News and Commentary

Belgium dredging companies fail in arbitration against Egypt

Damon Vis-Dunbar — Mon, 17 Nov 2008 14:42:00 GMT

By Damon Vis-Dunbar
17 November 2008

The Egyptian government has deflected a US$ 80 million dollar claim by two companies hired to dredge the Suez Canal.

Jan de Nul N.V. and Dredging International, both incorporated in Belgium, won a bid to dredge sections of the Suez Canal 1992, a job they completed some three years later. However, allegations that the Suez Canal Authority (SCA)—the Egyptian agency responsible for the canal—misrepresented the size of the task has led to protracted legal disputes in the Egyptian courts and international arbitration.

A claim for breaches of the Belgo-Luxembourg bilateral investment treaty was registered with ICSID in 2003 on the grounds of the alleged fraud, and on charges that a ten-year effort to seek redress in the Egyptian courts amounted to denial of justice.

In a 6 November 2008 award, these claims were dismissed by the three-person Tribunal of Prof. Pierre Mayer, Prof. Brigitte Stern and Prof. Gabrielle Kaufmann-Kohler (President).

In rejecting the first claim, the Tribunal determined that the SCA’s actions could not be attributed to the Egyptian government. Although the SCA carries out a public service, the tribunal held that structurally it was independent of the state. Moreover, its dealings with the claimants were commercial, rather than governmental, in nature.

The Tribunal also found no reason to believe that the long legal dispute in the Egyptian courts could be considered denial of justice on either procedural or substantive grounds.

The Tribunal concurred that “there is no doubt that ten years to obtain a first instance judgment is a long period of time.” Nonetheless, the tribunal did not find a lack of due process; nor, given the complexity of the case, could the duration of the proceedings amount to denial of justice.

The Tribunal also found no fault with the substance of the court’s decision. While the claimants alleged fraud on the part of the SCA, through a “willful withholding of information”, the Tribunal agreed with the Egyptian court that no deception appeared evident.

Having dismissed all claims on the merits, the Tribunal ordered that costs of the arbitration should be split between the parties, and each was ordered to cover its own legal fees.

Egypt has won half of the ten cases that it has faced at ICSID, the World Bank’s investment arbitration facility.

The award in Jan de Nul N.V. and Dredging International N.V. v. the Arab Republic of Egypt (ICSID Case No. ARB/04/13) is available from the Investment Treaty Arbitration website at http://ita.law.uvic.ca/documents/JandeNulNVaward.pdf

Disgruntled fishing outfitters put Canada on notice

Damon Vis-Dunbar — Thu, 13 Nov 2008 10:53:00 GMT

By Damon Vis-Dunbar
13 November 2008

The Canadian government has been sent two letters from outdoor tour companies signaling intent to sue for alleged breaches of the North American Free Trade Agreement. Both outfitters complain that their businesses suffered when the Province of Quebec changed the rules for distributing fishing licenses.

The two businesses led American tourists on fishing trips in the rivers of Quebec. As part of the service they offered, fishing licenses would obtained by lottery, and then transferred to clients. However, in an effort to curb fishing activity, the Province of Quebec adjusted the lottery system; as of 2006, licenses could not be obtained by one individual and transferred to another.

The companies complain that they invested in their businesses on the basis that licenses could be transferred to clients, and thus are owed compensation for what amounts to expropriation of their investments.

William Jay Greiner and Malbaie River Outfitters filed their notice of intent to submit a NAFTA claim in September, while David Bishop followed up with his letter just under a month later. They are both represented by the same New York-based lawyer.

The Canadian government has received four so-called Notices of Intent since July 2008. These letters must be delivered before an arbitration claim can be submitted under NAFTA’s chapter on investment. Nonetheless, not all letters of intent lead to arbitration.

Sources:

Notice of intent to submit a claim to arbitration pursuant to Chapter Eleven of the North American Free Trade Agreement, William Jay Greiner and Malbaie River Outfitters v. Government of Canada, available at: http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/william_archive.aspx?lang=en

Notice of intent to submit a claim to arbitration pursuant to Chapter Eleven of the North American Free Trade Agreement, David Bishop v. Government of Canada, available at:
http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/david_archive.aspx?lang=en

Forum for developing country investment treaty negotiators held in Marrakech

Damon Vis-Dunbar — Mon, 10 Nov 2008 12:51:00 GMT

On 2-4 November 2008, the International Institute for Sustainable Development, the South Centre, and the Moroccan Department of Investment held the 2nd Annual Forum of Developing Country Investment Negotiators in Marrakech, Morocco. The First Annual Forum of Developing Country Investment Negotiators was held in Singapore on 1-2 October 2007, and was attended by over 30 negotiators from 25 developing countries.

The second annual forum brought together over 50 participants to look at key issues in international investment law and policy, including: the changes in this field at the multilateral, regional and bilateral levels; the role of development policy space and home country and investor obligations; the link between investment agreements and climate change; and other relevant topics.

The Second Annual Forum of Developing Country Investment Negotiators background papers are featured below.

