Tag Archives: Arbitral tribunal

The First ICSID Case of 2016: Al Jazeera v. Egypt

satellite dishAccording to the ICSID website, the first case registered in 2016 was an arbitration initiated by the global media company Al Jazeera against Egypt.

There have long been indications that Qatar-based Al Jazeera would seek compensation under the Qatar-Egypt bilateral investment treaty for injuries allegedly suffered since the Muslim Brotherhood was overthrown in 2013. In connection with the regime change, the new Egyptian government accused Al Jazeera of being a propaganda machine for the Brotherhood. The Financial Times reported on the dispute already in April 2014:

“The lawyers argue that by arresting and attacking Al Jazeera journalists, seizing the broadcaster’s property and jamming its signal, the Egyptian government has violated its rights as a foreign investor in the country and put the $90m it has invested in Egypt since 2001 at risk.”

It has been held that the arbitral tribunal to be appointed in the case will likely have to determine the extent to which media freedom is protected by the treaty. With this novel issue in the spotlight, the arbitration will likely be closely watched by the news media.

Philip Morris v. Australia dismissed

AustraliaBlogOn 17 December 2015, the tribunal in Philip Morris Asia Ltd. v. Australia issued the long-anticipated award on the case, declining jurisdiction, as known from a statement from Philip Morris.

The case concerns Australia’s Tobacco Plain Packaging Act 2011 which prohibits use of trademarks, symbols, graphic or images on tobacco products and packaging. The investor argued that the measure has expropriated its intellectual property rights because it cannot use its logo in the cigarette package.

The tribunal’s reasoning for declining jurisdiction remains unknown. However, it is known that Australia has submitted jurisdictional objection among others that the dispute had arisen before the investor obtained protection under the bilateral investment treaty between Hong Kong and Australia and that the commencement of the arbitration shortly after the investor’s restructuring is considered an abuse of rights.

As published by the Permanent Court of Arbitration website, the award will not become public until the parties agree on the redaction of any confidential information contained in the award.

A quick read of the EU Commission’s Investment Court Proposal

CommissionYesterday the EU Commission presented its proposal for the investment chapter in the TTIP, which is the result of a long consultation. The text, which runs to almost 40 pages, is available here. It will now be discussed internally in the EU and then put on the negotiating table with the US.

Below we briefly go through some of the noteworthy aspects:

The dispute procedure

-        A “court system” consisting of one Investment Tribunal and one Appeals Tribunal is set up.

-        The tribunals will work under established arbitration rules: ICSID, UNCITRAL or “any other rules agreed by the parties”, depending on the choice of the investor in the particular case. Instead of reinventing the wheel, the Commission is here relying on established practice.

-        While it is positive that the proposal draws so extensively on established arbitration rules, many areas remain where the interaction between the proposal and those rules must be studied further. This is most obvious when it comes to the enforcement of awards, but also other aspects such as the Appeals Tribunal and the appointment of arbitrators need extensive analysis before being included in a treaty.

-        It is made clear that the tribunal only has the mandate to look at cases through the lens of international law. Consequently, domestic law cannot be applied or reviewed by the tribunal.

-        Mediation provisions have been introduced. While mediation is sometimes often possible under the current system (and most disputing parties so far have elected not to mediate) such a procedure makes sense for reasons of efficiency. Mediation is however a challenge from a transparency perspective as it is hard to mediate openly.

The arbitrators/the system

-        The relationship is unclear between this proposal (which is aimed only at the TTIP) and the ambitious but vague multilateral dispute settlement mechanism envisioned by the Commission (which is to set up some sort of World Investment Court in the future). Under Article 12, many parts of the current proposal will cease to apply when/if a permanent multilateral system is set up. With this solution, the Commission is kicking the can further down the road.

-        Arbitrators can only be drawn from a list established by states. This is problematic because one of the two parties (the state) will set the frames for the disputes when the other (the investor) can only appoint from a list pre-approved by the state. Under the current system, each party can freely choose its own arbitrator.

