingly, a Pakistani court holding regarding the status of Karkey's Contract under national law cannot be dispositive of - or even relevant to - the Tribunal's jurisdictional inquiry. Rather, it is the Tribunal's obligation and prerogative to conduct its own independent assessment of whether Karkey's investment was made "in conformity with the hosting Party's laws and regulations" as required by Article I(2) of the BIT.120
164.
The Claimant notes that despite acknowledging that the Tribunal "shall be the judge of its own competence" to determine the scope of BIT jurisdiction over Karkey's claims, Pakistan insists that it would be inappropriate for the Tribunal to undertake an independent jurisdictional analysis in this case. Instead, Pakistan demands that the Tribunal defers to the Supreme Court's Judgment, unless the Tribunal finds that the Judgment constituted a denial of justice.121
165.
However, according to the Claimant, Pakistan provides no basis for this asserted limitation on the Tribunal's authority. Pakistan's heavy reliance on the award in Helnan v. Egypt122 is misplaced, as the tribunal in that case explicitly rejected the notion that a national court decision on the legality of an investment could be determinative of a tribunal's jurisdiction to entertain BIT claims. The Claimant asserts that Pakistan actually fails to cite any authority that requires a tribunal assessing jurisdiction over BIT claims to defer to the findings of a national court on the legality of the claimant's investment. According to the Claimant, the weight of authority instead confirms that national court decisions of illegality cannot substitute for an ICSID tribunal's independent assessment under international law. The foregoing is also consistent with the basic principle of international law expressed in Article 27 of the Vienna Convention on the Law of Treaties, that "[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty." Similarly, under Article 3 of the ILC Articles on State Responsibility, "[t]he characterization of an act of a State as internationally wrongful is governed by international law. Such characterization is not affected by the characterization of the same act as lawful by internal law."123
166.
In any event, the Claimant submits that its investment consisted of many elements other than the Contract itself. Most notably, Karkey constructed permanent infrastructure to improve Pakistan's electricity grid; transported its Vessels into Pakistani waters; established a local subsidiary; set up local offices; and employed local personnel. Karkey argues that there is no "domestic law" magic wand that Pakistan can wave to make Karkey's investment in Pakistan disappear:that investment happened, and the reality of it is incontrovertible.124

b. Karkey Made its Investment in Conformity with Pakistani Law

167.
The Claimant submits that Karkey's investment was made in good faith and in conformity with Pakistani law. Karkey asserts that, under international law, non-conformity with the host State's law will vitiate jurisdiction only where it (i) constitutes a material breach of a fundamental principle of host-State law, (ii) occurs in the making of the investment, and (iii) is committed knowingly by the investor. Investment tribunals have applied this "serious illegality" standard. The Claimant argues that, even if Pakistan could meet this standard (which is denied), having endorsed Karkey's investment despite knowing of the alleged illegalities, Pakistan is estopped from objecting to jurisdiction on this ground.125
168.
According to the Claimant, Pakistan mischaracterized the legality requirement in Article I(2) of the BIT, asserting that "it's only if [Karkey's] investment was in conformity with Pakistani law that it qualifies as an investment entitled to protection under the Treaty." Under Pakistan's proposed test, it would be enough for the State to claim that the investor "should have known" of a legal non-conformity, whether or not the investor knowingly engaged in any wrongful conduct in the making of the investment. However, the Claimant asserts that negligence based violations do not rise to the standard of "serious illegality" under international law. Therefore, any such alleged failures of due diligence by Karkey would be insufficient to deprive the Tribunal of jurisdiction.126
169.
Moreover, the Claimant argues that, as investment tribunals have explained, for purposes of jurisdiction, illegality is assessed at the moment in which the investment is first established. According to the Claimant, the purpose of this inquiry is to determine whether an investor has unfairly gained access to the protection of the BIT. Because an investor gains that BIT protection the moment it establishes its investment, any subsequent illegality in the operation of the investment cannot vitiate BIT jurisdiction. Since the various alleged illegalities (which are denied) would have occurred after the issuance of Karkey's Letter of Award, countersigned by Karkey on 7 November 2008, they could not in any event result in the loss of jurisdiction over Karkey's claims.127
170.
The Claimant further submits that Pakistan is estopped from raising objections to the legality of Karkey's Project given the fact that for years Pakistan has fully ratified the legality of that very investment, encouraged Karkey first to make and then to maintain the investment, and issued a No Objection Certificate128 clearing Karkey of any liability for corruption. Karkey argues that international law does not countenance this type of volte face by a State to the detriment of the investor.129
171.
Karkey's position on each of Pakistan's objections to the legality of Karkey's investment is summarized below and relates to the fact that (b.1) Karkey did not secure its investment through misrepresentation and fraud; (b.2) Karkey did not breach Pakistan's procurement laws or international procurement norms; (b.3) Karkey did not secure its investment through corruption; and (b.4) Pakistan's disregard of its obligations under the Contract and Sovereign Guarantee constitute breaches of the BIT.

(b.1) Karkey did not Secure Its Investment through Misrepresentation and Fraud

172.
Karkey rejects Pakistan's argument that it has obtained its investment through fraud. In order to succeed on a claim for fraud under international law, Pakistan must show (i) an intent by Karkey to conceal; (ii) a material fact; and (iii) detrimental reliance by Pakistan on the facts as presented. According to Karkey, Pakistan cannot demonstrate any of these elements.130
173.
The Claimant asserts that Pakistan's fraud claim fails to meet even the first element of the above-referenced standard, as Pakistan has presented no evidence that Karkey acted with an intent to deceive Pakistan. As Mr. Karadeniz explained at the Hearing, at the time of submission of its Bid, Karkey believed it could in fact achieve commercial operations within 180 days of issuance of the Letter of Award, as it had indicated in its Proposed Project Schedule.131
174.
The Claimant submits that Pakistan also fails to meet the second element of fraud: a demonstration that Karkey concealed a "material fact." In submitting its Proposed Project Schedule, Karkey merely made a commitment to meet a target or, failing that, to pay the contractual penalty for its delays. Karkey argues that this was not a representation of fact that Karkey would achieve the target irrespective of Pakistan's actions or of delays beyond Karkey's control. It simply was an acknowledgment by Karkey that there was an agreed target date for achievement of commercial operations and an acceptance by Karkey of the contractual consequences for failing to meet that target. Those consequences included (1) the encashment of the performance guarantee, (2) liquidated damages, and (3) a reduction of the contract terms. The Claimant asserts that the inclusion of these contractual remedies for delay underscores the fact that Pakistan and Karkey had a mutual understanding of the commercial operations date as a mere target.132 Karkey's commitment thus was not an assurance of a particular outcome, but rather simply an acknowledgment that it would either meet the target COD, or pay the relevant contractual penalty.133
175.
The Claimant submits that Pakistan also fails to satisfy the third element required for its fraud claim: detrimental reliance. Pakistan does not dispute that to succeed on its misrepresentation objection it must demonstrate that it reasonably relied to its detriment on Karkey's commitment to meet the target COD. However, Pakistan insists that such detrimental reliance can be inferred because Pakistan awarded Karkey the Contract on the basis of Karkey's commitment. According to Karkey, this fails because Pakistan does not explain how awarding Karkey a contract on this basis was detrimental to Pakistan. There were no other bidders who would have received contracts had Karkey been disqualified.134 Nor can mere delay in achievement of COD be considered a detriment flowing from reliance on Karkey's commitment to the target schedule, given that the Contract expressly provided for penalties in case of delay.135

(b.2) Karkey did not breach Pakistan's procurement laws or international procurement norms

176.
Karkey rejects Pakistan's allegation that by adopting certain changes to the tendered contract, Karkey and Lakhra (and various Pakistani government agencies) materially breached Pakistani procurement law and that the Tribunal therefore lacks jurisdiction.136
177.
According to the Claimant, the first among numerous defects in this argument is that Pakistan has taken - and continues to take -the opposite position before its own Supreme Court. There Pakistan continuously maintained that Karkey's contract was procured in compliance with Pakistani procurement law.137
178.
Pakistan argues that Karkey's investment in Pakistan was established in breach of the PPRA Rules. However, as explained by Karkey's Pakistani law expert, Mr. Zafar, negotiations that take place after a Letter of Award is issued are not governed by the PPRA Rules, since the procurement process is complete upon the issuance of the Letter of Award. Therefore, there is no question of Karkey's non-compliance with the PPRA Rules, because the allegedly offending contractual changes occurred after the Letter of Award. Even if the PPRA Rules were deemed applicable to the contractual changes alleged by Pakistan, such changes are in fact permissible unless they materially shift the transactional balance in favour of the private party. This standard is consistent with international procurement custom and norms. None of the contractual changes alleged by Pakistan offend either Pakistani or international procurement standards.138
179.
According to the Claimant, during negotiations, Pakistan informed Karkey that it was unable to open a confirmed letter of credit. As a result, a package of changes was introduced into the Draft RSC to provide alternate forms of security to Karkey. Specifically, the requirement for confirmation of the Letter of Credit was eliminated, the amount of the Letter of Credit was reduced from an amount equivalent to five years of rental services fees to an amount equivalent to only three years and the terms of the Letter of Credit was reduced correspondingly. In exchange for this less advantageous form of security for Karkey, the down payment was increased from 7% to 14.16% and a fuel payment letter of credit was introduced.139 Accordingly to the Claimant, overall, these changes were to Karkey's detriment. In accordance with Pakistani and international procurement norms, such changes were permissible because they did not shift the transactional balance in favour of the seller, and would not have altered the outcome of the procurement.140

(b.3) Karkey did not secure its investment through corruption

180.
The Claimant submits that like Pakistan's allegations of fraud and misprocurement, Pakistan's claim that Karkey secured its investment through corruption is unsupported by either the factual record or the law. Karkey argues that the standard of proof for allegations of corruption is high. Specifically, an allegation must be proven by clear and convincing evidence, as that standard is defined under international law.141
181.
According to Pakistan, because "corruption is endemic" in Pakistan's political system, the Tribunal, in balancing the probabilities, should start from an assumption that it is more likely than not that Karkey was engaged in some form of corruption. Karkey argues that such proposition is perverse, as Pakistan in essence is proposing that the well-accepted "clear and convincing" evidence standard be supplanted by new standard of "presumptive corruption."142 The Claimant asserts that this shift in the standard of proof is unacceptable.143
182.
The Claimant states that Pakistan has repeatedly and consistently admitted that it has no evidence of bribery by Karkey but it insists that Karkey must have paid bribes to secure benefits under the Contract. The Claimant notes that at the Hearing, Pakistan's only witness on this subject, Mr. Aslam, confirmed that he did not know of any bribes having been paid by, or on behalf of, Karkey.144 Despite Pakistan's assertion that Mr. Aslam's testimony proves that Karkey engaged in corruption, under cross-examination he failed to substantiate any of Pakistan's speculative allegations. This is unsurprising given that neither the Supreme Court nor the NAB found any evidence of corruption by Karkey in the course of their investigation of those same allegations.145
183.
The Claimant notes that the NAB itself concluded that there was no evidence of wrongdoing by Karkey under the NAO, and entered into a Deed settling Karkey's account and explicitly concluding that Karkey had no liability under the NAO. In addition to signing the Deed with Lakhra and Karkey, NAB issued a NOC, clearing Karkey from any and all liability under the NAO (the very law which Pakistan now alleges that Karkey breached).146
184.
Karkey argues that Pakistan attempts to elide the importance of the Deed and the NOC by asserting that the Deed was later rejected by the Supreme Court because the value of the settlement was too low. However, it points out to no ruling from the Supreme Court questioning NAB's clearance Karkey of any liability under the NAO.147
185.
Moreover, the Claimant maintains that Pakistan's assertion that Karkey has not adequately explained Mr. Zulqarnain's role in the Project is false. According to the Claimant, both the documentary and testimonial evidence demonstrate that Mr. Zulqarnain played a legitimate role as Karkey's representative in Pakistan and there is no evidence that he engaged in corruption.148
186.
The Claimant argues that, attempting to make up with legal argumentation what it lacked in evidence, Pakistan in its pleadings had invoked a single investment tribunal decision, Metal-Tech v. Uzbekistan, which it insisted was analogous to the present case. According to Pakistan, Mr. Zulqarnain's role at Karkey was akin to that of two of the consultants in Metal-Tech, to whom the claimant in Metal-Tech had paid millions of dollars via an offshore company in return for their services of "lobbying" government officials. However, the Claimant asserts that, by the close of the Hearing, even Pakistan itself admitted that the comparison was inapt: "Pakistan accepts we are not in Metal-Tech territory".149

(b.4) Pakistan's disregard of its obligations under the Contract and Sovereign Guarantee constitute breaches of the BIT

187.
The Claimant submits that the claims that Pakistan mischaracterizes as "purely contractual" -including for example, Pakistan's nullification of the Contract, failure to pay outstanding invoices for rental services and fuel payments, refusal to honour the Sovereign Guarantee, and failure to honour Karkey's post-termination Contract rights - in fact amount to breaches of the BIT.150
188.
The Claimant argues that Pakistan's characterization of these claims as outside the scope of the BIT - and in particular, the Umbrella Clause - is inconsistent with the weight of investment jurisprudence. Nor does the forum selection clauses in the Contract and Sovereign Guarantee deprive Karkey of recourse to ICSID for resolving its contract-related BIT claims. Because ICSID Convention Article 26 establishes ICSID as the exclusive forum for such claims, an LCIA tribunal would have no jurisdiction to hear Karkey's claims for breach of the BIT. In any event, both the Contract and the Sovereign Guarantee are governed by Pakistani law. Applying that law, the Sindh High Court determined that Karkey's choice to pursue ICSID arbitration rendered the LCIA arbitration clause "incapable of being performed" during the pendency of these ICSID proceedings. Further, having objected to LCIA arbitration in the Sindh High Court proceedings, Pakistan is estopped from claiming in these proceedings that LCIA arbitration is mandatory. The Claimant therefore assets that this ICSID arbitration is therefore the only forum in which Karkey can seek redress for its BIT claims relating to the Contract and Sovereign Guarantee.151