Agenda (PDF - 107)

Forum materials

Session I: Recent Developments in Investment Negotiations in Bilateral, Regional and Multilateral Treaty Instruments

Session II: Negotiating IIAs - The Importance of Defining Terms and Concepts; State of the art on key terms

Recent Developments in the Definition of Investment in International Investment Agreements
Mahnaz Malik, IISD (PDF - 400 kb)

Session III: Negotiating IIAs - Advances in Investor-State Arbitration Issues; The Debate on Transparency in Investor-State Arbitration

Advances in Investor-State Arbitration
Fiona Marshall, IISD (PDF - 450 kb)

Session IV: Negotiating IIAs - Defining Investor Obligations and Ensuring Development Policy Space for Host Countries

Investors' Obligations and Host State Policy Space
Vicente Yu, South Centre and Fiona Marshall, IISD (PDF - 518 kb)

Session V: Buyer Beware: The Linkages Between International Investment Treaties and Investment Contracts Between Foreign Investors and Host Governments

Session VI: Climate Change, Energy Investments and International Investment Agreements

Clean Energy Investment: Project Synthesis Report
Aaron Cosbey, IISD (In particular, please see pages 41-65) (PDF - 1.1 mb)

Canadian investors sue Costa Rica alleging failure to protect their farm

Damon Vis-Dunbar — Wed, 29 Oct 2008 08:27:00 GMT

By Fernando Cabrera Diaz and Damon Vis-Dunbar
29 October 2008

A tribunal has been constituted in an arbitration that pits a group of Canadian investors against the government of Costa Rica. The claimants—Vancouver-based Quadrant Pacific Growth Fund L.P. and Conasco Holdings Inc—allege that Costa Rican authorities failed to protect their orange plantations from peasants who squatted on their land and sabotaged their operations.

The tribunal consists of Alejandro M. Garro, Bernardo M. Cremades (President) and Andreas F. Lowenfeld.

In their request for arbitration, the claimants complain that during 2003-2005, their property in Costa Rica was “invaded” by squatters who blocked access to the farm and intimidated employees. The Canadians accuse Costa Rican law enforcement agencies of failing to respond, despite repeated pleas for protection.

The farm operation had been dealt “a fatal blow” after “three years of upheaval,” said management of Quadrant Pacific Growth Fund in a note to its investors earlier this year.

In 2005, the families who had been expelled from the claimant’s farm protested outside the offices of the Costa Rican Agrarian Development Institute (IDA).

ITN spoke to IDA official Daniel Aries, who explained that the peasants had reached an agreement with the government, under which they would be re-located to another piece of land. He said the IDA was currently in the process of buying land to place the remaining 14 members of the group.

Danelia Garciaz, one of the peasants who occupied the farm, said in an interview with ITN that they used what was then vacant land for the purposes of subsistence farming before being expelled three year later.

Quadrant Pacific Growth Fund L.P. and Conasco Holdings are alleging breaches of the fair and equitable treatment and the full protection and security provisions of the 1998 Canada-Costa Rica Foreign Investment Protection Agreement (FIPA), and say they are seeking at least US$ 20 million in damages.

The case was registered with the International Centre for the Settlement of Investment Disputes (ICSID) in March 2008.

Société Générale passes jurisdictional hurdle in dispute with Dominican Republic; controversy erupts over press release

Damon Vis-Dunbar — Tue, 28 Oct 2008 10:30:00 GMT

By Fernando Diaz Cabrera
28 October 2008

Lawyers for the Dominican Republic have accused a subsidiary of the French financial services company Société Générale of breaking confidentiality rules in an ad-hoc arbitration when it issued a press release announcing that the tribunal had ruled in its favour by rejecting the Dominican Republic’s objections to jurisdiction.

A 3 October 2008 press release by TCW Group, a subsidiary of Société Générale, states that the Tribunal had “rejected the objections raised by the Dominican Government and allowed US$ 680 million in claims against the Republic to proceed to a final hearing and an award on the merits of the dispute.”

Counsel for the Dominican Republic, Peter Thomas, partner at Simpson Thacher & Bartlett LLP, says the press release, at a minimum, violated the spirit of Article 32(5) of UNCITRAL Rules by providing details of the confidential award.

Article 32(5) states that an “award may be made public only with the consent of both parties.”

Mr. Thomas told ITN that the press release was an incomplete and misleading summary of the award, given that the company failed to mention two important objections by the Dominican Republic that were upheld by the tribunal. As a result, the Dominican Republic wanted to publish the award in order to make the full facts known. Lawyers for the Dominican Republic have voiced their displeasure to the tribunal.

For their part, counsel for Société Générale, Christopher Dugan and Joseph Profaizer of Paul, Hastings, Janofsky & Walker LLP, said that Article 32(5) prohibits only the publication of the award itself, rather than references of the sort provided in the press release.

Moreover, Mr. Dugan argues that even if the Dominican Republic's interpretation of Article 32(5) is valid, it was in fact the Dominican Republic that first went public with details of the award. He alleges that government officials told people outside of government that they had won the decision, and that it was in response to this that TCW issued its press release.

