Tag Archives: Case

Case summary: STATI, ASCOM & TERRA RAF V. KAZAKHSTAN

Landscape with mountains, KazakhstanThis summary of the case Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v. Kazakhstan is based on both the award from December 19, 2013 and the subsequent court decision in Svea Court of Appeal on December 9, 2016. Both documents are available here.

The dispute is based on the Energy Charter Treaty (ECT) and was initiated by Moldovan businessman Anatole Stati, his son Gabriel Stati and two companies owned by them. Together, the men and their companies owned two Kazakh corporations that invested in two oil and gas field in Kazakhstan. According to the investors, they were subjected to significant harassment from the state, with the ultimate purpose of forcing them to sell their investments cheaply. The harassments supposedly reached from interference with the day-to-day business operations to more extreme measures, such as jailing persons with connections to the companies. According to the investors, the value of their investments were affected negatively by the harassment, which was the state’s intention: the state was hoping to take over the fields and was therefore trying to bring the price down.

The investors consistently refused to sell to the state. Instead, they ultimately found an external buyer for the fields – who was supposedly ready to offer substantially more than the state – but that transaction never took place, because the state took over the fields.

Therefore the investors initiated the ECT arbitration, arguing that the state had violated the treaty in several different ways.

Kazakhstan claimed that the fields were badly managed from the outside, and also violated domestic law. Therefore, the state was forced to step in and save the companies from financial collapse. The state also argued that the corporate chain behind the investment was unclear, which would mean that the tribunal did not have jurisdiction under the ECT.

The tribunal found that it did have jurisdiction, and also largely accepted the investors’ arguments. After having gathered extensive evidence, the tribunal found that the state had violated the treaty’s fair and equitable treatment standard. The majority of the tribunal determined that the investors’ losses amounted to some $500 million, which was significantly less than what the investors claimed (one of the arbitrators dissented on the valuation point and considered that the field were in fact worth more than what the tribunal majority found).

The tribunal’s legal seat was in Stockholm, which among other things means that Swedish courts have supervisory jurisdiction. Kazakhstan therefore turned to Svea Court of Appeal in Stockholm in order to attempt to have the award set aside (we have written before on how domestic courts exercise supervisory jurisdiction in ISDS). The state argued that the award was invalid in several ways, as summarized well by the court in the judgment, which is still only available in Swedish. The Svea Court of Appeal ultimately found that the award did not violate Swedish law and therefore decided to uphold it.

Case Summary: Rusoro v. Venezuela

Moulting gold at a factoryThis case summary is based on the August 2016 award in the case between Rusoro and Venezuela.

Venezuelan president Hugo Chavez nationalized the Venezuelan gold sector through an official decree during the summer 2011. The decree meant that the state took over all assets and rights from foreign gold companies active in the country, and that private companies were prohibited from exporting gold out of Venezuela.

Rusoro, a Canadian company with extensive gold production investments in Venezuela, claimed that the decree violated the bilateral investment treaty between Canada and Venezuela.

During the arbitration, the state did not deny that an expropriation had taken place, but it claimed that it was done in a legal manner (the state did contest the tribunal’s jurisdiction and Rusoro’s damage claims).

The tribunal rejected some of Rusoro’s claims on procedural grounds but found that the state had unlawfully expropriated the investor’s assets. Although the tribunal did concede that Venezuela had a right to expropriate on political grounds, and that it had done so in accordance with its own laws and in a non-discriminatory manner, it said that the state should have compensated Rusoro. Since no compensation had been paid, Venezuela had violated the treaty.

A large part of the award deals with the quantification of Rusoro’s losses (i.e. how much the state should pay as compensation for the expropriation). After hearing both sides’ economic experts, the tribunal valued Rusoro’s losses to $1,2 billion plus interest.

Case Summary: Windstream Energy LLC v. Canada

River Skyline Overlooking Detroit, Michigan as seen from Windsor, OntarioThis case summary is based on the award, which was rendered on September 27, 2016 and published a few months later.

Windstream is an American company, which invested in one of the world’s largest offshore wind power parks, to be located in Lake Ontario. The park has not yet been built, however, and according to Windstream this is due to the Ontario province’s illegitimate cancellation of the project.

In 2010 Windstream received a 20-year contract with Ontario to build the park and initiated the preparatory investments. Shortly thereafter, the province launched a public consultation. In February 2011, the result of that consultation prompted the energy authority in Ontario to halt the project, in order to conduct more scientific studies into the park’s effect on its surroundings.