(2) Attribution

189.
According to Karkey, the acts of the Ministry of Water, NAB, the Supreme Court of Pakistan and other organs of the State of Pakistan, as well as Lakhra's acts, in breach of the BIT are attributable to Pakistan.152
190.
As set out under Section IV(A)(3)(c) below, Karkey rejects Pakistan's attempts to avoid BIT liability by disclaiming responsibility for the acts of Lakhra and PEPCO. According to Karkey, the record and Pakistan's own witnesses confirm that these entities were squarely under the direction and control of Pakistan's MoWP.153
191.
It is Karkey's position that Lakhra's acts are attributable to Pakistan, as there can be no dispute that Lakhra acted at the behest and whim of MoWP, in the exercise of the latter's sovereign powers. Although Pakistan denied responsibility for the acts of PEPCO at the Hearing, it had already conceded in its Counter-Memorial that PEPCO is a "Government department," and it failed to offer any rebuttal of the evidence on that point in Karkey's Reply.154

(3) Merits

a. The Supreme Court Judgment Does Not Insulate Pakistan from Liability for Breaches of the BIT

192.
According to Karkey, the Supreme Court's holding that the contracts are void ab initio and must be rescinded only impacts the merits of the case insofar as the Judgment itself violates the BIT. In any event, the Judgment does not preclude a finding of liability by Pakistan for its numerous other breaches of the BIT.155
193.
Even if the Tribunal were to conclude that the Judgment was not deficient from the viewpoint of international law, i.e. that the Judgment itself did not constitute a BIT violation, the Tribunal would only owe a duty of deference to the specific findings of national law that the Judgment actually reached. Under no circumstance could the Judgment, deciding liability under national law, insulate Pakistan from responsibility for breaches of international law in the alleged implementation (by executive authorities) of that Judgment, nor could it validate subsequent directives from the Supreme Court.156

b. Pakistan's has breached its BIT obligations, including those incorporated through the MFN clause

194.
According to the Claimant, Pakistan has unlawfully expropriated Karkey's investment in breach of Article III of the Pakistan-Turkey BIT, which provides as follows:157

Investments shall not be expropriated, nationalized or subject, directly or indirectly to measures of similar effects except for a public purpose, in a nondiscriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law....

195.
Karkey maintains that expropriation occurs where the State substantially deprives an investor of the use and enjoyment of its investment, and such deprivation need not affect the Claimant's legal title. Accordingly, a State's action may be considered tantamount to expropriation where they interfere significantly with the use or reasonably expected benefit of the investment. According to the Claimant, in the present case, Pakistan's arrest and detention of Karkey's Vessels, seizure of Karkey's bank accounts, and purported invalidation of Karkey's contractual rights under the Contract all have severely interfered with Karkey's use and enjoyment of its investment in Pakistan.158 Pakistan's purported invalidation of the Contract and subsequent seizure of Karkey's Vessels and bank accounts in Pakistan have effectively expropriated Karkey's entire investment.159
196.
Moreover, the Claimant submits that Pakistan's mistreatment of Karkey's investment has breached several of Pakistan's BIT obligations, including obligations incorporated through Article II(2) (the "MFN clause"), which requires Pakistan to accord to "investments, once established, treatment no less favorable than that accorded in similar situations to investments of its investors or to investments of investors of any third country, whichever is most favorable." The Claimant asserts that, by virtue of the MFN clause, Pakistan must afford Karkey the same treatment it accords investors under Pakistan's other BITs.160
197.

According to the Claimant, Pakistan attempts to prevent the importation of obligations from its other BITs by asserting that the phrase in "in similar situations" requires the investor to demonstrate a direct violation of the MFN clause before the favourable protection of other treaties can apply. The Claimant argues that Pakistan attempts to bolster its restrictive interpretation of the MFN clause by relying on the newly issued Ickale v. Turkmenistan award, which held that unless the term "in similar situations" was read to require the investor to point to an actual comparator, the term would lack effet utile.161 Karkey submits that this reading is contrary to the weight of prior investment jurisprudence, and Pakistan itself admits that the Ickale award "is the only investment treaty award" that has adopted Pakistan's restrictive reading of the MFN clause.162

198.
According to the Claimant, other tribunals, including that in Bayindir v. Pakistan (which analysed the same BIT at issue in this case) have concluded that the MFN clause does allow importation of protection from other treaties - even in the absence of an actual comparator investment.163

c. Pakistan's Failure to Perform its Contractual Obligations Violated the BIT (Umbrella Clause)

199.
According to Karkey, Pakistan failed to observe the commitments it made to Karkey in the Contract and the Sovereign Guarantee, and has thus violated Article 9 of the Lebanon-Pakistan BIT, which, as incorporated by reference pursuant to the MFN Clause of the Turkey-Pakistan BIT, requires Pakistan to "observe any other obligation it has assumed with regard to investments" made in Pakistan by Karkey. The purpose of this type of clause - also known as an "umbrella" clause - is to incorporate compliance with contracts and other agreements related to investments into the scope of the treaty protections for investors and investments, regardless of whether the host State has violated the other substantive provisions of the treaty at issue.164
200.
Karkey points out that a State's obligation to observe commitments with respect to its contracts is not limited to avoiding a breach of those contracts. The umbrella clause also imposes a broader obligation on the State "to 'ensure' that state-owned entities conduct activities which, in general terms of governance, management and organization, make them capable of observing [their contractual] obligations." In this sense, a State is obligated not only to perform its contractual duties, but also to "respect specific undertakings" and in order to "protect[] the investor's contractual rights against any interference which might be caused by either a simple breach of contract or by administrative or legislative acts...." Thus, even a State entity that is not a party to a contract with an investor may violate the umbrella clause by failing to observe commitments made by the State under that contract.165
201.
According to Karkey, Pakistan failed to observe the obligations it incurred pursuant to the Contract and the Sovereign Guarantee in its capacity not only as a commercial party, but also as a sovereign, and actively interfered with and frustrated the ability of Lakhra to perform its obligations under the Contract. This conduct violated Pakistan's obligation to observe the obligations it has entered into with respect to Karkey.166
202.
Karkey submits that it has duly performed its own obligations under the Contract and rejects Pakistan's attempts to question Karkey's contractual performance. It is not disputed that, on 12 April 2011, Lakhra certified that Karkey had achieved Commercial Operations under the Contract, following a successful Operational Test certified by an independent engineer. In the ensuing months, Karkey performed its obligations under the Contract - including its obligation to make available to Lakhra 231.8 MW of power generation capacity. At all times prior to termination of the Contract, Karkey's Powerships stood ready to meet the Guaranteed Availability required by the Contract.167
203.
Moreover, according to Karkey, Pakistan frustrated its legitimate expectation that the RFP and resulting contracts were legal and binding on Pakistan. From the very first advertisement for the Rental Power Projects, and through various subsequent oral and formal written representations, Pakistan assured Karkey that the Contract would be and ultimately was awarded in accordance with law and was legally binding and valid. Indeed, Karkey was forced to rely on these representations as the Contract was issued by Pakistan's "one-window" procurement agency established to provide just such assurance. Karkey relied on these representations when it entered into the contract and then mobilized its Powerships to Pakistan. Pakistan's subsequent repudiation of these representations to avoid its obligations to Karkey has thus frustrated Karkey's legitimate expectations, in violation of Pakistan's obligation to afford fair and equitable treatment to Karkey.168 As Pakistan concedes, Karkey's expectations must be evaluated at the time Karkey made its investment, which means that the Supreme Court's (incorrect) declaration in March 2012 that the Contract was void ab initio and must be rescinded cannot negate the legitimate expectations formed by Karkey at the time the investment was made in 2008.169
204.
Karkey further submits that Pakistan's failure to honour the Sovereign Guarantee breached Pakistan's obligations under the BIT, including the obligation of fair and equitable treatment, the umbrella clause commitment, and the obligation of full protection and security. Contrary to Pakistan's arguments, the claims arising from these Sovereign Guarantee-related breaches are not purely contractual. Far from a simple commercial contract, the Sovereign Guarantee was provided to Karkey by Pakistan as security in place of a letter of credit precisely because it put the weight of the State behind Lakhra's financial obligation (and thus served as a higher form of security). It is nonsensical to assert that a sovereign guarantee is purely contractual: by definition, a sovereign guarantee is an exercise of sovereign power. No private company can issue a sovereign guarantee.170
205.
Karkey also rejects Pakistan's attempts to avoid BIT liability by disclaiming responsibility for the acts of Lakhra and PEPCO. According to Karkey, the record and Pakistan's own witnesses confirm that these entities were squarely under the direction and control of Pakistan's MoWP. In addition to owning approximately 99.99% of the shares in Lakhra, MoWP inter alia :171

- Advertised the terms of Lakhra's Contract and approved Karkey's Bid;

- Directed Lakhra to enter into the Contract, even though it was apparent that Lakhra lacked the financial resources or financial standing to fulfil the obligations;

- Determined Lakhra's obligations under the Contract;

- Through PEPCO, deputized Lakhra with authority to sign the Contract with Karkey;

- Through PEPCO and the Ministry of Finance, released the Advance Payment to Karkey;

- Controlled Lakhra's board throughout the life of the Contract; etc.

206.
Karkey concludes that Lakhra's acts are attributable to Pakistan, as there can be no dispute that Lakhra acted at the behest and whim of MOWP, in the exercise of the latter's sovereign powers. Although Pakistan denied responsibility for the acts of PEPCO at the Hearing, it had already conceded in its Counter-Memorial that PEPCO is a "Government department," and it failed to offer any rebuttal of the evidence on that point in Karkey's Reply.172

d. The Supreme Court Judgment Violated Pakistan's BIT Obligations

207.
Karkey submits that it has established the following in relation to the Supreme Court's RPP proceedings and RPP Judgment:

- The Supreme Court disregarded its own procedural rules, which require allegations to be supported by a sworn affidavit, to protect due process and prevent unfounded accusations;173

- The Supreme Court unconstitutionally usurped Executive authority in reversing the RPP policy;174

- The proceedings were driven by the political agenda of Mr. Hayat and Mr. Asif, who were afforded over half a dozen175 opportunities to present oral argument, while Karkey was limited to one (spread over parts of two hearings);176

- The Court accepted Mr. Hayat's plainly erroneous conclusion that Pakistan had sufficient generation capacity, despite PEPCO's demonstration that Mr. Hayat had mistakenly "compar[ed] Power (MW) with Energy (MkWh), which are two different things;"177

- The Court misunderstood the structure of the RPP Contracts — pursuant to which the RPP sponsor guaranteed it would make available a certain generation capacity, not a certain output — in finding that Karkey was not producing at the contractual rate;178

- The Court imposed the arbitrary requirement of a reserve price on the procurement of electricity, a requirement entirely unsupported by Pakistani law;179

- The Court imposed the same liability on all the RPP sponsors, despite material differences between the procurement, financing, and operational statuses of the different RPP programs;180

- The Court declared all RPP contracts to be both "void ab initio" and "rescinded forthwith," even though such holdings are mutually inconsistent under Pakistani law;181

- Destroying any presumption of innocence, the Court held that Karkey, like all other RPP sponsors, was "prima facie , involved in corruption and corrupt practices," and subject to prosecution by NAB, despite the lack of any evidence of corruption by Karkey;182

- The Court eviscerated Karkey's rights without any right to appeal.183 Lower courts in Pakistan comply with the Supreme Court's orders, no matter how defective — as the decisions of the Sindh High Court have demonstrated; and

- Karkey's position regarding the foregoing is supported by Pakistan's own submissions to the Supreme Court — not only those filed during the RPP proceedings, but also the Civil Review Petitions that were filed after the Judgment was rendered. Such petitions demonstrate the unlawfulness of the Judgment, and confirm the validity of Karkey's RSC.