In an interview with ITN, David Caron, co-author of “the UNCITRAL Arbitration Rules, A Commentary” and C. William Maxeiner, Distinguished Professor of Law at Berkeley, said they do not view Article 32(5) by itself as prohibiting a press release reporting the basic decision of a tribunal. However, if an UNCITRAL tribunal did find a violation of the rule, it could order the offending party to refrain from repeating their actions, explained Mr. Caron.

Société Générale v. Dominican Republic arbitration proceeds to merits stage following decision on jurisdiction

As reported previously in ITN*, TCW and its affiliates launched two arbitration claims against the Dominican Republic in 2007, seeking US$ 680 million as compensation in each case.

One claim was brought under the 2003 Dominican Republic-France bilateral investment treaty by TCW’s parent company, Société Générale. The other claim was launched by TCW and one of its subsidiaries under the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR).

Among TCW’s claims were that the Dominican Republic had expropriated its investments in the electricity distributer EDE Este, as a result of the country’s alleged failure to allow for electricity rate increases and to control rampant electricity theft.
In November of 2007 the Dominican Republic objected to the tribunal’s jurisdiction in respect of the BIT claim, which is governed by the UNCITRAL rules of arbitration.

The Dominican Republic raised four objections: (i) that Société Générale had not made an investment that could be protected by the BIT because there was no contribution to the Republic's development as the preamble to the BIT envisages; (ii) that the facts alleged by the claimant, even if true, did not amount to an expropriation; (iii) that the events that gave rise to the claim occurred before the BIT came into effect in January of 2003; (iv) and that the dispute occurred before the French company Société Générale acquired the investment November of 2004, and therefore the claims are not protected by the Dominican Republic-France BIT.

In a decision on jurisdiction handed down in late September, the tribunal rejected the first objection and held that despite the indirect and complicated structure of Société Générale’s investment, which involves several subsidiaries and joint ventures, and which was acquired for a nominal fee of $2 dollars, it did fall under the BIT’s broad definition of investment.

In rejecting the second objection, the tribunal held that if proven at the merits phase, the facts alleged by Société Générale were capable of resulting in a breach of the BIT, and should therefore be adjudicated at that phase.

The tribunal’s decision on the third objection was mixed. It accepted the Dominican Republic’s view that events occurring before the BIT’s entry into force could not be considered as violations due to the principle of non-retroactivity. But the tribunal held that these events could be considered as continuous acts that may have resulted in violations after the BIT's entry into force.

Finally, the tribunal again accepted the Dominican Republic’s argument that Société Générale could not make claims for acts and events occurring before it became involved in the investment in November of 2004. It also limited the claim to the portion of the investment that belonged to Société Générale, thereby excluding from its jurisdiction over 50% of the investment which it determined was owned by American investors.

The case will now move on to the merits phase with the temporal and nationality limitations imposed by the tribunal.

The TCW press release is available from Market Watch at: http://www.marketwatch.com/news/story/international-tribunal-allows-us680-million/story.aspx?guid={93B0BED5-E791-4A9C-8788-D0587DF3551E}&dist=hppr

The decision on jurisdiction in Société Générale v. Dominican Republic is available on the Investment Treaty Arbitration website at: http://ita.law.uvic.ca/documents/SGJurisdiction.pdf

Jurisdictional decision sees light of day in dispute between a Greek claimant and Serbia-Montenegro

Damon Vis-Dunbar — Fri, 24 Oct 2008 09:47:00 GMT

By Damon Vis-Dunbar
24 October 2008

A previously unpublished 2006 partial award on jurisdiction in an arbitration between a Greek industrial group and the government of Serbia and Montenegro was released in October 2008, providing a fuller description of the little-publicized dispute.

The row relates to a series of contracts between Mytilineos Holdings SA and RTB-BOR, a state-owned company involved in mineral extraction and metallurgy. Under the contracts, Mytilineos provided financing and spare parts to RTB-BOR, in exchange for the sale of copper. Mytilineos was also to be given a priority to buy a stake in RTB-BOR in the case that it was privatized.

The cooperation failed, however, as RTB-BOR struggled to pay back its debts. Mytilineos registered a claim under the Greek-Serbia and Montenegro bilateral investment treaty in 2005, seeking some US$ 31 million in damages.

The tribunal’s jurisdiction was challenged, in part, on the grounds that the contracts between Mytilineos and RTB-BOR did not constitute an “investment” as imagined by the BIT. Notably, the tribunal diverged on this question, with two members (Prof. August Reinisch and Prof. Stelios Koussoulis ) arguing in favour of jurisdiction, while the third arbitrator (Professor Dobrasav Mitrovic) declined jurisdiction on the grounds that Mytilineos has not complied with national legislation on foreign investment.

With the majority of the tribunal deciding in favour of jurisdiction, the path was cleared for a ruling on the merits. But progress has been hampered, first with the resignation of Prof. Mitrovic, then later with the passing away of Prof. Koussoulis , according to counsel for Mytilineos, the Greek law firm Moussas & Tsibris. A tribunal has been reconstituted, however, and written pleadings on the merits have been filed.