That paus is still in force and the park has not been built. When Windstream initiated arbitration in 2014, the company argued that Ontario de facto had cancelled the project, since Windstream no longer could meet the deadlines needed to make the project commercially viable. According to Windstream, the conduct violated NAFTA and the company therefore sued Canada, as responsible under international law for the conduct of public bodies in the provinces.

In the award, the arbitral tribunal did not find that the Windstream’s investment had been expropriated, since the company had not been deprived of its assets: the 20-year contract is still in force and could be re-negotiatied.

The tribunal did find, however, that the “fair and equitable treatment” clause of NAFTA had been violated. Although the tribunal stated that the province’s original purpose with the temporary paus seemed genuine, it found that the purpose had not been followed up over time: for example, very little scientific study seems to have taken place. In those circumstances, it was not reasonable to leave Windstream in a “limbo” for such a long time.

Canada was therefore found to be in breach of NAFTA and ordered to compensate Windstream for its losses amounting to some €21 million. This sum was significantly lower than what Windstream had asked for, but the tribunal emphasized that the investor’s contract was still in force and could be re-negotiatied, a fact which limited the losses sustained by the investor.

We have earlier published a summary of a similar dispute, which also arose out of the production of wind power in Ontario. In that case, Mesa v. Canada, the state was successful on all points.

 

Case Summary: Pac Rim Cayman LLC v El Salvador

Inside of salt mine shoot on corridorOur next case summary is Pac Rim Cayman LLC v. El Salvador and the summary is prepared based on the award rendered in October 2016.

The claim was brought based on the Central America Free Trade Agreement (CAFTA) and El Salvadoran Investment Law.

The investor held an exploration permit for a largely-underground gold mining site in Eldorado and further applied for an exploitation permit.  The dispute arose from the government’s refusal to grant exploitation license, which, according to the investor, amounted to several breaches of El Salvadoran Investment Law.

Meanwhile, the state based its refusal on the failure of the investor to obtain either ownership rights to all of the surface land in the concession area, or authorisations from all relevant landowners, as required under the Mining Law.

The tribunal decided to hear the claims under El Salvadoran law, which was allowed under the ICSID Convention, after it ruled that it did not have jurisdiction under the CAFTA.

The tribunal sided with the state and disagreed with the investor’s interpretation of the Mining Law which would not require authorisations from surface-level landowners if the activity does not involve surface-level land. According to the tribunal, the mining might pose environmental risks to surface landowners. Therefore, the investor’s interpretation was disproportionate to the risks.

In conclusion, the tribunal found that the investor did not comply with the requirement under the Mining Law to be granted an exploitation permit and therefore the government did not have any obligation to grant such permit to the investor.

The investor was also ordered to pay the majority of the state’s costs in the proceedings.

See other case summaries involving the mining industry here.

 

Transglobal Green Energy v. Panama

Panama2016This case summary is based on the publicly-available ICSID award in the case between the American company Transglobal Green Energy (”Transglobal”) and The Republic of Panama. In the award from June 2, 2016, the arbitral tribunal rejected the case early on and found that the investors attempted to abusively create jurisdiction under an investment treaty.

The case centered around a hydro-electric power plant in Panama. A company owned by Panamian national Julio Cesar Lisac had been awarded a concession to operate the plant for 50 years. After the first year, the Panamian authorities found that Mr. Lisac’s company did not meet the requirements of the concession and therefore terminated the agreement (and later awarded the concession to another company). Mr. Lisac challenged this termination in Panamanian courts.

Subsequent to the termination of the concession, Mr. Lisac transferred part of his company’s interests in the power plant project to Transglobal, a company incorporated in Texas. Using Transglobal’s American nationality, an arbitration was brought against Panama based on the bilateral investment treaty (”BIT”) between USA and Panama. The investors alleged that the termination of the 50-year concession was made in violation of the BIT.

The arbitrators found that they did not have jurisdiction over the case and thus rejected the claim early in the proceedings. Since Mr. Lisac and his comapny both had Panamanian nationality, the move to transfer the interests in the power plant to American-incorporated Transglobal was held to be made with the only purpose of obtaining protection under the BIT between USA and Panama. Therefore the tribunal stated that the investor attempted to create ”artificial jurisdiction over a pre-existing domestic dispute”, thereby abusing the system of investment treaty arbitration.

The tribunal’s reasoning was similar to that in Philip Morris v. Australia, where another tribunal refused to hear Philip Morris’ claims because they were found to constitute an abuse of the investment treaty system.

Both these recent cases demonstrate that there is no room to exploit ISDS to bring unjustified claims. One academic recently described this as a tendency by tribunals to ”police the gates to investment treaty claims against states”.