208.
Karkey submits that the Supreme Court's arbitrary, unreasonable, and politically-driven factual findings and legal conclusions, together with its failure to follow its own procedural rules, violated Karkey's BIT rights (as did Pakistan's subsequent actions purportedly taken to enforce such judgment).184
209.
Moreover, according to Karkey, ICSID tribunals have recognized that "the substance of a decision may be relevant in the sense that a breach of the standard [for denial of justice] can also be found when the decision is so patently arbitrary, unjust or idiosyncratic that it demonstrates bad faith."185 Similarly, States may breach a BIT when their courts administer justice in a seriously inadequate way and when there is a clear and malicious misapplication of the law.186
210.
Karkey contends that the Pakistan Contract Act establishes a clear distinction between an agreement that was never enforceable under the law, and is therefore void ab initio, and an enforceable contract that becomes void and may therefore be rescinded. According to Karkey, only an agreement which is unenforceable from its inception may be declared void ab initio. Only a contract which is recognized as validly formed and enforceable by law is capable of rescission. A judgment may not in the same breath declare an agreement to be unenforceable from inception and find it to be a valid contract capable of being rescinded. The Supreme Court's decision to declare Karkey's RSC an unenforceable nullity, but at the same time recognize the RSC as a valid contract capable of rescission, constitutes arbitrary and unreasonable State action and a denial of justice under the BIT.187
211.
Karkey submits that the Supreme Court purported to invalidate Karkey's RSC on the basis of Pakistan's procurement laws but failed to give effect to one of the most fundamental principles embodied in the PPRA Rules: the principle that investment treaties and international law do not allow a State to preclude an investor from seeking protection under the BIT on the ground that its own actions are illegal under its own law.188 The Supreme Court based its holdings on the purported failure of Pakistan's own officials to conduct sufficient preliminary studies and to obtain the necessary internal approvals, as well as the changes made to the RSCs once Pakistan determined that it would be unable to secure the promised letters of credit.189
212.
According to Karkey, Pakistan sought to rely on what it claimed to be an absence of any documented record of objection by Karkey to the procedures of the Supreme Court, asking "when you consider the evidence you have before you from Karkey about the alleged denial of due process in the courts, [ask] if Karkey truly believed that these were serious due process failings, why did it never raise them before the Supreme Court itself?" However, any expectation that Karkey would have voiced such complaints before the Supreme Court is unreasonable in view of the well-documented threats of arrest, prosecution, and contempt of court by the Supreme Court.190

e. Pakistan's Actions in Alleged Implementation of the Judgment Also Breached Pakistan's BIT Obligations

213.
Karkey submits that the majority of Pakistan's actions giving rise to its BIT violations are undisputed. Thus, Pakistan does not dispute that NAB forcibly detained Karkey's Vessels despite lacking any evidence of corruption, and despite its prior agreement to release the Vessels. Nor does Pakistan dispute that the Supreme Court openly controlled NAB's purportedly independent corruption investigation and allowed the politician Mr. Hayat to intervene in NAB's inquiry to re-calculate Pakistan's payment demands. It is similarly undisputed that the GoP instructed Lakhra to initiate an admiralty action in the Sindh High Court seeking the same US$128 million payment by Karkey that had been demanded by Mr. Hayat. It is also undisputed that it took Pakistan over seven months to comply with this Tribunal's provisional measures order to release the Kaya Bey.191
214.
Karkey rejects Pakistan's only defence of its actions that it is excused from responsibility for any action taken in furtherance of the Judgment. However, a State cannot avoid liability under a BIT by claiming its actions were lawful under domestic law, especially given that, here, the Judgment was itself a violation of international law.192
215.
According to Karkey, NAB's detention of the Vessels violated Pakistan's obligations under the BIT. First, NAB had no authority to detain the Vessels. The only statutory authority ever invoked by NAB to justify its physical detention of Karkey's Vessels is Section 23 of the NAO. But Section 23 does not authorize physical detention, as admitted by Pakistan's own expert Mr. Karim. In Deutsche Bank AG v. Sri Lanka, a State organ issued an order to suspend an investor's contract, without providing a legal basis for doing so. The State's ex post attempts at justification were rejected by the tribunal because domestic law did not give the State organ this authority. As in Deutsche Bank, the relevant State entity (here, NAB) acted in excess of its powers. Accordingly, NAB violated Karkey's rights under the BIT. This violation was all the more egregious because NAB's lack of authority to detain the ships was brought to the attention of both NAB and the Supreme Court by Pakistan's Attorney General and NAB's own Prosecutor General.193
216.
Karkey further submits that NAB acted arbitrarily in repudiating the Deed. When Pakistan, through NAB and Lakhra, entered into the Deed with Karkey and agreed to release the Vessels, it represented that "all actions contemplated herein have been duly authorized by all requisite corporate, governmental or legal action," and that the "Deed constitutes valid and legally binding obligations of each Party, enforceable against it." In accordance with the express terms of the Deed, NAB proceeded to issue the No Objection Certificate, which concluded NAB's inquiry into Karkey's project and affirmed that "Karkey has no liability under the National Accountability Ordinance, 1999 and there remains no basis or evidence for proceedings by NAB or any other entity against Karkey and/or its project investment […]."194 At the Hearing, Mr. Karim agreed that NAB has exclusive authority for the investigation and enforcement of the NAO but he could not explain why the Supreme Court had allowed Mr. Hayat to overrule NAB's conclusions in the Deed and No Objection Certificate. The Supreme Court likewise gave no explanation for its repudiation of the Deed, nor did it explain pursuant to what authority Mr. Hayat was permitted to recalculate the amount purportedly owed by Karkey. Rather than provide any legal reasoning to support its repudiation of the Deed - which was a fully enforceable obligation entered into by Pakistan - and its implicit rejection of the No Objection Certificate, the Supreme Court instead threatened personal liability by the NAB Chairman in the event that NAB were unable to effect recovery of the amount demanded by Mr. Hayat.195 Karkey concludes that the repudiation of the Deed on the "application" of Mr. Hayat was part of a pattern of arbitrary and unreasonable demands by Pakistan for payment by Karkey.196
217.
In addition, according to Karkey, Pakistan's initiation of proceedings in the Sindh High Court, through Lakhra, violated Pakistan's obligations under the BIT. Karkey submits that, apparently recognizing the illegitimacy of its actions in relation to the Supreme Court Judgment, NAB resorted to a new tactic: it instructed Lakhra to file an admiralty suit to secure an unlawful ex parte arrest of Karkey's Vessels. Pakistan, through Lakhra, asked that the Sindh High Court "refer to and rely upon the judgment of the Hon'ble Supreme Court of Pakistan." The Sindh High Court obliged, and proceeded to treat the Lakhra's suit as an action to enforce the Judgment, not as a new case based on allegations that would need to be proven. Given that the Judgment was not subject to appeal and that neither the Sindh High Court nor the Accountability Court has authority to reject the Supreme Court's holdings, as a practical matter Pakistan's assertion that "local proceedings remain ongoing" is meaningless. Pakistan therefore cannot argue that there is no denial of justice by invoking the pending proceedings. The Sindh High Court's ex parte arrest order - based on an admittedly false affidavit filed by Lakhra - and its disregard of the RSC's mandatory LCIA arbitration clause also violated Karkey's right to fair and equitable treatment, and its right to freedom from arbitrary and unreasonable measures under the BIT.197

f. Pakistan's Obstruction of the Tribunal's Provisional Measures Order Violated Pakistan's Obligations under the BIT

218.
According to Karkey, the gravity of the Supreme Court's influence and intimidation is further demonstrated by Pakistan's failure to abide by this Tribunal's Order on Provisional Measures for seven months after its issuance, despite the Sindh High Court's recognition of the consequences of doing so. NAB told the Sindh High Court that it must comply with the Supreme Court's order rather than with the order of this Tribunal, and Pakistan's arbitration counsel openly acknowledged that government officials would not implement this Tribunal's decision out of fear of retaliation by the Supreme Court. As a result, Pakistan and the Sindh High Court ignored this Tribunal's order to release the Kaya Bey, with the Sindh High Court even recognizing that its order to continue the detention would expose Pakistan to liability under international law.198
219.
From the Supreme Court's RPP proceedings to the Sindh High Court proceedings and from the Accountability Court proceedings to the ICSID proceedings, Karkey argues that Pakistan has consistently denied Karkey justice and fair and equitable treatment, and has engaged in a concerted and calculated effort to deny Karkey any forum in which to vindicate its rights under the BIT. That, in itself and independently, constitutes a violation of Pakistan's fair and equitable treatment and full protection and security obligations.199

(4) Damages

220.
In this arbitration, Karkey claims for damages resulting from the Measures, which are defined at paragraph 610 of its Memorial as follows:

[…] the injuries suffered by Karkey were caused by the internationally wrongful acts of Pakistan (the 'Measures'), which include, inter alia:[i] Lakhra's failure to comply with the terms of the Contract (including its obligations to pay Rental Service Fees, to cover confirmation charges, to pay for fuel payments, and to pay termination charges and expenses upon termination of the Contract on 30 March 2012); [ii] Pakistan's failure to honor the Sovereign Guarantee; [iii] the Supreme Court's arbitrary and unfounded presumption that Karkey participated in corruption; [iv] the denial of justice committed by the Supreme Court in purporting to invalidate the Contract on the basis of nothing more than a presumption ofwrongdoing, which was contrary to the evidence before the Court; [v] NAB's investigation of Karkey, its arbitrary demands for payment from Karkey, and its commencement of criminal proceedings against Karkey; [vi] Pakistan's detention and expropriation of Karkey's ships; [vii] Pakistan's harassment of Karkey and its personnel, including through actions by Lakhra, NAB, and the Sindh High Court in connection with proceedings before the latter court.

a. Key Legal Issues and Standards

(a.1) Ex Post Approach

221.
Karkey submits that there are two aspects of its damages claim with respect to which the Tribunal should adopt an ex post approach: (1) the valuation date, and (2) the various inputs required for modelling Karkey's loss. The consequence of an ex post valuation date of 30 June 2015 (as a proxy for present day) is that Karkey's historical losses are not discounted prior to that date; and the consequence of using ex post information for the inputs into the Discounted cash flow ("DCF") models used to calculate Karkey's damages is, simply put, that such inputs are rendered more accurate.200
222.
According to Karkey, the use of an ex post analysis turns on whether or not such approach is required in the circumstances by the applicable standard of compensation. Pakistan does not dispute that the applicable standard is that set out in the seminal Chorzow Factory judgment. In this regard, it is notable that Chorzow Factory itself recognized that an ex post approach might be required to fulfil the standard, stating that in the case of unlawful expropriation, compensation is not necessarily limited to the value of the undertaking at the moment of dispossession, plus interest to the day of payment.201
223.
The Claimant states that the Chorzow Factory standard was also important in the ADC v. Hungary tribunal's analysis, leading the tribunal in that case to choose the date of the award for valuation. It is Karkey's position that the circumstances that justified an ex post analysis in ADC are clearly present here.202 Further, ex post information provides the Tribunal with the best possible opportunity to award damages that are reasonably certain. In the present case, if ex ante information were used in preference to ex post information that presents the most accurate picture of the damages resulting from the Measures, the quantum of loss would be less. The Claimant argues that the Tribunal should therefore rely on the ex post information rather than the ex ante information; otherwise, it would not be compensating Karkey in accordance with the Chorzow Factory standard.203
224.
Karkey also relies on the Yukos decision, in which the tribunal assessed damages as of the date of the award and held that investors must enjoy the benefit of unanticipated events that increase the value of an asset. The Yukos tribunal also emphasized the link between restitution and compensation under the Chorzow Factory standard, explaining that if restitution were possible, it would occur at the date of the award. Accordingly, compensation in lieu of restitution must also be assessed at the date of the award.204
225.
The Kaya Bey and Alican Bey damages claims are distinct, and they will therefore be dealt separately below.
226.
Karkey submits that its claim in relation to the Kaya Bey is for lost profits, and is not at all an expropriation claim. The Claimant states that Pakistan's arguments that rely upon expropriation jurisprudence are therefore simply inapposite.205 Moreover, Pakistan's damage expert accepted that Iraq suffered from an electricity supply shortage, and thus, "when the Kaya Bey became available, Iraq was happy to take it." Accordingly, there is no need to discount for uncertainty and risk, and using an ex ante valuation would be inappropriate.206
227.
Moreover, the Claimant asserts that because Karkey's claim in relation to the Alican Bey is one that depends on projecting lost profits, the same principles discussed in relation to the Kaya Bey above are applicable. The rationale for using an earlier valuation date based on the need to discount for uncertainty has dissipated with respect to the historical lost profits. As Mr. Haberman accepted in cross-examination, it is clear that both Alican Bey and Kaya Bey would have been deployed to Iraq, where there has been an ever-increasing demand for rental power. Karkey accepts that future lost profits must be discounted. However, no discount at all is warranted in relation to historical cash flows and, thus, neither is an ex ante valuation date.207

(a.2) The Termination Charge is Enforceable

228.
Karkey submits, relying on the United Kingdom Supreme Court decision in Cavendish,208 that a Termination Charge of US$165,200,000 to protect Karkey's legitimate interest/expectation that it would earn almost US$565,000,000 during the course of the RSC cannot be unreasonable, particularly given that Pakistan itself proposed the Termination Charge provision, and that the agreement was entered into by informed and legally advised parties at arm's length. Moreover, Section 74 of the Pakistani Contract Act permits contractual penalties.209

(a.3) Karkey's Right to Claim on Behalf of its Subsidiaries

229.
Karkey submits that it is entitled to damages arising from Pakistan's treatment of Karkey's subsidiaries, including Karpak and Karpowership. Pakistan does not dispute that "[a]s a matter of international law, Karkey is entitled to make a claim in relation to its shareholding in Karpak."210 The same must apply to claims implicating Karkey's other subsidiaries, such as Karpower International B.V. As the Siemens v. Argentina tribunal noted in its Decision on Jurisdiction, "as regards ICSID case law dealing with the issue of the right of shareholders to bring a claim before an arbitral tribunal, the decisions of arbitral tribunals have been consistent in deciding in favor of such right of shareholders."211
230.
Instead, Pakistan argues that Karkey "...is not entitled to do so in relation to the contractual rights of Karpak."212 Karkey contends that on Pakistan's interpretation, a foreign investor (such as Karkey) may "invest" in shares of a local company (Karpak or Karpowership), and has a right to present claims in relation to such shareholding, but if the local company's contractual rights — which, depending on the particular company, may constitute its only valuable "assets" — are impaired, the investor may not claim damages for the impairment. The Claimant argues that Pakistan's argument is untenable as a matter of logic, and is also contradicted by its own assertion that "[a]s a matter of international law, a shareholder: […] may assert claims based on the host-State's treatment of the contracts and assets of the company in which it holds shares, but 'only to the extent that those claims are related to the effect that the measures taken against the company's assets have on the value of the claimant's shares in such company.'"213 Pakistan is arguing against a tide of investment treaty jurisprudence that takes a flexible approach to the claims of shareholders.214