Sources:

The partial award on jurisdiction and dissenting opinion in Mytilineos Holdings SA v. The State Union of Serbia & Montenegro and Republic of Serbia are available at: http://ita.law.uvic.ca/

“Greek investor sues over mining operation in first known BIT case against Serbia”, By Damon Vis-Dunbar, Investment Treaty News, December 19, 2006

Chemical company warns Canada of a potential lawsuit over pesticide ban

Damon Vis-Dunbar — Thu, 23 Oct 2008 16:02:00 GMT

By Damon Vis-Dunbar
23 October 2008

One of the world’s largest chemical manufacturers may sue the Canadian government over the ban of a lawn pesticide in the Province of Quebec.

The Canadian government revealed on 21 October that, some two months earlier, it was served with a “Notice of Intent” by Dow AgroSciences LLC, a subsidiary of the U.S. Dow Chemical Company. Under the rules of the North American Free Trade Agreement’s Chapter Eleven on investment, the notice sets in motion a 90-day period which must elapse before formally serving a claim.

Dow AgroSciences (DAS) complains that a lawn pesticide, 2,4-D, was banned in the Province of Quebec based on political motivations rather than scientific criteria. It cites, for example, internal Quebec government communication stating that the weed killer cannot be banned “on a scientific basis”, but rather on “less ‘firm’ ground such as the precautionary principle ... or a policy decision resulting from the will of the population.”

DAS claims breaches of the Fair and Equitable Treatment and Expropriation provisions of NAFTA’s Chapter 11, and says damages are not less that $2 million.

While the DAS holds that national and international agencies have determined that the pesticide does not pose an unacceptable health risk, there are environmental and health organizations in Canada that remain skeptical. Indeed, due to public pressure, the Province of Ontario is also on the verge of banning 2,4-D, and the municipality of Halifax, in the Province of Nova Scotia, has already enacted a similar ban.

The notice of intent is one of several such letters received by Canada in the last several months, which have drawn attention to NAFTA’s investment protections in the national media. As ITN reported last month, a U.S. businessman, Melvin J. Howard, submitted a notice of intent in July, alleging expropriation of investments made in the health care sector.

Meanwhile, a law firm issued a press release in October announcing that it had recently submitted a notice of intent on behalf of a William Greiner and Malbaie River Outfitters, which organizes hunting and fishing trips in Quebec. According to the release, Mr. Greiner had fishing licenses revoked, which rendered his business “essentially worthless.”

Sources:

Notice of Intent to Submit a Claim to Arbitration Under Chapter Eleven of the North American Free Trade Agreement, Dow Agrosciences LLC v. the Government of Canada, available from the website of the Canada’s Department of Foreign Affairs and International Trade: http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/agrosciences_archive.aspx?lang=en

Czech Republic fails to overturn partial liability award before Paris Court of Appeal

Damon Vis-Dunbar — Wed, 22 Oct 2008 11:56:00 GMT

By Suzy H. Nikièma
22 October 2008

The Czech Republic’s effort to overturn a partial award on liability rendered in favour of a Croatian businessman has been rejected by a Paris court of appeal, while a separate challenge to a US$ 1.5 million ruling on damages is still pending.

The awards in question arise out of a dispute between a Croatian investor, Pren Nreka, and the Czech Republic. In 1996, ZipMex, a Czech company owned by Pren Nreka, concluded a contract with the Educational Center of Prague of the Ministry of Education, Youth and Sport. Under the contract, ZipMex was to renovate and develop certain non-residential premises, before renting them for commercial use. However, in 2002, the Ministry decided to recover the premises and succeeded in having the contract severed under orders by a court in Prague.

Pren Nreka retaliated by suing the Czech Republic for breach of the Czech Republic-Croatia bilateral investment treaty (BIT). In a February 2007 partial award, which has not been published, a tribunal found that the Czech Republic had violated both the fair and equitable treatment and expropriation provisions of the BIT, and in a subsequent ruling rendered this year, it found the Czech Republic liable for US$ 1. 5 million in damages to the claimant.

On 15 March 2008, the Czech Republic launched a challenge to the partial award, with a decision rendered by the court on 25 September. On 5 August 2008, the Czech Republic initiated a second challenge, in this case against the ruling on damages. A decision on this matter remains pending.

In its bid to overturn the partial award on liability, the Czech Republic argued that: no arbitration agreement existed because there was no investment as defined by the BIT; that the tribunal exceeded it powers; and that the award violated French public policy. All three arguments were rejected by the Paris court.

In dismissing the first argument, the court held that the contract was an “investment” as envisioned by the BIT, which refers broadly to “any kind of asset invested in connection with economic activities”. The court also rejected the notion that there must be a “contribution to the economic development of the host country”. While certain tribunals have held that this is an implicit condition for an economic activity to be deemed an investment, the Paris court decided that this would be reading too much into the BIT, given that it does not refer explicitly to such a condition.

On the question of whether the tribunal had violated French public policy, the Czech Republic took issue with the tribunal’s assertion that introducing a lawsuit can, in itself, constitute unjust or inequitable treatment, regardless of whether the action is carried under national laws. In response, the court ruled that the tribunal was not challenging the Czech Republic’s right to initiate a lawsuit per se; rather, the court said this right is not absolute, and can be limited by other obligations, such as the duty to provide fair and equitable treatment.