-        States have to negotiate over whom to put on the list of arbitrators. This risks a politicization of the appointments, which is exactly what investment arbitration is intended to avoid.

-        Furthermore, the arbitrators must fulfill an almost impossible list of requirements to be eligible for the list. Annex II – where the arbitrators’ code of conduct is set down – in combination with the requirements in Article 9(4), leave a very small group of people eligible. In practice, depending on how the requirements are interpreted, it is likely that only retired lawyers (and probably only retired judges) will be able to sit as arbitrators. This restricts the parties’ possibility to appoint the most suitable arbitrator and also ensures that only a small elite gets to adjudicate investment disputes.

-        The Appeals Tribunal, allowing the case to be reheard on its merits, is sure to make disputes much longer and much more expensive; the average dispute would likely be twice as expensive as under the current system, which affects both investors and states.

Transparency

-        An express reference to the UNCITRAL Transparency Rules is included. The proposal even goes further than the Rules by making clear that many documents, including everything from proceedings before the Appeal Tribunal, shall always be made public.

-        The proposal extends the possibility for third parties to intervene. While the general tendency towards transparency is desirable, Article 23 states that the tribunal “shall permit any natural or legal person which can establish a direct and present interest in the result of the dispute”. This seems to (i) restrict the tribunal’s discretion by saying that it “shall” allow such submissions and (ii) considerably widen the scope of who shall be allowed to file submissions. In comparison, the UNCITRAL Rules on Transparency states that the tribunal “may” allow such submissions, after consulting the parties and only if it finds the submission could be helpful.

 

Case Summary No. 9: Compaña de Aguas & Vivendi v. Argentina

The water pipe which is connected to the pump swinging a foamy liquid.Our next case summary is Compañiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic. The summary was prepared based on the award rendered on 20 August 2007.

The investor was a French company and its Argentine affiliate who entered into a concession agreement with the Province of Tucuman to provide water and sewage services.

According to the investor, the Tucuman authorities – the legislature, the governor and the province’s regulatory authorities – relentlessly “attacked” the investor and the concession agreement almost from its inception. Investors claimed that these actions were taken with a view to pressuring them to renegotiate the tariffs of the concession.

Among other things, the investor pointed out to the statements made by the government that the water could cause cholera, typhoid and hepatitis and that the customers should not pay their bills. Further, the investor argued that the government used their regulatory powers to impose unilaterally modified tariffs, contrary to the terms of the concession agreement. In the end the investor terminated the concession agreement.

The investor brought the claim under the Argentina – France Bilateral Investment Treaty (BIT).

The tribunal found that there was a violation of fair and equitable treatment standard under the BIT. It noted that while it would have been entirely proper for a new government to seek to renegotiate a concession agreement in a transparent and non-coercive manner, it was unfair and inequitable to bring the investor to renegotiation table through threats of termination based on colourable allegations. The evidence did not show the existence of health risk from the water provided by the investor.

The tribunal further held that the actions of the government against the concession was equivalent to an expropriation as they had a devastating effect on the economic viability of the concession. The investor’s recovery rate declined dramatically over the life of the concession, among others because the government’s public statement asking the customers not to pay their bills. The tribunal reasoned that the investor had the right to expect that the government will not engage in damaging campaign against them. Therefore, according to the tribunal, the investor was radically deprived of the economic use of its investment.

Case Summary No. 3

To better explain the principles underlying ISDS, we are introducing a series of case summaries here at the blog.

Our third case is Marion Unglaube v. Republic of Costa Rica and the award was rendered in May 2012. This summary is prepared based on the facts as described in the award.

The investor had several plots of land in the Pacific Coast of Costa Rica. In 1991, Costa Rica announced that it intended to create a national park around the area where the investor’s property was located, for protection of leatherback turtles. To this end, the government informed its intent to expropriate certain private properties.

The investor did not dispute the government’s objectives to protect the environment.