(a.4) Causation

231.
According to Karkey, Pakistan sought to argue at the Hearing that foreseeability is a necessary element of causation. The Claimant argues that the source that Pakistan's counsel relied upon in doing so, the ILC's Draft Articles on State Responsibility and their commentary, make clear that it is not a necessary element. In any event, the Tribunal is not constrained by a strict formulation or standard of causation. Karkey does not dispute that there must be a causal link between the Measures and its loss; however, it argues that if the Tribunal were to impose causation requirements that are unnecessarily inflexible or onerous, it would run the risk identified in the Naulilaa Case that the victim would "bear the burden of damage."215

(a.5) Reasonable Certainty and Differentiated Standard for Existence vs. Extent of Loss

232.
Karkey submits that the reasonable certainty standard is the predominant standard for hypothetical losses (e.g. the projection of lost profits that would have been earned but for the breach) and has been applied in that context again and again by tribunals.216
233.
Moreover, Karkey asserts that tribunals and adjudicators have recognized that a lesser standard applies with respect to the extent of loss, once the existence of loss has been established. Pakistan disputes this, mistakenly citing the award in SPP v. Egypt, where the tribunal explicitly stated that "it is well settled that the fact that damages cannot be assessed with certainty is no reason not to award damages when a loss has been incurred." Karkey submits that this principle has been recognized by several other tribunals (i.e. in Vivendi v. Argentina, Tecmed v. Mexico and in Petrobart v. the Kyrgyz Republic).217

b. Karkey's Heads of Loss, and Key Factual and Quantum Issues

234.
Karkey's damages claim, updated to reflect its submissions at the Hearing and in its Post-Hearing Brief, is reflected in the table below (with the figures expressed in US$ million).218

Damages Interest Interest (not including Option A Option B No.* Category Name interest) (Sovereign Spread) (NAB Rates)Interest to 30 June 2015
1.a. Broadly Agreed Damages - Termination Charges & Unpaid Invoices 224.5 105.9 98.4
1.b. Broadly Agreed Damages - Other 33.5 5.4 6.8
2. Kaya Bey Damages 240.1 16.9 23.5
3. Alican Bey Expropriation** 445.7 26.6 37.6
4. Construction Delays 308.7 0 0
5.a. Miscellaneous - Wasted Costs 23.9 6.1 7.0
5.b. Miscellaneous - Actual and Expected Repairs to Kaya Bey*** 27.3 0 0
5.c. Miscellaneous - Geothermal 178.4 0 0
TOTAL l,482.2 160.9 173.3

*Corresponding to the amounts in Claimant's closing presentation.

**Assuming a 10% WACC and 3 months of time for transfer between contracts reduces Damages by US$ 25.9 million but does not affect interest on this loss.

***Only includes amounts incurred after 30 June 2015 that are not already included in the "Kaya Bey Damages" category. Therefore no interest is applied to these costs.

Source: Karkey's Post-Hearing Brief, ¶ 263

235.
The Claimant's damages claim is summarized below.

(b.1) Unpaid Invoices and Termination Charges

236.
Karkey submits that it is owed US$57,400,000 in unpaid invoices under the RSC (US$47,702,505 in outstanding Monthly Services Fees, and US$9,736,297 in unpaid fuel invoices). Pakistan and Mr. Haberman seek to reduce that amount to US$28,923,000.219 A large portion of the difference between the Parties' experts — US$18,000,000 — is attributable to Mr. Haberman's exclusion of amounts owing to Karpak.220 According to Karkey, for the reasons summarized under Section IV(A)(4)(a.3) above, this deduction is unwarranted as a matter of law.221
237.
Karkey claims US$165.2 million in Termination Charges pursuant to Clause 4.6(b) of the RSC.

(b.2) Transport and Mobilization Costs under Clause 4.6(b) of the Contract

238.
At the Hearing, Karkey submitted that a reasonable approximation of the transport and mobilization costs under Clause 4.6(b) of the Contract is US$2,000,000.222 Clause 4.6(b) of the RSC provided:

In the event the Contract is terminated by SELLER before the Contract designated expiry date, due to BUYER default, the BUYER shall pay. mobilization and transport charges to return the Equipment to SELLER's designated depot and also will be responsible for the exportation of the aforementioned Equipment from Pakistan, for which time shall be of the essence.

239.
Karkey submits that it was never afforded the opportunity to designate a depot in accordance with Clause 4.6(b), and thus the US$566,000 in transport costs that Mr. Haberman has identified — which are the cost of transporting the Kaya Bey to Dubai (which likely would not have been Karkey's "designated depot") — do not necessarily reflect the costs that Clause 4.6(b) was designed to cover. Similarly, much of Karkey's "Equipment"223 has never been returned to it. In the circumstances, Karkey's claim of US$2,000,000 is entirely reasonable, and even conservative.224

(b.3) The Appropriate WACC

240.
Karkey's expert, Mr. Kaczmarek, calculates a Weighted Average Cost of Capital (WACC) of 9% for Karkey's Powerships.225
241.
According to Karkey, Mr. Haberman, the Respondent's Expert, made several important concessions under cross examination that reveal the flaws in his calculation of WACC.226 Mr. Haberman's WACC is also contradicted by the WACC calculated for Karkey by Fichtner Management Consulting, a third party engaged by Karkey's lenders, which was 10.7% (consistent with Mr. Kaczmarek's WACC and other benchmarks introduced in this case).227 Karkey argues that Mr. Haberman's attempts to deflect this were unavailing. At the Hearing, Mr. Haberman attempted to confuse the issue by suggesting that the mix of debt and equity in the capital structure, or gearing, assumed by Fichtner were wrong.228 Karkey submits that Mr. Haberman's conclusion and calculation are simply erroneous. He starts with the unconvincing premise that Fichtner miscalculated the WACC by more than 50%. On re-direct, Mr. Haberman further exacerbated the confusion by purporting to recalculate Fichtner's WACC using a different gearing.229 This was miscalculated, however, as Mr. Haberman's earlier testimony indicated that one cannot simply change the mix of debt and equity without simultaneously changing the cost of equity.230 Performing the recalculation properly would require reducing the beta, which in turn would reduce the cost of equity — a significantly more involved calculation than that which Mr. Haberman performed on re-direct.231 Mr. Haberman's calculation on re-direct therefore overstated the resulting WACC. Karkey states that, performed correctly,232 Mr. Haberman's recalculation would have validated the Fichtner WACC.233

(b.4) The Kaya Bey and Alican Bey Losses

242.
Karkey submits that it is owed US$240.1 million for losses related to the Kaya Bey and US$445.7 million for losses related to the Alican Bey.234
243.
With respect to the Kaya Bey, Karkey submits that Mr. Haberman had earlier identified several adjustments to be made to Mr. Kaczmarek's modelling. According to Karkey, as it explained at the Hearing and as summarized in a table accompanying its closing statement,235 several of those adjustments were shown to be unwarranted in light of the concessions Mr. Haberman made at the hearing. Specifically, Karkey asserts that Mr. Haberman conceded that:236

- it was reasonable to assume, based on the available evidence,237 that the Kaya Bey would take only one month to redeploy to Iraq238 (rather than the eight months that he had modelled);

- the site installation costs of US$15,000,000 that he had used in his calculations were too high;239 and

- because he had incorrectly calculated the unit price under the Iraq I contract, his criticism that Mr. Kaczmarek had cherry-picked the highest priced contract was wrong.240

244.
Karkey submits that Mr. Haberman's remaining complaints regarding Mr. Kaczmarek's modelling relate to the retrofitting of turbochargers and tax optimization, both of which are addressed separately below.241
245.
With respect to the Alican Bey, Karkey argues that replacement value has no role to play in the valuation of the Alican Bey, and that the Tribunal should instead apply Mr. Kaczmarek's method of valuation, which uses only projected revenue. The validity of Mr. Haberman's model was called into question by his concession that ex post information indicating market growth means that the Alican Bey is "more valuable today." The Claimant states that this concession implicitly recognizes that a static replacement value will not adequately compensate Karkey for the increased value of the Alican Bey.242
246.
According to Karkey, in the event that the Tribunal were to prefer Mr. Haberman's proposed method, a crucial adjustment would be required.243 It argues that Mr. Haberman unrealistically assumes that Karkey will have monetized an award (in order to purchase a replacement ship for the Alican Bey) by August 2016. Several factors make that date unrealistic. The Claimant states, for example, that if an award favourable to Karkey were issued, Pakistan could seek annulment of the award, which could signify a delay of over two years in the collection of the relevant Award proceeds.244 The Tribunal must take into account this factor, as well as the myriad other contingencies that could delay receipt by Karkey of the relevant funds.245
247.
Karkey accepts that one adjustment to Mr. Kaczmarek's modelling regarding the Alican Bey is required: that the Sri Lanka contract originally used as an input should be replaced with Mr. Kaczmarek's "New Country" contract, as it more accurately matches the terms of Karkey's current contracts.246 As with the Kaya Bey, two inputs remain in dispute — retrofitting of turbochargers and tax optimization.247

(b.5) Cash Flow Impairment and Financial Constraint

248.
According to Karkey, at the Hearing, Mr. Haberman accepted that the loss of revenue under the RSC had a substantial impact on Karkey's operations, agreeing that such impact was approximately 60% of Karkey's operating income.248 Mr. Haberman further accepted that for a company with Karkey's business model, it could reasonably be expected that operating income would be reinvested into growth, such as ship-building.249 Mr. Colak, Karkey's Chief Financial Officer,250 gave a detailed account of the negative impact of the Measures on Karkey's relationship with its lenders,251 explaining that the drastic loss of assets via the detention of the Vessels, as well as its loss of the revenue under the RSC, severely impacted its ability to provide security for financing.252
249.
Karkey submits that, to the extent it remains necessary given Mr. Haberman's concessions, the authorities on which Pakistan relies in this context can be distinguished. Pakistan highlights the NAFTA case of S.D. Myers v. Canada253 as "perhaps one of the most relevant cases,"254 but the situation addressed in that case was very different from that here. Karkey has provided detailed evidence of the specific projects that were thwarted by the financial constraint imposed by the Measures. By contrast, in S.D. Myers, the claimant had failed to make "clear what SDMI would have done with the money if it were to have been earned. It had a number of options."255

(b.6) The Delayed Construction and Rehabilitation of Karkey's Powerships - The Construction Program

250.
Karkey submits that the loss of expected cash flows from the operation of the Kaya Bey and Alican Bey in Pakistan hampered Karkey's ability to enlarge its operational fleet, causing it damages.256
251.
According to Karkey, at the hearing, Pakistan complained that Mr. Kaczmarek had not modelled Karkey's construction program delay damages on the basis of the contracts under which the vessels ultimately commenced operating.257 In response to that complaint, and in light of Mr. Haberman's concession in his second report that "prima facie there may have been a period of approximately 15 months when no new vessels could be constructed," Karkey has prepared the sensitivity analysis shown in the table below. According to Karkey, that analysis (which excludes KPS 2258) demonstrates the conservative nature of Karkey's construction delay claim. Excluding KPS 2, that claim is US$309,000,000 (see the "Original Claim" column). Recalculated on the bases that Pakistan suggests (or that its expert concedes) may be reasonable (i.e., using actual contracts, and a 15-month delay period), that claim is actually higher by an amount between US$87,000,000 and US$100,000,000.259
252.
The sensitivity analysis in the table that follows models (1) the period of delay which each ship actually experienced (based on the expected operation date260 compared with the actual operation date, and earnings under the contract under which it eventually commenced operations261), indicated in the section labelled "Actual Delay Under Actual Contracts;" and (2) 15 months of delay for each vessel (which, as noted, Pakistan's expert concedes is the possible period of delay), again using the terms of the contract under which it eventually commenced operations.262

US$ million15 Month Delay Under ActualContractsActual Delay Under Actual Contracts
VesselOriginal Claim*
Months DelayDamages
KPS 766.765.528.7
KPS 921.094.6318.9
KPS 10125.3133.824214.1
KPS 1171.953.833118.4
KPS 1223.749.11549.1
Total308.6396.9409.3
*See Table 24 of Second Kaczmarek Report

Source: Karkey's Post-Hearing Brief, ¶ 247

253.
The Claimant argues that the sensitivity analysis set out above demonstrates the untenable nature of Pakistan's complaints — Pakistan cannot maintain that Karkey's construction delay damages claim is unreasonable, when it would be even higher if calculated on the basis that Pakistan suggests.263

- Karkey's Iraq Vessel Rehabilitation Program

254.
Karkey claims US$44.5 million as damages related to the delay in the Iraq Powership rehabilitation program.264
255.
Karkey submits that Mr. Nickerson confirmed at the Hearing that the retrofit of turbochargers increases engine efficiency by 15-20%.265 Karkey states that Mr. Nickerson's testimony also addressed several of Mr. Haberman's and Mr. Waller's complaints about the rehabilitation program. Mr. Nickerson explained, for example, that the rehabilitation could take place with the powerships in situ, thereby avoiding impact on available dispatch.266
256.
The Claimant notes that Mr. Haberman also complains that he can see no causal link between the Measures and the suspension of the rehabilitation. According to Karkey, the causal link is the impact of the Measures on Karkey's financing.267 Mr. Haberman, fixed in his ex ante world, also asserts that there is inadequate evidence of how the rehabilitation program would proceed. Karkey asserts that ex post information answers this question unequivocally: as Mr. Karadeniz explained in his third witness statement, following the release of the Kaya Bey, Karkey recommenced the rehabilitation program at a slowed pace.268 This demonstrates not only the causal link (once the Kaya Bey was released, the financial constraint that had halted the program was alleviated, and the program could continue), but also that there is no uncertainty that the rehabilitation program was always slated to take place.269