This in not the only instance of the Czech Republic challenging arbitral awards; as ITN reported in January*, the Czech Republic is attempting to overturn a decision on jurisdiction in a separate arbitration involving a German businessman in the transport sector, named Rupert Binder. This challenge has been lodged with a court in Prague, the seat of the arbitration.

Sources:

Nreka v Czech Republic, Action for Annulment, Record No 07/04675; IIC 347 (2008), available at www.investmentclaims.com

*Czech Republic quietly pursues challenge to jurisdictional ruling in Prague court,
By Damon Vis-Dunbar, Investment Treaty News, January 17, 2008

Tribunal prepares for amici curiae in miners’ dispute with South Africa

Damon Vis-Dunbar — Tue, 21 Oct 2008 06:54:00 GMT

By Damon Vis-Dunbar
21 October 2008

Nonparties wishing to intervene in an international arbitration launched by Italian miners against the government of South Africa have been offered a set of procedures to follow.

A two-page document, available from the ICSID secretariat, summarizes the allegations made by the Italian miners, outlines the steps that need to be taken by non-disputing parties seeking to make an amicus curiae (friend of the court) application, and describes the criteria that will guide the tribunal in deciding whether to approve potential petitions.

The arbitration—Piero Foresti, Laura De Carli and others v. the Republic of South Africa—has received more attention than most international investment disputes given a discernible human-rights dimension to the claim. The claimants, two Italians involved in South Africa’s granite mining industry, are seeking compensation for alleged expropriation that stems, in part, from legislation intended to boost participation and ownership by historically disadvantaged South Africans in the mining sector.

The claimants have alleged breaches of the Italy-South Africa and Benelux-South Africa bilateral investment treaties.

So far, there have not been any requests to make amicus curiae applications, according to the ICSID secretariat. However, civil society groups in South Africa are contemplating action. A non-profit law clinic, the Legal Resources Centre (LRC), says that it has already been instructed to advise on an amicus curiae submission, and it has received statements of interest from other civil society groups that are contemplating doing the same.

At this point, it is not clear what access non-disputing parties will have to documents—such as pleadings filed by the parties— or to the hearings. Neither party to the dispute has decided whether it will release their memorials to non-disputing parties, nor if the hearings will be open to the public. Under ICSID rules, a tribunal may accept written amicus briefs after “consulting” the parties, but both parties must consent before the hearings are opened up to nonparties.

In deciding whether to admit written briefs by amici, the tribunal says it will take into account the written petitions by applicants, as well as: (i) “the views of the Claimants and Respondent"; (ii) “any undue burden or unfair prejudice which the acceptance of written submissions by non-disputing parties may place on the Parties, the Tribunal, and the proceedings"; (iii) and “the degree to which the proposed written submission is likely to assist the Tribunal in the determination of a factual or legal issue related to the proceeding.”

Hearings in the case, which will be held in The Hague, are currently slated for December 2009, although they may be pushed back to early 2010.

Further reading:

For past ITN reporting on this case, including a description of the dispute, see: “More details emerge of miner's case against South Africa”, By Luke Eric Peterson, Investment Treaty News, November 30, 2008

This paper, co-written by a lawyer with knowledge of the claimants’ case, provides useful background to the dispute: “South Africa’s Bilateral Investment Treaties, Black Economic Empowerment and Mining: a Fragmented Meeting”, by Matthew Coleman and Kevin Williams, Business Law International, Vol 9, No. 1, January 2008.

In Memorial: Professor Thomas Wälde (1949-2008)

Damon Vis-Dunbar — Thu, 16 Oct 2008 09:18:00 GMT

A leading figure in the field of international investment law passed away suddenly on 11 October 2008 at age 59.

Thomas W. Wälde, a professor at the University of Dundee, Scotland, fell at his holiday home in Southern France. News of his death, which spread across the on-line forums that he founded and fostered, has been met with an outpouring of grief.

A prolific writer, speaker and educator, Professor Wälde’s presence loomed large over the field of international investment law. He was a noted expert on investment law as it applied to the energy sector, and served as an expert witness, counsel and arbitrator in many international investor-state disputes.

Professor Wälde grew up in Heidelberg, Germany, and studied law in Germany and Switzerland, before receiving his L.L.M. from Harvard University.

In 1980, he took up a post with the United Nations as interregional advisor on mineral law, where he provided guidance to developing country governments.

From 1991-2001, he served as Director of the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee. At the time of his death, he was Professor and Jean-Monnet Chair of International Economic, Natural Resources and Energy Law at the same university. Many of the condolences that have been expressed come from students and young professionals to whom Professor Wälde served as a mentor.

Professor Wälde was the driving force behind wide-ranging discussions on his internet-based discussion forum OGEMID (oil-gas-energy-mining-investment disputes). Despite the name, the forum concerned itself with much more than litigation in the energy and mining sector, due, in large part, to Professor Wälde, who stoked the fire of a debate whenever the embers began to fade.

