This 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.
In the much-publicised ICSID case between Vattenfall and Germany, the main hearing is currently taking place. The parties have agreed to broadcast the hearing live and those who are interested in ISDS can follow this link to see what a hearing looks like. The broadcast starts at 19.00 CET, every night this week and the next.
In a May 17 address, independent arbitrator and former president of the International Court of Justice Stephen M Schwebel criticised the EU proposal for the establishment of a permanent investment court in the context of the Transatlantic Trade and Investment Partnership (TTIP). Schwebel spoke in Washington, DC at a public event organized by Sidley Austin, the American Society of International Law, and the District of Columbia Bar Association. Read the full speech here.
The current system of investor-state arbitration – the standard dispute-resolution mechanism in 3,000 bilateral investment treaties – “works reasonably well”, Schwebel noted. He expressed concern that the EC is now seeking to replace that system with “a system that would face substantial problems of coherence, rationalisation, negotiation, ratification, establishment, functioning and financing.” The EU proposal for an investment court, Schwebel argued, is a mere “appeasement” of “uninformed or misinformed critics”.
ISDS critics often presume that an arbitrator appointed by an investor is biased in favor of the investor – a presumption not supported by the record of investor-state arbitration. The EU’s proposal, Schwebel notes, instead risks entrenching pro-state bias by allowing states to appoint all the judges on the investment court, and depriving investors of influence over the appointment process. If the goal is a truly fair and neutral dispute resolution, “is there reason to presume that judges appointed only by states will not be biased in favour of states?”
Last year marks an important milestone with regards to ISDS reform. The Mauritius Convention on Transparency in Investor-State Arbitration opened for signature on 17 March 2015. The convention makes it possible for States to apply the UNCITRAL Transparency Rules in Treaty-based Investor-State Arbitration to ISDS cases arising under any of the 3,000 investment agreements concluded before 1 April 2014. This represents a level of transparency that is unprecedented in international arbitration.
One of the rules’ salient features is that most documents in an ISDS proceeding will be made public. To this end, the UNCITRAL Secretariat acts as transparency registry and publishes the information through its website.
Now international institutions are contributing to ensure that the registry is fully operational.
The European Union will contribute EUR 100,000 to finance this registry as a part of its commitment to enhance transparency in ISDS. Among other things, the European Commission writes in its website that the availability of information brings consistency between awards and predictability necessary for investors, stakeholders, states and arbitral tribunals.
In addition, OPEC Fund for International Development also will provide grants in the amount of USD 125,000 to the transparency registry. According to a press release by the United Nations, the organization is supporting the project as part of cooperation to stimulate economic growth and alleviate poverty in all disadvantaged regions of the world.
The Mauritius Convention has now been signed by 16 countries, which are Belgium, Canada, Congo, Finland, France, Gabon, Germany, Italy, Luxembourg, Madagascar, Mauritius, Sweden, Switzerland, Syria, the United Kingdom and the United States.
The research uses data from 159 cases where arbitrators rendered awards that resulted in a determination of damages. The awards examined were those that are publicly-available as of 1 January 2012.
Here are some key findings:
- States were successful in 60.4% of the cases, and investors won approximately 39.6% of the cases.
- In cases when investors won, they generally obtained roughly one-third of the compensation claimed.
- Focusing exclusively on the small subset of cases where investors obtained damages, investors obtained a mean award of US$45.6 million.
- For the eight largest claims, only one case was successful.
- The vast majority of investors bringing billion-dollar claims obtained nothing.
The International Bar Association, which has a membership of 55,000 individual lawyers across the globe, recently published a paper on ISDS. It is not only fact-based, but it also brings out some unfounded claims about ISDS that have not been widely addressed.
The paper mentions that it would be incorrect to state that ISDS is biased against developing countries as data on ISDS show no correlation between the success rates against states and their income levels.
Neither does ISDS enable investor to make “a fortune” from the system. Data show that even when investors won in ISDS, they have only recovered on average, less than half of the amount they claimed.
ISDS has at times been described as a one-sided system as it only allows investor to bring a claim against States. From a legal perspective, whether or not States can equally bring a claim in ISDS entirely depends on the exact language of the international investment agreement (IIA). This means that States retain the option to include this in the IIA. Case law also demonstrate that State-owned companies have frequently used ISDS.
Above all, it is not true that ISDS is not needed when domestic courts are already sophisticated. ISDS concerns questions of international law, hence international tribunal is needed to resolve those questions.
The IBA is further taking an initiative to analyse both the benefits and criticism on ISDS to make it a better system. To this end, the IBA is engaging with governments from both developed and developing countries, arbitral institutions, corporations and the legal profession.