(b.7) The Delay to the Geothermal Project

257.
Karkey claims US$178,400,164 in relation to its delayed geothermal project in Turkey.270
258.
According to the Claimant, Mr. Haberman's own analysis of documents relating to the geothermal project indicates that, except for the delay it experienced due to the Measures, it was an active and ongoing project.271 The project is underpinned by a 30-year concession,272 and as explained by Mr. Karadeniz, it is "not exposed to market fluctuation but is instead a regulated and secured cash flow project based on a guaranteed feed in tariff by the renewable power generation legislation in Turkey."273 Thus, there were no other external factors that could have delayed the project, aside from the financial constraint that Karkey experienced due to the Measures, which impacted the financing for the project (there is no dispute that the project was financed by debt274).275
259.
The Claimant notes that Mr. Haberman's complaints regarding Mr. Kaczmarek's calculation of the losses resulting from the delay to the geothermal project were raised only in his second report (despite the fact that calculations for the geothermal project delay were fully set out in Mr. Kaczmarek's first report). Mr. Haberman has offered no alternative calculations. Karkey asserts that those criticisms are invalid for, inter alia, the following reasons:276

a. Mr. Haberman criticizes the evidence upon which Mr. Kaczmarek's calculations are based, including a feasibility study that Karkey provided to Turkey IS Bank for obtaining financing.277 This document, used by a lender to assess the geothermal project, is in fact an ideal source of contemporaneous information about the project.278

b. Mr. Haberman has misunderstood how Mr. Kaczmarek's modelling accounts for tax, which leads him to assume that an error has been made. There is no error. Mr. Kaczmarek has simply not applied taxes to historical cash flows, an approach he made quite clear.279

(b.8) Cost Increases

- Insurance

260.
Karkey claims US$7.8 million for increased insurance costs.280
261.
According to Karkey, Pakistan has devoted considerable time to causation in its pleadings, asserting that it was a disclosure issue that led to the cancellation of Karkey's insurance policies.281 The Claimant submits that, even if such were the case (which it is not282), it is irrelevant for present purposes. Karkey made a claim under its insurance policy as a result of the Measures.283 Following an attempt by the insurer to avoid coverage, there was a dispute, which was ultimately settled with the insurer agreeing to pay Karkey US$55,000,000.284 Unsurprisingly, Karkey's policy with the insurer was not renewed and Karkey was forced to obtain new insurance, at a higher cost. The Claimant states that these circumstances would not have arisen had Karkey not been forced to make a claim as a result of the Measures. As Mr. Karadeniz explained, Karkey's risk profile has otherwise remained static;285 there is no explanation for the increased premia other than the Measures, which forced Karkey to claim under its insurance policy. Karkey asserts that the pages of discussion that Pakistan devotes to the purported disclosure issue are beside the point.286
262.
Karkey states that Mr. Haberman does not dispute that Karkey's insurance costs were in fact higher after the Measures.287 His complaints regarding Mr. Kaczmarek's calculations appear to be based in part on his inability to replicate them.288 According to Karkey, this criticism is not a valid one, as Mr. Kaczmarek's reports were accompanied by Excel spreadsheets setting out his calculations.289

- Shipyard Costs

263.
The Claimant submits that the damages experts are not in dispute over the amount of US$12.5 million claimed in relation to the increased shipyard costs that Karkey incurred because of its inability to pay the contractor SEDEF GEM INSAATI A.S. ("SEDEF"). These costs are causally derived from the financial constraint detailed above. Karkey contracted with SEDEF for repair and conversion work on KPS 7, KPS 9, KPS 10 and KPS 11. As a result of the Measures and the resulting financial constraint, payment to SEDEF was delayed. SEDEF agreed to complete the conversion of KPS 7 and KPS 9, but doing so meant that the vessels would be in dry dock for longer than expected. The costs claimed reflect the additional dry docking costs.290
264.
Pakistan maintains that there is no evidence that the shipyard costs were caused by the Measures. In this regard, the Claimant maintains that the Tribunal need look no further than the SEDEF protocol submitted as Exhibit NAV-093. Karkey argues that this document, signed by a third party with no interest in these proceedings, clearly states that "the Owner notified the Contractor of its dispute with the Islamic Republic of Pakistan, and the payment difficulties that the Owner faces as a result of lack of financing from its lenders and its increased costs..." and "[t]he Contractor's works for the conversion and repair of KPS 9 and KPS 7 were delayed because of the Owner's delay in Owner's Supply and the Owner's Works as a result of the Owner's dispute with Pakistan as detailed in the Preamble. Therefore, additional costs were incurred by the Contractor."291 Pakistan also complains that this document cannot serve as evidence of the payment difficulties by Karkey to which it refers.292 Karkey submits that this is not a valid criticism, since the document shows precisely the dynamic that evolved — directly as a result of the Measures — between Karkey and its contractor. In any event, the record contains ample additional evidence of the financial constraint caused by the Measures.293

- Lebanon Contract

265.
The Claimant submits that it intended to deploy KPS 7 and KPS 9 under the Lebanon contract.294 As detailed above, SEDEF's work on the vessels to prepare them for that deployment was interrupted and the deployment was in turn delayed. Karkey was therefore forced to pay liquidated damages per the terms of the Lebanon contract in an amount (US$5,668,350) that was clearly set out in a letter from the Lebanese Ministry of Water and Power to Karkey of 5 November 2013.295 This amount is not in dispute between the experts.296

(b.9) Kaya Bey Repair Costs

266.
According to the Claimant, Mr. Kaczmarek included in his actual scenario for the Kaya Bey US$43,000,000 in repair costs, consisting of US$29,600,000 in costs incurred to date, and US$14,000,000 in estimated future costs (based on evidence from Mr. Nickerson297). Although the estimated costs have not yet been incurred, the loss which gives rise to them (the damage to the Kaya Bey) has crystallized.298

(b.10) Wasted Costs

267.
According to Karkey, the essence of Mr. Haberman's complaint regarding Karkey's wasted costs claim in the amount of US$23.9 million is that it is based on trial balances. Karkey argues that this complaint is unreasonable given that (1) trial balances are output from Karkey's SAP accounting system, which is audited by a reputable international accounting firm;299 and (2) the only way that Mr. Haberman's complaint could be addressed would be to undertake the unreasonably onerous task of reviewing hundreds of thousands of pages of invoices. As Mr. Kaczmarek explained, this would effectively entail a technical and financial audit that would take at least a year.300

(b.11) Interest

268.
The Claimant submits that the most appropriate rate of interest is that proposed by Pakistan and agreed by the Parties in the RSC for delayed payments in the event of a "Dispute," which was 12%.301 This rate is particularly appropriate concerning the damages that relate to Pakistan's specific contractual obligations (namely, the Termination Charge, the transport and mobilization costs under Clause 4.6(b) of the RSC, and unpaid invoices), since a 12% interest rate for those damages is required by the terms of the RSC.302 The same rate also should apply to the remainder of Karkey's damages.303
269.
According to Karkey, if the Tribunal were to disagree that the "Delayed Payment" rate should be used, or were to conclude that it should only be used for part of Karkey's damages, the appropriate rate would be one that reflects Pakistan's cost of borrowing. Mr. Kaczmarek has calculated this to be 8.9%, and Mr. Haberman does not appear to disagree with how Mr. Kaczmarek arrived at the figure of 8.9% (although he disagrees this is the appropriate rate). Such rate takes into account the fact that Karkey in effect has been rendered an unwilling lender to Pakistan. Karkey asserts that this should guide the Tribunal's consideration of an appropriate interest rate (rather than Karkey's cost of borrowing (7%), which Mr. Haberman advocates,304 but which Pakistan itself does not appear to agree is appropriate).305
270.
Karkey argues that, in any event, the Tribunal should not apply the "investments alternative" rate that Pakistan argues for in extremely brief terms (but which is not supported by Mr. Haberman).306 According to the Claimant, the sole basis that Pakistan advances for the use of a US Treasury bond rate as an "investments alternative" is that it was applied in Yukos.307 Without more, this is neither a sound nor adequate basis for the Tribunal to apply the same rate here. The Claimant notes that the Yukos tribunal itself highlighted that "the practice of past tribunals is varied and inconsistent and does not provide clear guidance. Thus, as is well established, the Tribunal has a wide margin of discretion to determine the rate of interest applicable."308 Moreover, the award in Yukos turned on the particular facts and circumstances of that case.309 Karkey states that it is insufficient for Pakistan simply to point to the fact that the Yukos tribunal applied a US Treasury bond rate, as a purported justification for having such rate apply in the present case.310

(5) Counterclaim

271.
In a nutshell, the Claimant submits that the Tribunal cannot exercise jurisdiction over any of Pakistani's counterclaims. The Turkey-Pakistan BIT does not extend the Tribunal's jurisdiction to the arbitration of counterclaims, or for that matter, to any claims brought by the respondent-State. Consequently, according to Karkey, the submission of its claims to arbitration cannot be construed as an expression of consent to the arbitration of counterclaims; nor has Karkey otherwise expressed such consent. The Claimant argues that Pakistan has no persuasive answer. Instead, it reiterates its reliance on the so-called ipso facto theory of consent to counterclaim jurisdiction, even though Karkey has demonstrated that such a theory (a) is contrary to the overwhelming weight of the jurisprudence; (b) impermissibly ignores the effet utile of Article 46 of the ICSID Convention, which articulates the requirements for a tribunal's exercise of jurisdiction over counterclaims; and (c) in any event, fails under its own logic.311
272.
Furthermore, Karkey argues that the Tribunal lacks competence to hear Pakistan's counterclaims, which seek, in essence, recognition and enforcement of the Judgment and orders of the Pakistani Supreme Court. According to Karkey, an ICSID tribunal is not competent to recognize domestic court judgments and is also not competent to enforce - through vague notions of unjust enrichment - a domestic court judgment. Unjust enrichment is not a recognized "general principle of law", lacks concrete contours, and is not a claim suitable for adjudication by an international tribunal.312
273.
Finally, and in any event, Karkey submits that Pakistan's counterclaims fail on their merits. The Tribunal cannot recognize the Supreme Court Judgment because it resulted from a grossly unjust procedure, in which the court ignored material evidence and committed numerous other procedural improprieties. Karkey states that Pakistan itself argued as much in its formal submissions to the Supreme Court seeking reconsideration of the Judgment, and it should not be heard to argue otherwise now. According to the Claimant, these gross procedural deficiencies are underscored by the fact that in these ICSID proceedings Pakistan has failed - without adequate explanation, and in breach of its disclosure obligations - to locate and produce the very same material evidence that Pakistan had submitted to the Supreme Court during the RPP Case (but that is not publicly available, or otherwise accessible to Karkey) and later faulted the Supreme Court for failing to consider.313
274.
With respect to Pakistan's claim for unjust enrichment, Pakistan altogether failed to establish that Karkey was in fact enriched, or that any enrichment - to the extent there were any, which is denied - could be deemed unjust.314
275.
In view of the above, Karkey requests the Tribunal to decline jurisdiction over Pakistan's counterclaims, or alternatively, dismiss such counterclaims on the merits.

(6) The Claimant's Request for Relief

276.
The Claimant's latest request for relief was set forth at paragraph 264 of its Post-Hearing Brief, and read as follows:

[...] Karkey respectfully requests that the Tribunal:

c. Declare that it has jurisdiction to address all of Karkey's claims;

d. Declare that Pakistan, through the various wrongful acts and omissions described above and in Karkey's Submissions, has violated its obligations under the BIT with respect to Karkey and its investment in Pakistan, including, as described in the Reply, Pakistan's obligations to abstain from expropriation of Karkey's property; to afford Karkey's investment fair and equitable treatment and full protection and security; to refrain from arbitrary or unreasonable treatment of Karkey's investment; to observe the commitments and obligations it entered into with respect to Karkey and its investments in Pakistan; and to 'permit in good faith all transfers related to an investment to be made freely and without unreasonable delay.'315

e. Award compensation to Karkey for the harm that Karkey has suffered as a result of Pakistan's violations of the BIT with respect to Karkey and its investments in Pakistan, in an amount of no less than US$1,482,200,000 plus interest, compounded annually at either

i. the monthly interest rate applied by NAB in its October 2012 calculation, which was 1 percent per month or 12 percent per year, until the date of payment of the Award, or

ii. the Pakistani sovereign bond yield (which has averaged 8.9% per year from the beginning of April 2012 until the end of June 2015), until the date of payment of the Award

f. Decline jurisdiction over Pakistan's counterclaims, or alternatively, dismiss such counterclaims on their merits;

g. Issue an award in Karkey's favor of all fees and costs of this arbitration, including all fees and expenses of Karkey's attorneys and external advisers; and

h. Grant such other relief to Karkey as the Tribunal may deem fair and proper.

B. The Respondent's Position

(1) Jurisdiction

a. Issue 1: Was Karkey's investment established in accordance with Pakistani law, as required by Article I(2) of the Treaty?

(a.1) Issue 1.1: What is the correct legal standard for determining the Tribunal's jurisdiction pursuant to Article I(2) of the Treaty?

277.
According to Pakistan, illegality in the making of the investment will deprive the Tribunal of jurisdiction pursuant to Article I(2) of the Treaty, which requires that Karkey's investment was established "in conformity with" Pakistani law. Karkey's investment was not established "in conformity with" Pakistani law as a result of: (a) breaches of Pakistani procurement and other laws; (b) fraud; and (c) corruption and corrupt practices (including as defined in Section 9 of the NAO).316
278.
Pakistan submits that its principal claim relates to material changes to contract terms post-bid which favoured Karkey in breach of any or all of the following fundamental principles of Pakistani law:317

(i) Rule 40 of the PPRA Rules prohibits negotiations in a public tender;

(ii) Section 9(a)(ii) of the NAO, which defines what constitutes "corruption and corrupt practices" as the obtaining of any valuable thing without consideration or for inadequate consideration. This goes beyond the payment of bribe and captures many if not all of the changes that occurred to Karkey's contract because, as Karkey's Pakistani law expert explained, even if material changes are not captured by the PPRA Rules, "there will be other laws which would take care of it. Q. What other laws? A. Generally, corruption laws;"

(iii) Article 9 of the Constitution. The Khawaja case demonstrates by reference to earlier case law that material changes to public procurement contracts post-bid (and post contract signature) are a breach not just of Pakistani procurement laws but also of Article 9 of the Constitution, which is a fundamental right pursuant to which "the national wealth/resources must remain fully protected;" and

(iv) General principles of fairness and transparency, which are enforced pursuant to the Supreme Court's jurisdiction under Article 184(3) of the Constitution.