“Thomas and I disagreed on many things, but this was very much the point of his efforts in many cases. His encouragement of open debate and discussion set a benchmark for us all,” said Howard Mann, Director of the International Institute for Sustainable Development’s Investment for Sustainable Development Programme.

Professor Wälde is survived by his wife, Professor Charlotte Wälde, and his son and daughter.

Argentina ordered to reconsider its position on payment of ICSID awards

Damon Vis-Dunbar — Tue, 14 Oct 2008 09:42:00 GMT

By Damon Vis-Dunbar
14 October 2008

A three-person committee formed by the International Centre for the Settlement of Investment Disputes (ICSID) has rejected the Argentine government’s position that foreign investors who have been awarded damages through the ICSID arbitration system must go to an Argentine court in order to obtain enforcement of the award.

The committee has given the Argentine government 60 days as of 7 October 2008 “to reconsider its position on the extent of its obligations to pay on the final award ....”, in a decision that pushes the question of Argentina’s compliance with a string of arbitral decisions that have found the government liable to foreign investors for actions taken during its financial crisis in 2001.

The ad-hoc committee was formed in response to Argentina’s request for the annulment of an award rendered in favour of Enron Corporation, an American firm awarded damages of US$ 106 million.

Upon making its annulment request, the award was temporarily stayed. Argentina has requested that the award remain frozen until the annulment committee has made a decision. Enron, however, has asked that the stay be lifted, or that Argentina post a security, so that if the award is not annulled, Enron is guaranteed payment.

Complicating the tribunal’s decision is a fundamental disagreement between Enron and the Argentine government over the procedures for enforcing the award.

Argentina does not dispute the binding nature of the award in the case that it is not annulled. However, under its reading of the ICSID rules, “award creditors must meet the formal requirements that any person should follow in Argentina to obtain compliance with a final judgment of a local court.” In short, this position holds that Enron must, as a formality, seek compliance of the award by an Argentine court.

It’s an argument that has been firmly rejected by the ad-hoc committee. As a result, the committee has given the Argentine government 60 days to reconsider its position, before it determines whether the stay should be lifted, or if a security should be posted.

Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award in Enron Corporation Ponderosa Assets, L.P. v. Argentine Republic (ICSID Case no. Arb/01/3) is available from the ICSID website by clicking here.

Award is publicly released in failed Energy Charter Treaty claim against the Ukraine

Damon Vis-Dunbar — Mon, 13 Oct 2008 12:40:00 GMT

By Damon Vis-Dunbar
13 October 2008

Details of an arbitration involving a Latvian investor and the government of the Ukraine have emerged following the public release of the tribunal’s final award, some seven months after the decision was rendered. The Ukraine has been absolved of charges that it had breached the Energy Charter Treaty (ECT), a multilateral agreement that governs investment in the energy sector.

The suit was launched in 2005 by Amto, an investment company based in Riga, owned by a holding company in Liechtenstein, and controlled by a Russian. In 1999, Amto purchased a majority stake in a Ukraine company called EYUM-10, which serviced the Ukraine’s state-owned nuclear power company, Energoatom. Outstanding debt owed to EYUM-10 by the ailing nuclear power company formed the foundation of Amto’s case against the Ukraine.

According to Amto, its efforts to invest in the Ukraine’s nuclear power sector via EYUM-10 were met with resistance, and once the investment was made, the state-owned power company deliberately refused payment of debts owed to EYUM-10.

In particular, Amto drew attention to the Ukraine’s judiciary and bankruptcy law, holding that they failed to live up to the standard required by international law. These alleged deficiencies had frustrated efforts to retrieve the debt owed to EYUM-10 through a series of bankruptcy proceedings, argued Amto.

However, while the Ukraine’s bankruptcy law is not flawless, the tribunal found no reason to believe that it did not give effective means for creditors to exert their rights. Nor did the tribunal find evidence that the government had interfered in the bankruptcy proceedings.

Indeed, the tribunal would go on to dismiss all of Amto’s claims, including allegations related to denial of justice and the treaty’s umbrella clause.

The Ukraine also submitted a counterclaim for arbitration costs and non-material injury; the latter stemming from alleged injury to the Ukraine’s reputation. But the counter-claim was dismissed for lack of applicable law.

The arbitration costs are to be split between the parties, and each was ordered to bear its own legal costs.

The final award in Limited Liability Company AMTO (Claimant) and Ukraine, Arbitration Institute of the Stockholm Chamber of Commerce, Arbitration no. 080/2005 is available for download by clicking here.

An interview with Professor John Ruggie, United Nations Special Representative of the Secretary General on Business & Human Rights

Damon Vis-Dunbar — Wed, 01 Oct 2008 07:39:00 GMT

1 October 2008

Professor John Ruggie was appointed to be Special Representative of the United Nations Secretary-General on business & human rights in 2005. Prof. Ruggie is also the Kirkpatrick Professor of International Affairs and Weil Director of the Sharmin and Bijan Mossavar Rahmani Center for Business and Government, as well as Affiliated Professor in International Legal Studies at Harvard Law School. ITN corresponded with Prof. Ruggie by e-mail.