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.

New Report: ICSID Cases Relating to Asia

magnifying glass on a document with columns of figures

The ICSID Secretariat recently published a statistics report focusing on the South and East Asia and the Pactific (SEAP) region.

As of 1 October 2015, a total of 539 cases have been registered with the ICSID Secretariat since 1972. Of those 539 cases, 42 involved a state party from the SEAP region—including 8 cases against Pakistan, 7 against Indonesia, 5 against Bangladesh, 4 against the Philippines, and 3 each against Korea, Malaysia and Sri Lanka. In 13 of the 42 cases involving SEAP states, the investor bringing the claim was also from a SEAP country; in the remaining cases, the investor was from a country outside the SEAP region.

Of the 42 cases involving a SEAP state:

  • 62 percent were based on a bilateral investment treaty (BIT), and 29 percent were based on an investment contract between the investor and the host state.
  • 43 percent settled, and 57 percent were decided by an arbitral tribunal. Of the cases that were decided by an arbitral tribunal, 47 percent ended in an award declining jurisdiction, 24 percent resulted in an award dismissing all of the investors’ claims, and 29 percent ended in an award upholding the investor’s claims in part or in full.
  • 38 percent concerned the oil, gas and mining industry; 12 percent related to electric power or other energy; and the transportation, construction, and services/trade sectors accounted for 10 percent each.

A number of SEAP nationals have served as arbitrators in ICSID cases. In total, as of 1 October 2015, SEAP nationals accounted for about 11 percent of all appointments made in ICSID cases. Most of the SEAP appointees were from Australia and New Zealand, but Singapore, the Philippines and Bangladesh are also represented on the list of appointees.

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. 6

Image of blurred store for backgroundOur sixth example of an ISDS case is Franck Charles Arif v. Moldova, a case filed with the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C. The summary is based on the facts as described in the award rendered in April 2013.

The claimant, Mr. Franck Arif, a French national, was the sole owner of a company that had won a state tender to operate a series of duty-free stores at five locations along the Romanian border. The company had also secured the exclusive right to operate a duty-free store at the country’s main airport. In filing for arbitration, Mr. Arif argued that the success of his investments had been obstructed by a series of government delays, unnecessary inspections, and domestic judicial decisions that invalidated both the tender for the border-stores and the lease agreement for the airport store. Mr. Arif argued that the Moldovan state’s actions had violated several provisions of the bilateral investment treaty (BIT) between France and Moldova.

The arbitral tribunal rejected most of the claimant’s claims (e.g. expropriation, denial of justice, discrimination), but granted one of his claims based on the fair and equitable treatment standard set forth in the BIT. In short, the tribunal found that the state’s actions had frustrated the investor’s legitimate expectation of a secure legal framework in which to operate the airport store. For this breach, the investor was awarded USD 2.8 million in damages, significantly less than the USD 44 million he had requested. The tribunal also gave Moldova the option of further reducing the damages owed to Mr. Arif by offering restitution instead—in effect allowing him to re-open the store at issue.

Mr. Franck Arif also sued Moldova at the European Court of Human Rights in Strasbourg, on the grounds that the Moldovan government’s actions breached the European Convention on Human Rights. Disputes before European Court last many years; no verdict has yet been reached in the case filed by Mr. Arif.

Case Summary No. 4

The interplay between investment law regime and environmental protection has surfaced as an interesting issue in ISDS. Therefore, we chose Methanex Corp v. the United States of America for our fourth case.  The summary is prepared based on the facts as described in the award rendered in August 2005.

The investor was a producer of methanol, a key component in the production of MTBE, a gasoline constituent. The measure at issue did not directly regulate methanol business, but concerned the ban of the use of MTBE in gasoline in California due to environmental and public health reasons.

The investor argued that the ban took away its market share in California as it no longer could sell methanol to MTBE producers. This measure, according to the investor, was tantamount to expropriation.

In introducing the ban, the government relied on a scientific report which concluded that gasoline produced with MTBE posed a significant risk of drinking water contamination when it leaked from underground tanker and pipelines.

The tribunal in the ensuing arbitration found that the legislative process in California leading to the ban had been transparent, subject to due process and based on scientific report which was subjected to a peer review.

Further, the tribunal concluded that the ban was a non-discriminatory regulation for public purpose. As such, it did not constitute an expropriation and therefore non-compensable.

In conclusion, the claim by the investor was dismissed in its entirety.

It is also worth noting that the tribunal allowed submissions of amicus curiae from two organizations since, in the view of the tribunal, there was undoubtedly public interest in this arbitration.