279.
Each of the breaches of Pakistani law relied on by Pakistan occurred in the making of the investment (which included the 2008 RSC, the 2009 RSC and Amendment No. 1 entered into in December 2009), including at its inception:318

(i) The alleged fraud occurred between July 2008 (when Karkey submitted its Bid) and September 2008 (when Karkey was notified that it was the successful bidder and would be issued with a Letter of Award);

(ii) The alleged misprocurement occurred between 6 November 2008 (following the issue of the Letter of Award to Karkey) and 9 December 2009 (when Karkey and Lakhra entered into the First Amendment to the 2009 RSC, which contained further extension of the Target COD in breach of Pakistani procurement laws); and

(iii) The alleged corruption and corruption practices (as defined by Pakistani law) occurred from at least 7 June 2008 (when Mr. Zulqarnain first held himself out as being the authorized representative of Karkey, notwithstanding that he had no agreement in place at the time), and throughout the lifetime of Karkey's 2008 and 2009 RSCs (as many if not all of the changes secured by Karkey prior to and after the 2008 RSC constitute not just a misprocurement but a breach of Section 9(a)(ii) of the NAO because they were a "valuable thing" that was "obtain[ed]... without consideration, or for consideration which he knows to be inadequate").

280.
Moreover, according to Pakistan, each of the breaches of Pakistani law (i) occurred as a result of an act or omission by Karkey (fraud and corruption, including under Section 9 of the NAO, were necessarily acts committed by Karkey); and/or (ii) was within Karkey's knowledge or should have been, had Karkey conducted the due diligence which it represented that it had when it submitted its Bid.319 The Respondent states that Karkey cannot rely on ignorance of those laws (or on the PPIB's involvement in the bidding process) to avoid a finding that its investment was established in breach of Article I(2). Wilful or negligent ignorance of the law is not a defence.320

(a.2) Issue 1.2: In determining jurisdiction under Article 41(1) of the ICSID Convention, what role does Pakistani law play?

281.
According to Pakistan, jurisdiction should be assessed by reference to the ICSID Convention and the Treaty. However, the Parties' consent to arbitration under (and the object and purpose of) the Treaty is limited to (the promotion of) an "investment" within the definition provided in Article I(2). The wording of Article I(2) requires a consideration of Pakistani law in order to determine conformity with it.321
282.
The Respondent states that the Supreme Court of Pakistan is the ultimate source of Pakistani law. Thus, according to Pakistan, when conducting its jurisdictional investigation, the Tribunal should treat the Judgment on the issues of Pakistani law relevant to Karkey's investment as authoritative,

i.e. only if the Tribunal finds that there has been a denial of justice can the Judgment be ignored.322 It follows that Karkey's contract is void ab initio under Pakistani law in accordance with the Judgment and its investment was established in material breach of fundamental principles of Pakistani law and contrary to Article I(2) of the Treaty. As held in the Judgment:323

The contracts of all the RPPs. were entered into in contravention of law/PPRA Rules, which, besides suffering from other irregularities, violated the principle of transparency and fair and open competition, therefore, the same are declared to be non-transparent, illegal and void ab initio.324

283.
Pakistan notes that, among the factors relied on by the Supreme Court in reaching its conclusion, were the increase in the Advance Payment of 14%, the deferral of the 6% withholding tax and the delay in achieving Target COD (in the case of Karkey, that delay was nearly two years). The Supreme Court relied on the independent review by and conclusions of the Asia Development Bank (ADB), appointed by the Ministry of Water and Power in response to concerns about misprocurement that had already been voiced in 2009.325

(a.3) Issue 1.3: Was Karkey's investment established in breach of Pakistani procurement laws in breach of Article I(2) of the Treaty?

284.
Pakistan submits that Issue 1.3 only arises if the Tribunal considers it necessary to determine the issues already decided by the Supreme Court. The issues in this section relate to the period after Karkey was issued with the Letter of Award (on 6 November 2008) and up to the signing of the 2008 RSC, the 2009 RSC and Amendment No. 1 in December 2009. Pakistan's position on the issue of fraud, which deals with the earlier period when Karkey submitted its Bid (July 2008) and was declared the successful bidder (September 2009) is dealt with at Section IV(B)(1)(a.4(1)) below.326
285.
Pakistan states that the changes to Karkey's contract (which includes the 2008 RSC, 2009 RSC and Amendment No. 1) must be assessed by reference to the PPRA Rules (including Rule 40) and by reference to Pakistani corruption laws, including Section 9(a)(ii) of the NAO. Moreover, the Respondent asserts that the relevant test under Pakistani law for assessing whether a change to the terms of a contract procured by way of public tender violates Pakistani law is summarized in the Khawaja case, in which the contract in question was set aside and the relevant corruption agency ordered to investigate on the following basis:327

(i) "if material changes are brought about...subsequent to the bidding, this will in fact negate the notion of a fair and open competitive bidding process...all such changes as have been discussed below were material in nature and had been made to benefit JJVL. These changes were never available to other pre-qualified parties" which Karkey appears to agree with; and

(ii) If a "material change...represents a significant loss to the State...and thus ultimately to the People of Pakistan".

286.
Pakistan notes that Karkey's witnesses have claimed that they were ready to sign the Draft RSC in the form provided for in the RFP. This is disputed by Pakistan, as demonstrated below.328

- Letter of Credit

287.
According to Pakistan, there is no dispute that the letter of credit provided for in the 2008 RSC was changed to a Sovereign Guarantee in the 2009 RSC. The issue for the Tribunal is whether the beneficial changes that were introduced in Karkey's 2008 RSC were prompted by allegedly detrimental changes to the Letter of Credit provision in Clause 4.5 of the 2008 RSC (Karkey's case) or whether a straightforward review of the changes to Clause 4.5 as between the Draft RSC and 2008 RSC (and the track change versions in between) demonstrates that they were not (Pakistan's case). The Respondent asserts that it is for the Tribunal to determine under Issue 1.3 whether, as a matter of Pakistani law, the Draft RSC that went out to tender provided for a confirmed letter of credit (i.e. bank guarantee, counter-guarantee by an international bank) or just an irrevocable letter of credit.329
288.
It is Pakistan's position that, since there was no requirement for a confirmed letter of credit in the Draft RSC, there is no justification for these or any other crucial changes to the 2008 RSC. The alleged downgrading from a confirmed letter of credit to a letter of credit was, according to Karkey, the "one critical change" from which "[a]ll of the other Contract revisions that Pakistan discusses flowed...and can only be understood in relation to that change." According to Pakistan, it follows that, in the absence of any requirement for a confirmed letter of credit in the first place, the changes to the 2008 RSC were to the material benefit of Karkey (including in particular the doubling of the Advance Payment) and corresponding detriment to Pakistan. Moreover, and contrary to Karkey's assertion that they were in return for the downgrading of the letter of credit from confirmed to unconfirmed, they were conferred in the absence of any consideration flowing from Karkey.330

- Advance Payment

289.
The 2008 RSC provided for a 14.16% Advance Payment, in place of a 7% Advance Payment provided for in the Draft RSC contained in the tender documents. Pakistan submits that this change was proposed by Karkey and that there is no contemporaneous documentary support for Karkey's claim that the increase was first proposed by Pakistan and no evidence of who is alleged to have proposed it or when.331
290.
As the ADB Report makes clear, there was and is no justification for the increase from 7% to 14.16% in the Advance Payment, regardless of whether Karkey was ever entitled to a confirmed letter of credit: "[t]he increase in down payment and provision of a sovereign guarantee changed the financing cost and risk profile, particularly equity risk in favour of the potential Sellers [i.e. Karkey].[and was] contrary to good procurement practices."332

- FPLC (Fuel Payment Letter of Credit)

291.
The Draft RSC did not provide for a FPLC (or the sharing of any associated confirmation charges) and the letter of credit in draft Clause 4.5(c) referred only to the Monthly Rental Service Fees. The FPLC (and related provisions) was a new term introduced to the 2008 RSC.333 Pakistan submits that the FPLC was a benefit to Karkey (as Mr. Zafar accepts in his Second Report), as it removed a risk that Karkey knew from the outset it was required to bear (the risk of supplying and paying for fuel in the first instance). It was a detriment to Lakhra, which had to fund 50% of the costs of providing the FPLC, as well as to Pakistan if and when Karkey decided to cease generating electricity for non-payment of fuel and/or for failing to establish the FPLC, regardless of whether Lakhra was in fact paying for fuel.334

- Interconnection

292.
According to Pakistan, Clause 2(d)(IX) of the Draft RSC provided that responsibility for interconnection lay with Karkey. Clause 2(d)(IX) was removed from the 2008 RSC. The change was a benefit to Karkey which avoided the majority of the cost of interconnection (it paid only US$500,000) and, importantly, never reduced its tariff which was agreed before Clause 2(d)(IX) was removed and which must have included a US$10 million assumption for the cost of interconnection. Not to do so would have made no commercial sense in light of Clause 2(d)(IX), as it would represent a cost recoverable through the tariff which was omitted or overlooked.335
293.
Karkey's own case is that its contribution to the cost of interconnection was only US$500,000. The Respondent asserts that, judged at the time of the 2008 RSC (when misprocurement occurred), Karkey therefore benefitted by providing for recovery of an additional US$9.5 million through its tariff in relation to a cost that it never bore - while Lakhra (whose obligations were guaranteed by Pakistan) was charged a higher tariff than it otherwise should have done.336

- Definition of and extensions to Target COD

294.
Pakistan submits that the RFP was clear, as was Clause 4.4(b) of the Draft RSC, that Karkey was to achieve Target COD within 6 months from issuance of the LOA. Karkey understood this at the time and it was the basis on which its Bid was declared responsive. Clause 4.4(b) of the 2008 RSC changed the definition of the Target COD, which was then extended further in 2009 RSC and Amendment No. 1 in December 2009. Pakistan maintains that this was a change to the benefit of Karkey (who had longer to achieve Target COD and whose third-party funding arrangements were conditional on receipt of the Advance Payment from Lakhra). Pakistan further argues that it was to the detriment of Pakistan, which urgently needed emergency power and which had rejected Cavalier's bid on the basis that it could not achieve the Target COD, thus reducing competition.337

- Withholding Tax ("WHT")

295.
Pakistan submits that Lakhra was entitled (and obligated) to deduct 6% WHT from all payments to Karkey, including the Advance Payment as per Clause 4.5(1) of the Draft RSC, Clause 4.5(o) of the 2008 RSC, and Clause 4.5(o) of the 2009 RSC. Pakistan asserts that Lakhra, PEPCO and the Federal Board of Revenue all confirmed that this was the correct legal position. The approval of the ECC was therefore sought and obtained to this change, and payment was ultimately deferred (although only after the FBR had been persuaded to change its mind that the ECC decision even applied to Karkey - the reason why it did so is unexplained). According to the Respondent, this change was to Karkey's benefit, since it increased the cash amount Karkey received. Further, receipt of the full Advance Payment is alleged by Karkey to have been critical to its ability to draw down on third party funding for the construction of its ships. Yet the funding for construction of Karkey's ships was a matter entirely for Karkey and was not covered by the contract with Lakhra.338

- Conclusion

296.
According to Pakistan, the changes introduced to the Draft RSC altered the transactional balance in Karkey's favour, were severely detrimental to Pakistan, were unsupported by consideration flowing from Karkey and were a breach of Pakistani procurement and other laws.339

(a.4.(1)) Issue 1.4(1): Was Karkey's investment established by way of fraud in breach of Article I(2) of the Treaty?

297.
According to Pakistan, Karkey investment in Pakistan exists only as a result of its participation in, and the issue of a letter of award and contract as a result of, a public tender. In other words, Karkey could only ever have qualified as an investor if its Bid was responsive to the PPIB's bid documents - including the RFP. Any fraud committed during the tender process and which induced the PPIB to issue Karkey with its Letter of Award would therefore deny the Tribunal jurisdiction because Karkey's investment would not be established "in conformity with" Pakistani law.340
298.
In order for a bid to be considered responsive and even potentially qualify for a letter of award, bidders were required to confirm that they could meet a Target COD of "180 days from issuance of Letter of Award" (Milestone A). Any bids indicating a completion period later than the Target COD would be rejected and the bidder could never become an investor.341
299.
Knowing this, Karkey represented that it could comply with Milestone A in Proforma X of its Bid, its "Proposed Project Schedule". Pakistan asserts that the evidence shows that Karkey's representation was knowingly untrue and/or that Karkey was reckless as to its truth because it had no reasonable basis for believing in good faith that it could achieve Milestone A. Pakistan concludes that the Tribunal therefore has no jurisdiction under Article I(2) of the Treaty.342
300.
Moreover, Pakistan submits that the relevant standard of proof which the Tribunal should apply to Pakistan's claim of fraud (and corruption) is the balance of probabilities (i.e. whether it is "more likely than not"). Numerous tribunals have applied this standard specifically to claims of fraud.343
301.
The Respondent asserts that the transgressions by Karkey in this case are on all fours with those highlighted in the Inceysa v. El Salvador case. According to Pakistan, Karkey not only obfuscated the facts relevant to assessing its Net Worth, it also misrepresented its ability to meet the Target COD, which was the essential criteria on the basis of which a bid would be accepted or rejected as non-responsive. This was a violation of the obligation of good faith (which was also expressly imposed on all parties in connection with the RFP) as well as being fraudulent under Pakistani law.344
302.
Pakistan submits that at the time of submitting its Bid and making the representation in Proforma X regarding its ability to achieve Milestone A, Karkey's ship were not built. In order for Karkey to satisfy the Tribunal that its representation was true, Karkey must therefore show that, at the time of submitting its Bid, it believed in good faith that it could build, deliver and commission its ships within "180 days from issuance of Letter of Award" in order to achieve the Target COD referred to in Clauses 2.2.1 and 6.3.2 of the RFP and to which Karkey committed in its Bid.345
303.
Pakistan argues that Karkey makes no attempt in its written evidence to explain that it believed in the truth of its ability to achieve Milestone A. The Respondent asserts that, in his third witness statement, Mr. Karadeniz was clear that Karkey believed it could achieve only Milestone B (further, that Milestone B was the deadline Karkey considered it had to meet).346 Pakistan respectfully requests that the Tribunal accept Mr. Karadeniz's evidence in his third witness statement and find, in respect of both the Bid and the 27 August 2008 letter,347 that:348

(i) the undisputed statements of fact that Karkey could achieve Milestone A were false;

(ii) Karkey had no belief that it could and would achieve Milestone A; and

(iii) Karkey had no intention to perform the promises it gave to meet Milestone A.