ITN: Since becoming the UN Special Representative of the Secretary General on Business & Human Rights, you and your team have delved into a number of quite specific areas of international investment law, including bilateral investment treaties, the rules of investor-state arbitration, and stabilization clauses. What has drawn you to this particular area of international economic law?

J.R.: My work on investment is part of examining the role of states in regulating and adjudicating corporate activities vis-à-vis human rights, as requested in my initial mandate. All throughout this examination I have found a lack of policy coherence within and among states in dealing with business and human rights issues. The domain of human rights policy tends to be segregated within its own conceptual and (typically weak) institutional box—kept apart from, or heavily discounted in, other policy domains that shape business practices, including commercial policy, corporate law and securities regulation. Investment policy also fits into that list.

As we’ve seen in a number of recent cases, the investment regime can have a significant impact on human rights issues. Our drawing attention to this nexus has engaged constituencies that have not generally been active in business and human rights before—such as private law firms, international organisations like UN Commission on International Trade Law, the International Finance Corporation, and even civil society organizations like IISD itself.

ITN: You have commented on the imbalance in bilateral investment treaties: i.e., that they provide legal protections to foreign investors, without taking a similar regard for a state’s duty to protect the public interest. Are there remedies that you would suggest?

J.R: In my view, if there are serious negative consequences of BITs for the protection of human rights, those should be corrected. As with stabilization provisions, investor protection should be achieved in a way that at a minimum does not hinder the fulfilment of the state’s human rights obligations.
In terms of remedying any potential negative impact that BITS can have on the state duty to protect, I believe that innovative ideas should come from engagement with stakeholders from all sides, including investors, states, international institutions, and civil society. This is one of the issues I will continue to explore during my current mandate.

ITN: Can you point to any specific areas where, in your view, the international investment law regime works against the promotion of human rights?

J.R.: The three-part framework for business and human rights that I proposed in my most recent report to the Human Rights Council, and which the Council unanimously welcomed last June, comprises the state duty to protect against human rights abuse by all parties, including business; the corporate responsibility to respect human rights; and more effective access to remedies for those who believe their rights have been abused.

We have tried to understand better whether and how the international investment law regime may hinder the state’s ability to protect rights, through legislation and/or regulatory measures. In our joint project with the IFC, we have focused on stabilization clauses as one such mechanism. Our work indicates that these clauses can impede a state’s duty to protect in two ways. Sometimes they are drafted to make investors exempt from new social and environmental laws over the lifetime of an investment project. And sometimes these clauses are drafted to provide the investor with compensation or an opportunity to claim compensation for compliance with new social and environmental laws. Obviously, investors need protection against arbitrary or discriminatory measures by host states. So it is a question of balance and precision, ensuring that provisions in agreements don’t lend themselves to misuse by either side.

Another issue I have looked at briefly is transparency for investor-state arbitration. The UN promotes transparency as a fundamental precept of good governance. I consider that to hold true in the investment realm as well. If the public does not know of disputes between the state and a foreign investor, and therefore cannot inform itself of how the public interest may be impacted by the dispute, it makes it all the more difficult to hold the state to account.

ITN: This brings us to your support for greater transparency in investor-state arbitration governed by the UN Commission on International Trade Law’s rules of arbitration, which has led to significant debate and opposition from some quarters.

J.R.: I don’t believe that my support for greater transparency in investor-state dispute resolution has triggered significant opposition. On the contrary, the UNCITRAL decided by consensus in June of this year that addressing transparency in investor-state dispute resolution will be the next priority of the Working Group on Arbitration.

As I indicated in my statement to UNCITRAL in June of this year, adequate transparency where human rights and other state responsibilities are concerned is essential if the public is to be aware of proceedings that may affect the public interest. It lies at the very foundation of what the United Nations and other authoritative entities have been promulgating as the precepts of good governance.

Again, the issue is one of balance, because some commercial matters do need to remain confidential. But the exceptions should be specifically tailored to address legitimate needs and not blanket the entire process.

I am pleased that UNCITRAL will be considering this important issue. There is now a unique opportunity to focus on how the principle of transparency should be integrated into investor-state dispute resolution. I will follow their proceedings with great interest.

Dominican Republic target of potential treaty claims in toll road dispute

Damon Vis-Dunbar — Tue, 30 Sep 2008 11:29:00 GMT

By Fernando Cabrera Diaz
30 September 2008

The Dominican Republic faces two possible treaty claims in a dispute with a consortium it hired to extend and operate an important highway connecting the capital with the eastern part of the island.

The dispute centres on a 2001 concession contract signed between the Concesionaria Dominicana de Autopistas y Carreteras, S.A. (CODACSA), a consortium of American, Spanish and Dominican investors, and the Dominican Republic. The contract called for CODACSA to operate a toll highway connecting Santo Domingo to San Pedro de Macoris and to expand the highway further east to the popular tourist destination La Romana.