However, when the government finally moved to expropriate the investor’s land in 2003, the investor did not receive any compensation for this action.

From the outset, the Tribunal in the ensuing arbitration asserted that it was not empowered to question the authority of the Costa Rican government to expropriate land – an authority which has long been established and recognized by international law.

The tribunal noted however that while there can be no question concerning the right of the government of Costa Rica to expropriate property for a bona fide public purpose, expropriation must be compensated.

The tribunal went on to say that if compensation had been properly provided for and paid by the government, Costa Rica’s legal position would have been incontestable and this dispute might never have occurred.  Finally, the tribunal ordered Costa Rica to pay compensation to the investor for the expropriation.

Case Summary No. 2

Our second case is World Duty Free Company Limited (“WDF”) v Republic of Kenya and the award was rendered in October 2006. This summary is prepared based on the facts as described in the award.

The dispute arose out of an agreement where between WDF, an Isle of Man company, and the Kenya Airports Authority, acting on behalf of the Government of Kenya for the construction, maintenance and operation of duty-free complexes at Nairobi and Mombasa International Airports (1989 Agreement).

WDF brought a claim to the ICSID, claiming expropriation of its property and a breach of the 1989 Agreement.

WDF submits that from the outset, to be able to do business with the government of Kenya, the CEO and shareholder of WDF was required to make a “personal donation” to the then President of Kenya. This donation amounted to USD 2 million.

WDF further claims that the Government of Kenya instigated to take over the control, shares and assets of WDF. The High Court of Kenya placed it in receivership. The CEO was subsequently arrested, held, and deported to the United Arab Emirates.

The Tribunal ruled that the 1989 Agreement was procured by a bribe, without which no contract would have been concluded between the parties. WDF retained the free choice whether or not to invest in Kenya and whether or not to conclude the Agreement, but WDF chose, freely, to pay the bribe. The bribe is contrary to international public policy of most, if not all, States and also to public policy under English and Kenyan law.

Thus, the Tribunal dismissed the claims on the ground that contracts obtained by corruption cannot be upheld.

 

Case Summary No. 1

In a series of blog posts, we will provide summaries of ISDS cases. The summaries are based on the facts as described in the award.

Our first case is Wena Hotels Ltd v. Arab Republic of Egypt and the final award was rendered in 2000.

The dispute arose out of two long-term agreements between Wena Hotels Limited (“Wena”), a British investor to lease, operate and manage two hotels in Egypt, and the Egyptian Hotels Company (“EHC”). EHC was wholly-owned by the Egyptian government. Shortly after the signing of the agreement, Wena alleged the condition of the hotels to be far below that agreed in the lease. Wena therefore withheld part of the rent under the terms of the lease.

Due to this non-payment, EHC threatened to repossess the hotels through force. Wena informed the Egyptian Minister of Tourism about this situation however there was no solution. One night witnesses reported that more than one hundred EHC personnel stormed the two hotels, threatened and physically attacked the hotels’ employees and guests. They were also reported to having removed a number of belongings of the hotels.

The Chief Prosecutor of Egypt ruled that seizures of the hotels were illegal and that Wena was entitled to repossess the hotels. The hotels were subsequently returned but in a vandalized condition.

Wena brought an ISDS claim against Egypt under the ICSID Convention, claiming violation of investment protection in the UK-Egypt investment treaty.

The tribunal found a breach of the investment treaty since, according to the tribunal, there was substantial evidence that Egyptian authorities were aware of EHC’s intentions to seize the hotels but took no action to prevent the seizures. After the seizures, Egypt took no action to immediately restore Wena’s control over the hotels.

The tribunal also found that an expropriation had taken place since Egypt allowed EHC to seize the hotels, to possess them illegally for nearly a year and to return the hotels stripped much of their furniture and fixtures. In the opinion of the tribunal, Egypt did not provide a fair, prompt and adequate compensation to Wena for the expropriation.