304.
Alternatively, Pakistan submits that Karkey was reckless as to the truth of its representation.349 According to Pakistan, the evidence shows that an ordinary timeframe for construction, delivery and commissioning of a powership is between 18 to 29 months. Bearing in mind that its ships were not built at the time of submitting its Bid, Karkey could have had no good faith belief in its ability to achieve Milestone A following an ordinary time frame for construction.350
305.
Pakistan concludes that Karkey committed fraud under at least three heads of Pakistani law:351

(i) A false statement of fact, without belief (or reasonable belief) in its truth, with the intent to deceive or induce another to enter into a contract;

(ii) A promise made without any intention of performing it, with the intent to deceive or induce another to enter into a contract; and

(iii) A false statement of fact, in order to influence a procurement process or the execution of a contract.

306.
Moreover, to the extent the Tribunal determines it to be relevant, as a matter of international law (on which Karkey relies), Karkey is required to act in good faith and without fraud or deceit.352 Karkey committed fraud under international law, through its representations in its Bid and the 27 August 2008 letter:353

(i) By misrepresenting a material fact (its ability to achieve Milestone A, or even Milestone B);

(ii) Because Pakistan relied on a material fact (as evidenced by the contemporaneous correspondence);354 and/or

(iii) Because Karkey intended to deceive Pakistan, or was at least reckless, as to its ability to achieve Milestone A (or even Milestone B) through its false representations.

307.
In its closing submissions at the Evidentiary Hearing, Karkey's counsel suggested that (i) Pakistan had not established any detrimental reliance on Karkey's proposed Project Schedule and, conversely, that (ii) any delays in achieving the target schedule would have been remedied through the contractual mechanism that was explicitly established for that scenario.355
308.
In light of the contemporaneous evidence, the Respondent argues that there can be little doubt that Pakistan relied on Karkey's representations in issuing Karkey with the Letter of Award. As to "detrimental" reliance, Pakistan maintains that is not an aspect of the test for fraud under international law and that Karkey has not put forward any persuasive evidence that it is. In any event, according to Pakistan, it has suffered detriment as a consequence of its reliance on Karkey's representations:356

(i) The delays in achieving the target schedule, which Karkey's counsel pointed to, deprived Pakistan of the short-term emergency power it was seeking as the primary rationale for the RPP and which Karkey had promised. In view of the lack of available power from elsewhere, the "contractual mechanism" to which Karkey refers, which provides only for damages, does not address the consequences for, nor adequately compensate, Pakistan.

(ii) Pakistan will also suffer loss if Karkey is found to be an investor in accordance with Article I(2) of the Treaty, despite Karkey's investment having been established in breach of Pakistani law.

(a.4.(2)) Issue 1.4(2): Was Karkey's investment established by way of corruption in breach of Article I(2) of the Treaty?

309.
Pakistan admits that it bears the burden of proof in relation to its claim of corruption. However, given the bilateral nature of corruption, it is practically impossible for Pakistan to have all the relevant evidence. Accordingly, tribunals and commentators support the principle that the responsibility to rebut specific allegations of corruption should be borne by the party possessing the relevant information. In the words of one respected commentator, "plausible evidence of corruption, offered by the party alleging illegality, should require an adequate evidentiary showing by the party denying the allegation."357 As already noted above, the standard of proof for corruption is the ordinary balance of probabilities - in other words, whether it is "more likely than not" that corruption has occurred.358 Moreover, given the difficulties with obtaining direct evidence of corruption, it is widely accepted that circumstantial or direct evidence may be sufficient for a finding of corruption on the basis of inference.359
310.
The requirements for a finding of corruption under Pakistani law are set out at paragraphs 482 to 487 of the Rejoinder. The Respondent maintains that the payment of bribe is not a prerequisite for a finding of corruption under Pakistani law. Rather, Pakistani corruption laws are wider and, as confirmed at the Hearing by Karkey's expert Mr. Zafar, cover, inter alia, irregularities arising in a public procurement. Pakistan argues that a person (including Karkey and/or its directors) has "committed the offence of corruption and corrupt practices" under Section 9(a) of the NAO, inter alia if he accepts, obtains or offers any valuable thing for inadequate consideration to or from a person he knows is (or is likely to be) concerned in a business transaction with him (Section 9(a)(ii)).360
311.
Pakistan submits that Karkey's alleged explanations for the employment of and scope of services provided by Mr. Zulqarnain are unsupported by any contemporaneous evidence; and much of the evidence there is contradicts Karkey's claims. Karkey has also failed to provide any satisfactory evidence justifying the sums paid to Mr. Zulqarnain. According to Pakistan, this all leads to the inference that Mr. Zulqarnain was retained for purposes other than those described in his engagement letter, namely the illegal lobbying and influencing of government officials in order to secure (and ensure favourable treatment of) Karkey's RPP in Pakistan. The evidence of Mr. Zafar supports that the scope of Pakistani corruption laws extends to misprocurement. Pakistan submits that other evidence relevant to this issue was excluded by the Tribunal.361
312.
The evidence concerning Mr. Zulqarnain relevant to the question of corruption broadly falls into four categories: (a) the circumstances of this employment; (b) the services he is said to have performed; (c) his alleged compensation; and (d) his alleged expenses.362
313.
Pakistan emphasizes that Karkey agreed to pay US$100,000 (later US$115,000) to someone it contends was a part-time, administrative/logistics man in a country where the average annual wage is less than US$1,000. The evidence available of Mr. Zulqarnain's experience goes only to his political connections.363 The engagement of a third party related to, or closely associated with a foreign official is recognized as a common "red flag" of corruption by the FCPA, Woolf Committee Report, and the TRACE Due Diligence Guidelines. That is relevant because there is evidence that Mr. Zulqarnain was using his connections to secure favourable treatment for Karkey.364
314.
Pakistan submits that it is highly improbable that an individual not previously known to Karkey would be hired as its country representative in the context of a Bid for a contract worth over half a billion US dollars, without anyone checking whether he was experienced or suitable for the role. Pakistan asserts that if he were experienced in the temporary power sector, Karkey would have produced documents demonstrating this, as it was ordered to do (Request 9(a)). Alternatively, Karkey could have tendered witness evidence from Mr. Karadeniz's brother (who he says "must have been" the one who met Mr. Zulqarnain) to explain why he was engaged. Yet it has not. Nor has Karkey produced Mr. Zulqarnain, or indeed investigate his family connections itself.365
315.
Pursuant to Article 9(5) of the IBA Rules on the Taking of Evidence in International Arbitration, it should therefore be inferred either that (a) any documents that do exist would be adverse to Karkey's interests; or (b) that such documents do not exist (because his sector experience was irrelevant), and Mr. Zulqarnain was hired not for his alleged "business experience and background managing construction projects," but because of his political and/or family connections.366
316.
According to Pakistan, the absence of any documents evidencing the services actually provided by Mr. Zulqarnain and the mechanism for his payment are further "red flags" of corruption. Moreover, what evidence there is suggests that Mr. Zulqarnain was fulfilling a quite different role - including using his political connections to influence public officials.367
317.
Pakistan argues that the payments of US$300,000 (by Karkey) and US$11,111 (by Karpak) allegedly made in respect of Mr. Zulqarnain's purported expenses raise further "red flags" of corruption. Karkey has produced no evidence to demonstrate that any expenses were actually incurred by Mr. Zulqarnain - let alone over US$300,000 worth.368
318.
In sum, Pakistan submits that the dearth of evidence produced by Karkey, and the inconsistency of what little evidence there is, renders it inherently more probable that Mr. Zulqarnain was being paid for something other than the services outlined in his engagement letter, and that he was in fact engaged for the reason described by Mr. Aslam - to use his influence with government officials to obtain special treatment for Karkey, amounting to "corruption and corrupt practices" under Pakistani law.369
319.
Furthermore, Pakistan submits that while there is no evidence on the record linking Mr. Zulqarnain with the Scheme (as described below), the evidence regarding Mr. Zulqarnain should inform the Tribunal's decision as to whether it is more probable than not that Karkey was engaged in the Scheme, which is described below.370
320.
According to Pakistan, following the filing of Pakistan's Rejoinder but at least two months prior to the Hearing, Pakistan was informed by two previously unknown individuals, Mr. Samir Tannous and Mr. Tarek Nahas (working with Mr. Mustafa Ramday, a lawyer in Pakistan), of the existence of a sophisticated scheme implemented by Karkey, involving significant payments by Karkey to secure Karkey's contract in Pakistan (the "Scheme"). Pakistan and its counsel were shown copies of the following documents (the contents of which were recorded in the Attendance Note371 taken immediately following the meeting by Allen & Overy):372

(i) a copy of a document in the form of a consultancy agreement between Karkey and a consultant (the Consultant), whose name was redacted (the Consultancy Agreement);

(ii) a copy of a document in the form of a consultancy agreement, the date of which was redacted, between the Consultant and a local consultant (the Local Consultant), whose name was also redacted (the Local Consultancy Agreement).

321.
These two documents were, according to their terms, directly linked to and for the purpose of securing Karkey's investment in Pakistan.373
322.
The copy of the Consultancy Agreement (with date only redacted) stated, inter alia, that the Consultant was responsible for appointing a local agent at its own costs and expense to assist Karkey in securing the operation of the Contract in relation to matters related with certain local authorities for the duration of the Contract. In return for securing the RSC, Karkey would pay the Consultant 6% of the contract price under the RSC (over US$33 million) which was payable in tranches linked to payments due to Karkey under the RSC.374
323.
According to Pakistan, the copy of the Local Consultancy Agreement (with date and names only redacted) stated, inter alia, that the Consultant would pay over US$4.8 million (equal to 6% of the Advance Payment under the 2009 RSC) to the Local Consultant, in return for successfully facilitating the execution of the RSC. This amount was payable in two tranches, the size of which depended on certain trigger events under the 2009 RSC and the Consultancy Agreement, including whether the Advance Payment under the RSC would be paid inclusive or net of withholding tax.375
324.
At the same time, Mr. Tannous told Pakistan and its counsel of reams of emails confirming the existence of the Scheme. Pakistan states that as a sovereign state it had no choice but to pursue all available options for establishing the legitimacy of the Scheme suggested by the Consultancy and Local Consultancy Agreements. If genuine, those documents evidence that Pakistan has been the victim of a large-scale fraud by Karkey (and others) which goes to the very heart of this Tribunal's jurisdiction. No state in Pakistan's position could ignore what it was shown and being told.376
325.
It was for this reason that Pakistan, reluctant to pay the millions of dollars requested by Messrs. Tannous and Nahas for documentary and other evidence of the Scheme and because of timing issues in these proceedings, sought the assistance of the Tribunal and made its application dated 11 December 2015 (just two weeks after the Scheme came to light), together with the witness statement of Mark Levy (a partner at Allen & Overy LLP) and supporting documents, seeking disclosure by Karkey. In particular, Pakistan sought disclosure of 70 backup tapes on which Karkey had claimed that its electronic records were stored for the period up to April 2010 (the "Backup Tapes") - i.e. the exact period to which the Consultancy Agreement and the Local Consultancy Agreement indicate the Scheme relate. Karkey had previously relied on these Backup Tapes in resisting certain of Pakistan's requests for disclosure. Pakistan's previous requests for disclosure of relevant documents on the Backup Tapes had been rejected by the Tribunal.377
326.
Pakistan states that Karkey simply denied the existence of the Scheme and argued that the Scheme had been fabricated by a Pakistani government insider.378 In Procedural Order No. 12, the Tribunal declined to order any disclosure "[s]ince Karkey declares that the documents requested in Pakistan's Application do not exist".379
327.
During its Opening Statement at the Evidentiary Hearing, Pakistan renewed for a third time its application for disclosure of the Backup Tapes by Karkey on the basis that the Tribunal had accepted Karkey's bare denial of existence of the documents as truthful without having given Pakistan an opportunity to test it by requiring restoration and review of the Backup Tapes which Karkey acknowledged it had not even reviewed. The costs of disclosing the Backup Tapes had been estimated by an independent expert retained by Pakistan at £27,600, and they were costs that Pakistan agreed to bear.380
328.
The Tribunal dealt with the application on Day 2 of the Evidentiary Hearing. The Tribunal decided to admit the Nahas Document and Exhibit R-425 - the Attendance Note - but it did not admit the witness statement from Mr. Rafi, on the basis that the Tribunal considered it could have been submitted earlier. The Tribunal also refused all of Pakistan's applications made during the Opening Statement.381
329.
Pakistan noted at the closing of the Hearing that it is concerned by the Tribunal's decision to exclude what it believes to be relevant evidence. Pakistan is further concerned by the Tribunal's (a) rejection of Pakistan's application regarding (and its apparent unwillingness to investigate the veracity of) the alleged Scheme including the rejection of Mr. Khan's statement (which also went to the activities of Mr. Zulqarnain), as well as (b) the standards applied to requests for the introduction of new evidence by Karkey, which differed from those applied to Pakistan.382
330.
In doing so Pakistan has not been able to test Karkey's bare assertion that no documents relating to the Scheme exist. Moreover, the Tribunal has excluded evidence that goes to the issue of corruption and therefore to the Tribunal's jurisdiction.383
331.
As Karkey accepts, this is a matter of public policy. Pakistan argues that, as the matters stand, the Tribunal will be issuing an award on the basis of an incomplete factual record as regards its jurisdiction.384
332.
Pakistan submits that the Tribunal should nevertheless still infer from Karkey's objections to the admission of the Backup Tapes, the Witness Statement of Mr. Rafi and the other applications made by Pakistan, as well as the available evidence on the record, that Karkey's investment was, more probably than not, procured by way of corruption.385
333.
Furthermore, Pakistan makes the following submissions regarding the evidence on the basis of which Pakistan invites the Tribunal otherwise to make a finding that it is more likely than not that Karkey was engaged in "corruption and corruption practices" in the establishment of its investment (other than as a result of the activities of Mr. Zulqarnain and/or the Scheme).
334.
Shipyard visit in September 2010: In September 210, Karkey paid for flights for a delegation of Pakistani government officials. Pakistan argues that payment for these flights is a "valuable thing" offered by Karkey for inadequate consideration, to persons concerned in a business transaction with Karkey (the RPP) in breach of Section 9(a)(ii) of the NAO. The fact that Pakistan requested the visit and/or that it was for a valid purpose is irrelevant. There is no evidence that Pakistan requested Karkey to pay for the visit, which was a breach of Section 9 of the NAO (and in violation of the Establishment Code).386
335.
Misprocurement: Material changes were made to Karkey's contract after the issuance of the Letter of Award in circumstances where the MoWP pushed through approval of the RPPs put out to tender in May 2008 ("including barge mounted") in haste and without proper consultation. Pakistan argues that each of these material changes is a "valuable thing", accepted or obtained by Karkey, without adequate compensation, from a person concerned in a business transaction with Karkey, in breach of Section 9(a)(ii) of the NAO, as well as Section 9(a)(iv) (as each of these material changes occurred in breach of Pakistani procurement laws). Any aid, assistance or conspiracy by Karkey with holders of public office in their misuse of authority, or the issuance of a directive or order granting an undue concession or benefit to Karkey in a taxation matter, would also be a breach of Section 9(a)(iv), (vii) and/or (xii) of the NAO.387