CODACSA says the concession contract calls for construction costs to be paid from toll revenues in the long run, but that initially the company was required to borrow capital to finance the expansion. Given that the financing would be obtained in US dollars while the tolls are collected in Dominican pesos, the contract required, among other things, that the Dominican Republic provide a devaluation guarantee in case the peso fell by more than 7% in a year against the dollar. The concession contract also required the Dominican Republic to adjust the tolls in accord with inflation or pay a “shadow toll.”

CODACSA alleges that it has not been allowed to adjust the tolls or receive the required ‘shadow toll”, which has prevented the company from obtaining the financing it needs to complete the project.

CODACSA initiated a contract-based arbitration under the auspices of the International Court of Arbitration in June. The same month, two letters of intent were sent to the Dominican Republic, one on behalf of the American investors under the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) and the other on behalf of the Spanish investors under the Dominican Republic-Spain Bilateral Investment Treaty. These letters set in motion a six-month period which must elapse before a claim can be submitted under either treaty.

According to Claudia Salomon of DLA Piper, counsel for CODACSA, the consortium is alleging, among other things, expropriation and breach of the fair and equitable provisions of both treaties.

The Dominican Republic, for its part, counters that CODACSA has breached the concession agreement. Speaking to daily Listin Diario on 24 August, Public Works Minister Díaz Rúa accused the company of failing to adequately invest in the project, and instead directing only a small portion of its toll revenues — RD$ 35 million (approx. US$ 1 million) out of RD$ 1,000 million (approx. US$ 29 million) collected over seven years — towards developing the project.
According to Mr. Díaz Rúa, this has resulted in an over four year delay in the highway extension.

Gaela Gehring Flores of Arnold & Porter LLP, which represents the Dominican Republic, echoed the minister’s sentiments, telling ITN that “in general the claimant’s position misrepresents the rights and obligations of the parties under the concession contract.”

She explained that CODACSA had seriously breached the contract by its failure to complete works in accordance with the planned schedule of construction, by not living up to its maintenance commitments and by its failure to take the basic steps necessary to obtain financing for the project.

Ms. Gehring Flores added that, in her view, this was a contract dispute which was already being heard by the International Court of Arbitration, and she failed to see how the investors’ claims rose to the level of treaty violations.

Plama Consortium Limited v. Republic of Bulgaria: Honesty is the best policy

Damon Vis-Dunbar — Tue, 30 Sep 2008 11:26:00 GMT

By Elizabeth Whitsitt
30 September 2008

In a 27 August 2008 decision, a tribunal has concluded that Plama Consortium Limited (PCL), a Cyprus firm, was not entitled to protections afforded under the Energy Charter Treaty (ECT), given that it had fraudulently misrepresented itself when it invested in a privatized refinery, Nova Plama AD. In addition, the Tribunal found that even if PCL were entitled to certain ECT protections, the Republic of Bulgaria did not breach its treaty obligations. As a result, PCL was ordered to pay all the fees and expenses of the Tribunal and ICSID’s administrative charges, as well as USD$ 7 million in legal fees and other costs incurred by Bulgaria.

PCL had sought some USD$ 122 million in damages plus interest for alleged breaches of obligations under the ECT and Cyprus-Bulgaria bilateral investment treaty, after Nova Plama AD had its assets liquidated to meet creditors’ claims. Specifically, PCL argued that Bulgaria (i) failed to create stable, equitable, favorable and transparent conditions for the investment, (ii) failed to provide the investment with fair and equitable treatment, (iii) failed to provide the investment constant protection and security, (iv) subjected the investment to unreasonable and discriminatory measures, (v) breached its contractual obligations vis-à-vis PCL, and (vi) subjected the investment to measures having an effect equivalent to expropriation.

In defense, Bulgaria raised objections to the Tribunal’s jurisdiction over the admissibility of PCL’s claims by arguing that the company’s investment in Nova Plama AD involved misrepresentations in violation of Bulgarian law. As a result, Bulgaria asserted that the investment was void ab initio (from the beginning) under Bulgarian law and, therefore, not an “investment” as contemplated by the ECT.

While the Tribunal found that Bulgaria’s allegations of misrepresentation did not deprive it of jurisdiction to hear this case, they did bar PCL from seek protection under the ECT given that its investment in Nova Plama AD was obtained by fraud. The Tribunal concluded that “[t]he investment in Nova Plama was . . . the result of a deliberate concealment amounting to fraud, calculated to induce the Bulgarian authorities to authorize the transfer of shares to an entity that did not have the financial and managerial capacities . . .” required to continue with its operations.

Consequently, the Tribunal determined that PCL’s investment violated not only Bulgarian law but international law, including the principle of good faith, the principle of auditor propriam turpitudinem allegans—that nobody can benefit from his own wrong and international public policy—and that a contract obtained by wrongful means should not be enforced by a tribunal.

While the Tribunal went on to dismiss the PCL’s allegations against Bulgaria, the importance of this decision lies in the Tribunal’s unequivocal rejection of claims made by dishonest investors. Similar to the adage originating in the English courts of equity that “he who comes to equity must come with clean hands”, the Tribunal’s decision affirms that if investors want to seek refuge under international treaties, honesty is the best policy.