Fraud: Pakistan argues that Karkey procured and was awarded the RSC as a result of fraud in relation to Karkey's readiness to meet the Proposed Project Schedule set out in Proforma X of its Bid, which breached Section 9(a)(ii) and (iv) of the NAO.388

(a.5) Issue 1.5: Is Pakistan estopped from raising its jurisdictional objections?

336.
Pakistan submits that the concept of estoppel prevents a party from exercising a valid legal right in circumstances where it has clearly and unequivocally stated that it would not exercise that right, and its counterparty has - in good faith - relied on this statement to its detriment.389
337.
Pakistan rejects Karkey claims that Pakistan would be estopped from exercising its valid legal right to claim fraud in connection with the delay to the Target COD because (i) "Karkey disclosed the status of its Powership construction to Pakistan from the very beginning"390 and (ii) "because for years Pakistan has had in its possession the same information on which it now bases its allegation of misrepresentation concerning the Target COD."391 This argument fails for a number of reasons, inter alia, because Pakistan cannot be estopped from raising objections to the Tribunal's jurisdiction on the basis of fraud and corruption because, as a matter of logic, Karkey cannot have relied on a statement or course of conduct by Pakistan in good faith (as required by Pope & Talbot) if it is guilty of fraud or corruption. Similarly, any statement by Pakistan was not "voluntary, unconditional, and authorized" if such statement was induced in that manner.392
338.
Pakistan rejects Karkey's claim that "the principle of estoppel bars Pakistan from asserting that any alleged inconsistencies with Pakistani procurement rules in the bidding process deprives the tribunal of jurisdiction of Karkey's claim"393 According to the Respondent, Karkey's claim fails, inter alia, because none of the documents relied upon by Karkey in this respect contain a clear and unequivocal representation that any breach of Pakistani's procurement laws by Karkey (or any bidder) would not be enforced or that the bidding process would be conducted in accordance with law and principles of transparency.394
339.
Finally, Pakistan rejects Karkey's assertion that, having previously accepted that the Letter of Credit provided for in the RFP was a confirmed letter of credit, Pakistan would now be estopped from adopting the contrary position. According to Pakistan, Karkey is mistaken because there is no clear and unequivocal statement of fact. The only references that Pakistan has made to a confirmed letter of credit make no references to Karkey, specifically, having been entitled to a confirmed letter of credit. A general statement on what was available to the RPP sponsors generally is not sufficiently clear and unequivocal to deprive Pakistan of the valid legal right to plead its own interpretation of the RFP and subsequent contracts.395 In any event, according to the independent ADB Report, even if Karkey was entitled to a confirmed letter of credit, the changes to its contract were "a major change under any prudent procurement guidelines".396 Therefore, Pakistan maintains that in the absence of a re-tendering, these "major" changes were a breach of the PPRA Rules irrespective of whether the Letter of Credit was confirmed or unconfirmed.397

b. Issue 2: Does Karkey's alleged investment meet the requirements of Article 25(1) of the ICSID Convention and Article I of the Treaty?

340.
According to Pakistan, in the event the Tribunal does not accept Pakistan's overarching jurisdictional objection that Karkey's alleged investment was established in breach of Pakistani law, it must also consider whether Karkey's alleged investment meets the jurisdictional requirements of Article 25(1) of the ICSID Convention and Article I of the Treaty.398
341.
Pakistan notes that Karkey appears to disagree with Pakistan's contention that the alleged investment must undergo and pass jurisdictional examination under both the ICSID Convention and the BIT, noting that the Salini criteria should only be used when there are "very strong reasons" to set aside the State's mutually agreed definition of investment. Pakistan maintains that this is incorrect and submits that an investment must pass a "double keyhole" test for jurisdiction.399
342.
Moreover, Pakistan does not disagree that the Tribunal should assess Karkey's operations in Pakistan "globally" or "as a whole", nor does Pakistan disagree that the meaning of "investment" under Article 25(1) of the ICSID Convention is potentially broad. However, as noted in the Counter Memorial, Karkey's attempt to present a tangled web of activities as a single investment is unhelpful, particularly in the context of the Treaty's expropriation clause, which applies only to the "expropriation of 'investments', and not to each and every resource utilized in connection with an alleged investment, but which is not itself an investment".400 By way of example, if Pakistan is correct that the 2009 RSC cannot form the subject matter of an investment because it has been declared void ab initio, this has a knock-on effect on what Karkey is able to claim has been expropriated (as well as what Karkey is able to claim as damages). Pakistan argues that it is therefore necessary to analyse each aspect of Karkey's alleged investment individually.401
343.
In any event, Pakistan maintains its argument that Karkey's activities, even when considered as a whole, are akin to a sale of goods transaction and are not covered by the ICSID Convention. Pakistan submits that Karkey does not succeed in distinguishing the rental of capacity from a more traditional sale or rental of goods contract.402
344.
For instance, Pakistan agrees that Karkey does not rent electricity. However, this does not address Pakistan's argument that a mere rental contract - be it for electricity or capacity - falls outside the ICSID regime. Indeed, the fact that Karkey's contract is a mere rental contract rather than a sale contract supports, rather than detracts from, Pakistan's argument. In sum, Pakistan argues that Karkey has failed to distinguish its turnkey, plug-and-play business model from a simple commercial sale or rental of goods contract. Therefore, like a commercial sale or rental of goods contract, Karkey's activities do not benefit from the protection of the ICSID regime. If the Tribunal agrees, it need not go on to consider whether Karkey's activities satisfy the Salini criteria nor whether they fall within the definition of "investment" under the Treaty.403
345.
Pakistan submits that it appears to be agreed between the Parties that the Salini criteria are not mandatory. However, they remain relevant in the sense that they represent the "benchmarks of investment."404
346.
In. According to Pakistan, even if one takes into account the value of the electricity actually generated by Karkey over the entire course of the project (around US$28 million), Karkey has nevertheless acted as a considerable net drain on the Pakistani economy, having procured a contract whereby it would be paid almost US$10 million every month regardless of whether it ever delivered a single kilowatt of electricity.405
347.
Second, whilst Pakistan agreed that the fact that the majority of the investment forming Karkey's alleged contribution took place outside Pakistan may not be decisive, it is certainly relevant to the Tribunal's consideration of whether or not Karkey has made an "investment".406
348.
Third, Pakistan maintains that Karkey took none of the financial risks normally associated with an investment.407
349.
Finally, Karkey claims that Pakistan argues that the impermanence of a project alone can destroy its status as an "investment". According to Pakistan, this misrepresents Pakistan's argument and overstates its importance. Rather, the impermanence of Karkey's investment (which Karkey does not deny) is merely one factor indicating that the project is akin to a simple sale or rental transaction. On Karkey's case, the central asset of the project is able to constitute an "investment" despite spending only a fraction of its working life in Pakistan, before going on to become an investment in Iraq, or Ghana, or elsewhere. This is what, to Pakistan's knowledge, is unprecedented in investment treaty arbitration.408
350.
Moreover, Pakistan's accepts that Karkey's Vessels could be considered to be a dedication of resources to Pakistan, albeit to a very limited degree. A delivery truck could also be considered to be a dedication of resources. Like a delivery truck, the Vessels were not tailored to the Pakistani market and indeed were intended to be located in Pakistan for only a short period.409
351.
According to Pakistan, it is also not disputed that Karkey's shareholding in Karpak is capable of being an "investment" under the Treaty. However, for the purposes of the ICSID Convention, Pakistan's position is that the present dispute is not a dispute "arising directly" out of Karkey's shareholding in Karpak. Rather, the international dispute arises from the actions taken with respect to a rental contract and the assets connected to that contract. Pakistan submits that the mere establishment of a local entity to assist with sale of goods does not affect that or change the nature of the alleged investment. Karpak had no purpose other than assisting with the execution of the 2009 RSC.410
352.
Pakistan further rejects Karkey's claim that the funds in its bank accounts constitute an investment for the purposes of Article 25(1) of the ICSID Convention because they entail a contribution, involve a risk, and have a significant duration of five years. Karkey does not explain why the funds in its bank accounts have taken on anything other than the ordinary commercial risk assumed by all those using Pakistani bank accounts.411
353.
Pakistan maintains that, even if Karkey's activities satisfy the definition of investment on a prima facie basis, these items are not investments "in conformity with" Pakistani law, meaning they do not truly fall within the definition of "investment" under the Treaty. Similarly, in the event that the Tribunal finds that Karkey's investment was procured through fraudulent misrepresentation and corruption, the Tribunal should decline jurisdiction over the dispute.412

(2) Attribution

a. Issue 3: Are the acts of Lakhra attributable to the State of Pakistan?

354.
Whilst it is accepted that acts of the Supreme Court, MoWP and the NAB are attributable to the State, it is Pakistan's position that Lakhra, PEPCO and KESC are separate legal entities with autonomy from the State. As such, their acts are not attributable to the State of Pakistan unless specifically and individually directed, instructed or controlled by the State. Only Lakhra's institution of the Sindh High Court proceedings, which was done at the specific request of the NAB, is admitted as being attributable to Pakistan.413
355.
Karkey argues that Lakhra is both structurally and functionally controlled by Pakistan. Pakistan submits, however, that these arguments are not relevant for the purposes of Article 8 of the ILC Articles, which turns purely on whether Lakhra was acting on the instruction, or at the direction or under the control of Pakistan. Lakhra is an independent entity with legal autonomy from the State. It has an independent legal personality, it can sue and be sued in its own name, and it is owed fiduciary duties by its directors under the Companies Ordinance. Accordingly, as the commentary to Article 8 makes clear, "prima facie [Lakhra's] conduct in carrying out [its] activities is not attributable to the State".414
356.
Pakistan submits that the burden of overturning this presumption is on Karkey. To do so, Karkey must show that each specific act of Lakhra on which it relies was specifically instructed, directed or controlled by Pakistan. According to Pakistan, Karkey has failed to demonstrate that Pakistan issued any such specific instruction, direction or control to Lakhra in respect of each instance in which Lakhra is said to have acted as Pakistan. Instead, it makes generalized claims without properly linking those claims to specific instances of instruction, direction or control by Pakistan which are said to go to individual claims advanced by Karkey.415
357.
Pakistan also rejects Karkey's argument that Lakhra's entry into the 2009 RSC was effectively controlled by Pakistan, noting in particular a letter from the PPIB stating that "the Competent Authority has decided that Lakhra... will be the 'Buyer'". Pakistan submits that this argument is relevant to Karkey's Additional Claims regarding fair and equitable treatment, in particular Karkey's alleged legitimate expectations. If the entry into the 2008 and 2009 RSCs was not effectively controlled by Pakistan, then the promises in the contract are not Pakistan's, and they are not capable of forming the basis of legitimate expectations.416